Deadline Looming, Eliahu Seeks Out of Union Bank

Insurance magnate has poor options; depressed share price and no strategic buyer on horizon.

Michal Fattal

The deadline for insurance magnate Shlomo Eliahu to divest his 27% stake in Union Bank is closing in, but none of his options look very promising.

Eliahu has until October 2015 to offload the holding, a deadline set by Bank Supervisor David Zaken after Eliyahu acquired Migdal Insurance nearly two years ago.

If he fails, retired Judge Boaz Okon, who is now acting as trustee for the stock, will sell the shares on whatever terms he can get within the year.

But a source involved in the sale of the bank said Union’s Tel Aviv Stock Exchange valuation is so low that Eliahu wants to avoid selling his shares to the public, as Matthew Bronfman and Rubin Schron did when they bailed out of Israel Discount Bank late last year.

A tiny lender with a balance sheet of 38 billion shekels ($11 billion) reliant on Bank Leumi for its information technology, Union share price has lagged the stock market for years. Its book value of just 0.46% stems from its lowest return on equity, which was just 6.2% in each of the last two years.

In any case, with 75% of the shares controlled by Eliahu and other insiders, the stock is thinly traded, with an average of just 435,000 shekels changing hands a day. On Tuesday, Union shares closed down 0.1% at 14.99 shekels, giving it a market capitalization of just 1.1 billion shekels.

Meanwhile, no strategic buyer willing to pay a premium has emerged.

Eliahu is looking for a buyer prepared to take not only his shares but those of the other big shareholders in Union as well. They include Yeshayahu Landau, with close to 25%, and the Lubinski family, with 16.5%.

It is difficult to see how Union will be able to improve its profitability. With just a 3% market share and little growth in recent years, the bank focuses on wealthier clients and lending to the building and diamond industries.

But foreign banks might see Union as a valuable foothold to help them facilitate their entry into the Israeli market. A foreign bank could offer Union IT services, more capital, and its knowledge and experience in banking. Union Bank could also be appealing to an Internet banking company that needs its license and industry knowledge.

Unfortunately, the global banking industry has been contracting, with banks tending to retreat to their home countries rather than take on new overseas acquisitions. As a result, Eliahu may find himself selling his stake to the public after all.