IDB Development Corporation, the holding company due to be taken over by Eduardo Elsztain and Moti Ben-Moshe, warned on Sunday that it stood to lose effective control of its Super-Sol unit sometime in the next six months and would record a charge when it happens.
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IDB ascribed the change to the new Business Concentration Law, which, among other things, requires holding companies that are structured as pyramids, like the IDB group, to appoint a majority of outside directors to the boards of the companies they own.
That would effectively end IDB's control of Super-Sol, the group said, although it acknowledged that the full impact of the new law was still unclear as officials have yet to define the terms of the new legislation.
“At this stage, we cannot say with any certainty when the process will be completed nor can we estimate what effect these issues will have on future financial results or the timing of their impact,” IDB said.
Loss of effective control would mean that IDB would have to record a charge of about 150 million shekels. That is because accounting rules require the company to value Super-Sol on its books by its share of the retailer’s market value, which today is about 1.377 billion shekels, rather than its book value, which was 1.532 billion shekels in its last financial report.
In the IDB pyramid, IDB Development controls Super-Sol via a 73% stake in Discount Investment Corporation. Discount, in turn, controls 47% of Super-Sol, making it the single biggest shareholder. Another 19% is controlled by Isralom, a company controlled by Canadian Matthew Bronfman.
Shares of Super-Sol, Israel’s biggest supermarket chain, rose by 0.7% to 13.85 shekels in Tel Aviv Stock Exchange trading. Discount shares fell 0.6% to 26.33 shekels. IDB Development doesn’t trade.
The Business Concentration Law, passed by the Knesset three weeks ago, is aimed at reining in the power of holding companies like IDB. It places limits on the number of tiers in a pyramids, restricts holdings between major financial and non-financial companies and limits their ability to compete for government tenders and other contracts. Most of its terms will come into effect over the next few years.
IDB said the law could cause it further losses in companies it does not right now control, as it will have to mark them as assets ready for sale. In such cases, rules require it to list the assets either by book value or by fair value, whichever is lowest. IDB said there were additional tax implications under the new law.