British private equity fund Apax Partners is interested in acquiring the minority stake in the Psagot Investment House controlled by the financially beleaguered Markstone Capital Group for some 500 million shekels ($144.7 million), TheMarker has learned.
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The sale would be a win-win situation for all concerned as Markstone struggles with debt accumulated trying to keep a portfolio of companies afloat, while its bank creditors and bondholders seek to get back their money.
Meanwhile, Apax – which owns the rest of Psagot after buying a 77% stake in it four years ago – would gain full control of Israel’s biggest nonbanking financial services company at a low valuation.
Guy Gissin, an attorney representing bondholders, said in a letter obtained by TheMarker that Apax had agreed to pay an amount that would cover Markstone’s Psagot-related debt to banks and bondholders. Markstone itself would also get a significant amount of the proceeds, he said.
Talks between Apax and those with an interest in the Psagot stake controlled by Markstone have reached an advanced stage in recent days. But according to letters obtained by TheMarker, Germany’s Deutsche Bank – one of Markstone’s creditors – is blocking the sale by demanding it receive part of the proceeds.
Although it is not one the creditors to Phenomenal I or II (the two companies through which Markstone owns its stake in Psagot), Deutsche Bank lent Markstone $65 million six months ago at a reported rate of 15%. Collateral for the loan includes shares in Markstone portfolio companies.
Markstone is seeking to raise cash quickly by selling its Steimatzky bookstore chain and floating shares in the jewelry retailer Magnolia. But its ability to divest holdings is restricted by a paucity of buyers for closely held companies, and because its financial distress encourages interested buyers to drive a hard bargain.
Among Markstone’s most valuable holdings is Nilit, a maker of nylon fibers valued at 90 million shekels on Markstone’s books, but most of the fund’s other holdings have declined in value over the years.
The private equity fund, which raised $800 million when it formed in 2004, has been plagued by setbacks. One of its cofounders, Elliott Broidy, pleaded guilty in 2009 to giving $1 million in bribes to New York State pension fund officials, and earlier this year another founding partner, Amir Kess, died in a road accident. The fund has also suffered from a string of poor investments.
Markstone acquired the Psagot stake when it sold its failed investment house Prisma to Psagot. Phenomenal I owes Israel Discount Bank and Bank Hapoalim 400 million shekels, while Phenomenal II owes bondholders 177 million shekels.