Ron Lubash, head of the Markstone Capital Group private equity, will put the Steimatzky book store chain up for sale in the coming days if he can’t find a quick solution to the retailer’s cash flow crunch, sources told TheMarker on Tuesday.
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The book retailer, whose green-and-white logo dots the Israeli commercial landscape, has run into cash flow problems after a decline in book sales in recent months and Markstone’s refusal to put more capital into the business, industry sources said.
The retailer has enormous debts that it can no longer service and did not pay publishers at the start of this month for books it ordered from them.
Until now, Bank Hapoalim has been financing the chain but more recently refused to increase its credit line. If Markstone cannot find new financing or a buyer for the company, it is likely to turn to the courts for protection from creditors, the sources said.
Sources in the gray market for loans said the crisis had forced Markstone to seek out loans at high rates of interest. One non-bank lender, who asked not to be identified, said he had been approached several days ago for a 25 million-shekel ($7.2 million) loan but that Markstone opted out because it would have required personal guarantees from the partners.
“They proposed Steimatzky shares as collateral but I said the shares aren’t worth much so the deal collapsed,” the source said.
Markstone denied it has been seeking non-bank loans, although a report it filed with the Companies Registrar showed it had a loan outstanding from Ampa Capital.
At the same time, sources told TheMarker, Markstone has been working around the clock to identify buyers for the book retailer and is prepared to accept a price of less than 100 million shekels.
Among the candidates to buy the chain are Tzahi Noiman of the Alon Group, which last year joined Nochi Dankner’s failed bid to retain control of the IDB group. Noiman might buy Steimatzky with the ClearMark Capital fund and Eitan Zinger, a former CEO of the Dionon Publishing House.
“We met with Amir Kess and also with Ron Lubash. Markstone wants to sell and we’re examining whether there’s an opportunity here. It seems to be a successful business,” Noiman told TheMarker. Markstone declined to comment.
Lubash took over as Steimatzky’s chairman after his partner in the fund, Amir Kess, died in an accident last week.
Steimatzky was founded in 1925 and today numbers 134 stories in 68 cities and towns across Israel, making it the country’s largest book retailer. The chain employs about 1,000 people and has an annual turnover estimated at about 380 million shekels, compared with 300 million shekels for its next-biggest rival, Tsomet Sfarim.
The two chains control 70% to 80% of all retail books sales in Israel. But industry sources said on Tuesday that Steimatzky has had financial problems going back for several years.
“The problem isn’t Steimatzky but Markstone, which bought the company and saddled it with the debt,” said one source. “It bought the company for $55 million, part of it with its own money and the rest through bank loans. The repayments Steimatzky needs to make amount to tens of millions of shekels.”
Meanwhile, book publishers were on Tuesday seeking clarifications about the retailer’s failure to pay them.
“It’s crazy. Maybe Steimatzky’s suppliers will wait,” one executive said referring to the publishers. “But I’m not sure our suppliers will wait. They aren’t paying us and we need to pay the paper companies, the printers, employees and so forth.”
Steimatzky’s collapse, he warned, could have a domino effect across the book industry because the chain accounts for about 60% of all royalty payments.