Blackstone Group, the giant U.S. investors and financial services provider, is interested in buying control of Isracard, Israel’s biggest and most profitable issuer of credit cards.
With activities ranging from real estate and hedge funds to private equity and rescue financing, the $550 billion Blackstone Group is looking to buy Isracard at a 2.8 billion shekels ($810 million) valuation. That is a 10% premium of its Tel Aviv Stock Exchange-traded market cap of last Thursday, and 15% more than its shareholders’ equity.
Isracard shares closed up 3.5% at 13.11 shekels on the TASE on Sunday.
Stephen Schwarzman, Blackstone’s Jewish chairman, CEO and co-founder, is regarded as close to U.S. President Donald Trump.
Blackstone is not the only potential bidder. Yona Fogel, who is stepping down as CEO of Paz Oil and was once a top executive at Israel’s Bank Leumi, is trying to form a group of wealthy Israeli investors to make a bid. Fogel recently met with Hapoalim CEO Dov Kotler to discuss the matter.
Isracard is 33%-owned by Bank Hapoalim, which sold off the remaining shares in an initial public offering last year. The bank, as well as Leumi, were both ordered by the government to divest their credit card units to encourage more competition in consumer lending.
Leumi sold its entire Leumi Card unit, since renamed Max, to a group led by the U.S. private equity fund Warburg Pincus. At the time, Blackstone had been interested in buying Leumi Card.
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Hapoalim has until January 2021 to sell the rest of Isracard. The Bank of Israel has ruled that anyone holding as little as 30% of a credit card company is deemed a controlling shareholder, and therefore Blackstone could gain control of Isracard simply by buying the Hapoalim stake. That could fetch the bank 940 million shekels.
Blackstone’s pursuit of Isracard is being led by Danny Gillerman, a former Israeli ambassador to the United Nations who now represents the American company in Israel. He is being aided by Doron Sapir, who was once CEO of CAL Israel Credit Cards, the credit card unit of Israel Discount Bank.
Neither Hapoalim nor Sapir would comment on the report.
Sapir, who is intimately familiar with the Israeli credit card business, would likely get a key managerial post at Isracard if Blackstone buys it.
Blackstone is unlikely to encounter any difficulties getting approval from the Bank of Israel to buy control of the company, but the final nod could take months, as was the case when Warburg Pincus acquired Leumi Card.
For now, Hapoalim is reportedly not excited by the Blackstone offer and is seeking a higher valuation. The bank is also concerned that Isracard could emerge as a competitor – and if Blackstone buys control of it, a competitor with deep pockets.
It’s also unlikely that Isracard’s top managers, led by CEO Ron Wexler and Chairman Eyal Deshe, relish the prospect of losing the free hand they now have over the company or losing their jobs to an executive team appointed by Blackstone or Fogel’s group.
Hapoalim still has time to make a decision on how to divest Isracard, but it is unlikely to wait till the last minute to act. If it opts not to sell the company to a strategic investor, its two other options are to float the rest of Isracard’s shares on the TASE or to issue them as a stock dividend to Hapoalim shareholders.
The first option would entail selling the stock at a discount, of around 5% to its prevailing share price at the time, in order to spur enough demand to absorb such a sudden supply of so much Isracard stock. At Isracard’s current valuation, that would fetch Hapoalim just over 800 million shekels, 120 million less than Blackstone is willing to pay and 40 million less than the stake is worth based on its market cap.
A share dividend would avoid that loss, but it would entail other costs and constitute a reduction in its capital.
As a result, were Hapoalim to reject offers from Blackstone, Fogel or other strategic buyers that may emerge, it would open itself up to shareholder lawsuits.
In addition, a sale of the Hapoalim shares that leaves Isracard without a controlling shareholder is likely to leave minority investors in the credit card issuer disappointed.
When Arik Pinto was CEO of Hapoalim, he said that “the share offering isn’t a default choice, but a gift to the Israeli economy and stock market.” Since then, however, the share price has dropped.