Steimatzky Gets Short-term Reprieve With Cash Injection

Cash will enable Israel’s largest bookstore chain to pay its suppliers and survive through profit-heavy Passover.

Daniel Tchetchik

Steimatzky, Israel’s biggest bookstore chain, got a lease on life on Wednesday as its owner, Markstone Capital Group, agreed to inject capital into the business while Bank Hapoalim increased its credit line.

All told, Steimatzky will get 12 million shekels ($3.45 million) in fresh funds – 8 million shekels from Markstone and 4 million from Hapoalim – enough for the book retailer to continue operations for at least another three months, sources told TheMarker.

The money will enable the chain to benefit from the peak selling seasons around the Passover holiday next week anfd during Hebrew Book Week in June. The cash will be used to pay suppliers, mainly book publishers who say they were not paid as scheduled at the start of the month.

Steimatzky confirmed the cash infusion, without providing details. “The Markstone Fund put money into the Steimatzky chain and as a result Steimatzky can pay its suppliers as required,” it said in a statement.

The bookstore chain, whose 134 branches are a familiar site in downtowns and shopping malls across Israel, has run into cash flow problems in recent months as it struggles to repay the debt it incurred when Markstone, a private equity fund, bought it in 2005.

“The money will give Steimatzky some breathing space, but only for the short run,” said one industry executive who asked not to be identified. “They will need to find a buyer quickly. Even increased sales around Passover won’t help them, but maybe they can hold on until Book Week. That’s traditionally a strong month for the industry.”

Steimatzy’s collapse would reverberate throughout Israel’s book industry and could put many publishers out of business. Between the chain and its next-biggest rival, Tzomet Sfarim, they control 70% to 80% of all retail book sales.

Founded in 1925, Steimatzky employs about 1,000 people and has an annual turnover estimated at about 380 million shekels, compared with 300 million shekels for Tzomet Tsfarim.

Markstone, which suffered another blow last week when Amir Kess, one of its founding partners, was killed in a traffic accident, is in intensive talks to try and divest the chain as soon as the next several days. Ron Lubash has taken Kess’ place as the partner responsible for Steimatzky.

The fund must sell all its assets by the end of 2015 when it is due to close up and repay its backers.

Among those talking with the fund is Tzahi Noiman of the Alon Group. Another is the ClearMark Capital fund together with Eitan Zinger, a former CEO of the Dionon Publishing House. A third is headed by Ronen Levi, who controls Office Depot Israel.

Steimatzky is likely to fetch no more than a few tens of millions of shekels, considerably less than the $55 million Markstone paid for it nine years ago.

When the private equity fund bought Steimatzky it was a near monopoly in book retailing, but over the years Tzomet Sfarim emerged as a serious rival with a strategy of deep discounting. Steimatzky posted operating losses in 2008 and 2009 before it also adopted a discounting policy.

“Steimatzky understood at a certain stage that it had to enter the world of discounting, because if it didn’t go there it would lose business,” said one industry source. “In a month that it had an unattractive sales program, revenues would drop. But the book war also hurt profitability.”

Tzomet Sfarim could offer lower prices because it paid lower rent at its stores and had a smaller headquarters staff.