The clock is ticking on Delek Group’s sales of Phoenix Insurance to the U.S. investor Jared Kushner.
Kushner, the scion of a wealthy Jewish real estate family from New Jersey and the son-in-law of property magnate Donald Trump, has received one extension on his exclusive right to bid for the company, which expires on September 30. Informed sources say that if he does not receive an indication from Israeli regulatory authorities that they are prepared to approve the sale, he will probably drop out.
Selling Phoenix is a key part of Delek’s strategy of shedding most of its wide range of businesses to focus on energy exploration and production, particularly the Tamar and Leviathan gas fields. Kushner Funding agreed in July to pay 1.7 billion shekels ($480 million) for a controlling 47% stake of Phoenix, which would leave Yitzhak Tshuav’s Delek Group without any financial services holdings.
In addition, the sale would put the group in compliance with the new Business Concentration Law, which requires large holding companies to divest either their financial or nonfinancial holdings within six years. Tshuva is interested enough in selling Phoenix that he is apparently prepared to settle for less than its full value.
For the Kushner family, which seeks to expand its holdings in Israel, the main obstacle to completing the acquisition is obtaining an insurance license from the director of the Finance Ministry’s Capital Market, Insurance and Savings Department, Dorit Salinger.
To do that, Kushner will have to bare all financially before the treasury, most importantly proving that the group has at least 3.2 billion shekels in cash and clear assets. New regulations require anyone holding an insurance license to have 2.5 times the shareholders’ equity of the company they own multiplied by the ownership stake they are ac quiring.
Sources close to the group say that the family’s real estate, hotel, financial and media businesses are big and solvent enough to meet the treasury’s minimum capital requirement.
Nevertheless, investment bankers have been saying the Kushners have put out feelers for potential investment partners in the Phoenix deal. It’s not clear whether they are seeking financial investors, who might take a single-digit stake in the insurer, or a strategic investor, who would then need to apply for insurance license separately, adding to the time it would take to complete the purchase.
Another problem the Phoenix sale faces in Delek’s offer to lend Kushner 1 billion shekels of the purchase price to finance the deal. The sellers’ loan would be for four or five years and carry interest of 4.75%. Kushner would pledge the shares he is buying as collateral and will probably half to add more.
From Delek’s point of view, the loan may be necessary to close the deal, but it would mean the return it gets on the nine years it held Phoenix would be a paltry 4%. It would also mean that Delek effectively continues to control the company. For this reason, the Kushners may be seeking coinvestors that can help finance the deal without the loan.
Another way Tshuva is easing the way for Kushner Funding is by taking out a 200-million-shekel dividend from Phoenix later this month, part of which will go towards lowering the final sale price.
On the other hand, the value of Phoenix keeps growing as the sale is delayed. The price is based on the insurance company’s shareholders equity at the end of 2013, which was 3.63 billion shekels. However, the two sides agreed that the figure would grow at a 5% annual rate, which has already added another 160 million shekels to the selling price.
The treasury is examining the Kushner family history, in particular how involved Jared Kushner’s father, Charles, is in it. In 2005, Charles Kushner was convicted of making illegal campaign contributions, tax evasion and witness tampering and sentenced to two years in prison.
In the end, the Kushners could seek a lower price. Operation Protective Edge has cast a pall over Israel’s economy, Phoenix’s second-quarter financial report was weak and Tshuva is anxious to sell.