Yeinot Bitan emerged on Tuesday as the surprise winner in bidding to buy control of the bankrupt Mega supermarket chain, although some of the other bidders vowed to return with better offers before the court supervising the food retailer meets to approve the sale.
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Mega’s court-appointed trustees said they preferred the 455-million-shekel ($120.3 million) offer from the discount chain over five others, but the final decision lies with the court, which is scheduled to convene next week to consider all the bids.
If it succeeds, the acquisition would vault Yeinot Bitan into the No. 2 place among Israeli supermarket chains, just behind the long-time leader Super-Sol. The closely-held Yeinot Bitan has 80 stores with a combined annual turnover that has been estimated to be as much as 3.5 billion shekels. Mega has 126 stores with combined sales of 2.5 billion shekels.
At 206 branches after the proposed purchase, Yeinot Bitan’s store count would still fall short of Super-Sol’s 277 but it would put it far ahead of the rest of the pack. Moreover, analysts said that owner Nahum Bitan could probably lift sales at the Mega stores he is buying to 4 billion shekels in relatively short order.
The Yeinot Bitan bid, which was apparently submitted without its rivals knowing, was far in excess of the other offers. Supermarket chain Tiv Taam came the closest with an offer that could reach as much as 434 million shekels. A consortium of grocers led by Yonah Said and Shalom Simon bid as much as 400 million shekels.
Discount grocer Rami Levy submitted a bid that could reach 372 million shekels while Moti Ben-Moshe, who is on his way to buying Alon Blue Square, the holding company that once controlled Mega, offered 330 million shekels. A low bid of no more than 315 million shekels was made by produce wholesaler Bikurey Hasade.
At least some of the losers vowed on Tuesday to improve their offers. Rami Levy and Ben-Moshe said they were still studying the rival offers and Bikurei Hasade said it was dropping out. But at least one other contender, who asked not to be named, said he thought some or all would come back with better offers.
“The trustees have recommended Yeinot Bitan, but I’m guessing that all the bidders haven’t said their last word,” the source said. “I’m willing to bet that the court will ask [Mega’s] workers that they want, will choose the best of the offers and conduct another round.”
Even if the court accepts the trustees’ recommendation, Yeinot Bitan will face serious antitrust scrutiny. Regulators, who had signaled they would block a Rami Ley acquisition, haven’t commented publicly on Yeinot Bitan, but experts said the authority might well reject the buy or condition it on Yeinot Bitan selling some of the Mega stores it acquires.
“Yeinot Bitain’s buying Mega creates a situation that remind me how the food retail market looked in the past: two big chains with over 200 stores each and another 15 small ones, each with a handful of stores,” said Niv Sever, a partner specializing in antitrust at the Tel Aviv law firm M. Firon & Company.
Sever said the presence of two big supermarket chains could lead to “head-to-head” competition and lower prices, but it would also cause the two giants to avoid competition. “I think at least for the short run, the first scenario is more likely,” he said.
Although Yeinot Bitan is smaller than Rami Levi, it has more stores — 80 to Rami Levy’s 36. That means that a merger with Mega would reduce local competition, sources said.
Even if Yeinot Bitan overcomes counter-bids and antitrust objections, analysts warned that it would face teething pains as it integrated operations with Mega. The grocer bought rival Kimat Hinam in 2013, but that takeover was far smaller and posed fewer challenges.
Dorin Peles, retail analyst at IBI Israel Brokerage & Investments, said Yeinot Bitan would have to invest heavily in renovating Mega’s stores after years of neglect. It would also have to learn Mega’s “neighborhood store” format, which is different from Yeinot Bitan’s discount format.
Michal Alshech of Excellence Brokerage said Super-Sol would feel the brunt of competition from a reinvigorated Mega, while Rami Levy would be less affected and might end up buying some Mega outlets if regulators make the sale of some stores to a different operator a condition of the sale.
Shares of Super-Sol ended down 2.2% to12.88 shekels on the news. Rami Levy shares were down as well, but by a narrower 1.4% to 158 shekels.
With reporting by Yoram Gabison and Ora Coren.