Supermarkets and Gas Stations: Rami Levy to Buy Tshuva's Delek Israel

Real estate group Lahav joins supermarket mogul in deal, which values Delek Israel unit at NIS 750 million, will provide energy tycoon Yitzhak Tshuva with badly needed cash

Eran Azran
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Real estate and energy tycoon Yitzhak Tshuva at a Delek investors conference, October 31, 2017
Real estate and energy tycoon Yitzhak Tshuva at a Delek investors conference, October 31, 2017Credit: Meged Gozani

Yitzhak Tshuva has agreed to sell his controlling stake in Delek Israel, the company that controls a nationwide chain of filling stations and convenience stores, to supermarket magnate Rami Levy and the real estate company Lahav LR, TheMarker has learned.

The deal for the 70 percent stake controlled by Tshuva’s holding company Delek Group values all of Delek Israel right now at 750 million shekels ($216.9 million), although that may figure may drop.

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The sale will provide a badly needed cash infusion for Delek Group, which has been hit hard by the collapse of world energy prices and a badly timed acquisition of North Sea oil assets.

The acquisition would mark a new foray for Levy, widely regarded as Israel’s discount supermarket king, into new retail segments. He and Lahav LR, which is controlled by Avi Levi, believe they can upgrade Delek Israel’s retail operations and create synergies with the Rami Levy chain.

Closely held Delek Israel has a network of 238 gas stations, of which 178 are independently operated, and 195 adjacent convenience stores, some of which operate independently and some as franchises.

Rami Levy at his eponymous supermarket chain's robotic logistics center, December 2, 2019
Rami Levy at his eponymous supermarket chain's robotic logistics center, December 2, 2019Credit: Bar Efraim

Delek Israel recently paid a 150 million shekel dividend to shareholders after selling its Pi Glilot unit to Yehiel Abu. The sale reduced its value to 900 million shekels, about 25 percent less than Tshuva had hoped to get for the company based on its 1.2 billion shekel shareholders’ equity.

Moreover, by the time the deal closes with Levy and Lahav LR, Delek Israel’s value may fall to as low as 600 million shekels. That is because Delek Israel is due to pay out an additional 150 million shekels in dividends from the sale of a power station to Rapac Israel for 367 million shekels.

Rami Levy and LR had been interested in acquiring 100 percent of Delek Israel, or at least a controlling stake. Also bidding were Elco Group with Bank Leumi’s Leumi Partners investment arm, and an unnamed foreign investment fund. 

While they were in talks with Rami Levy, Tshuva and Delek Group CEO Idan Wallace were also exploring an alternative under which the Arbel Fund, a private equity investor managed by Amir Hessel, would invest in Delek Israel. The aim was to provide an insurance policy in case the sale of Delek Israel fell apart as well as to strengthen their hand in the talks with Levy and Lahav LR.

The backup option with Arbel would have enabled Delek Group to meet the 340 million shekels in debt repayments due October 30 under its debt agreement with creditors. However, the proposed deal with Arbel was relatively complicated, involving a mix of equity and debt, and might have deprived Tshuva control of Delek Israel in the end.

The Delek Israel sale is part of a wider divestment policy Delek Group is undertaking in a race to meet debt repayments. On Sunday, the company announced a smaller deal to sell a 39.3 percent  holding in Delek Royalties for 46 million shekels. The shares were sold at 5.75 shekels each, a 30 percent premium on their Thursday closing on the Tel Aviv Stock Exchange. Shares of Delek Royalties, which had fallen 50 percent this year prior to the deal, jumped 25.7 percent Sunday on the news, to close at 5.59 shekels.

The buyer of the Delek Royalties stake is an infrastructure fund controlled by George Horesh, the authorized Israel importer for Toyota, and the Weil brothers, whose family helped found the Israeli food maker Osem.

A Delek gas station
A Delek gas stationCredit: Eliran Avital

Despite the asset sales, Delek Group still faces a severe cash-flow crisis. As of the end of June, its financial debt amounted to 7.8 billion shekels, of which 5.9 billion is due to bondholders and the rest to banks. The group reported a 6.2 billion working capital deficit, that is, its current liabilities exceed its assets.

To try to close the gap, Delek has sold off some 2 billion shekels of assets in recent months, which has yielded 1.5 billion shekels to repay debt.

Delek Group shares and bonds resumed their declines last week amid a further drop in global oil prices and a worsening of the coronavirus pandemic in Israel. The price of a barrel of West Texas Intermediate crude fell six percent in the week to $37.3 on Friday.

After falling more than one percent last week, Delek Group’s Series Dalet bonds on Sunday were trading at 43 agorot to the shekel. Its shares last week also dropped more than ten percent. The share price ended down by an additional 0.5 percent on Sunday, at 65.38 shekels.