Shari Arison Selling 49% of Her Stake in Israel's Largest Bank Hapoalim to North American Investors

Billionaire signs MOU that puts 2.5% premium on Bank Hapoalim, valuing it at $33 billion

Shari Arison in Jerusalem, Nov 15, 2009.
REUTERS

Shari Arison’s long search for a partner to share control of Bank Hapoalim appears to be coming to an end, two decades after her father bought control of Israel’s largest lender.

Arison Holdings, the closely held company through which Arison holds a 20.1% controlling stake in Hapoalim, said on Sunday it had reached a nonbinding agreement to sell 49% of its shares to a group of North American investors, for 3.25 billion shekels ($930 million). 

“Upon completion of the deal, we will work with the new partners, the managers and employees of the bank toward long-term development and growth for the benefit of shareholders, the Israeli customer and the economy,” Arison Investments said.

The agreement is only preliminary. The investors, which Arison said had asked not to be identified for the moment, will need to conduct due diligence of the bank and obtain regulatory approval. 

Sources said the investors had met with Hapoalim executives and that Arison as well as Arison Holdings CEO Efrat Peled had alerted Bank of Israel Banks Supervisor Hedva Ber to the impending deal.

The Bank of Israel declined to comment on its stance, but sources at the bank said Ber has initially taken a positive view and sees the investors’ interest as an indication of trust in the Israeli banking system. 

They said Ber, whose final decision will depend on a further examination of the investors, has decided that for now that their identities do not have to be revealed, even though they are in line to become major shareholders in a publicly traded bank with 341 billion shekels in deposits.

Sources close to the deal said the investor group included two Canadian financial institutions with assets in excess of $100 billion and a U.S. investment company. None of the three have previously invested in Israel, they said.

Shari Arison, 60, inherited control of Hapoalim from her father Ted Arison. The Israeli-American founder of Carnival Cruise Lines led an investor group that acquired the bank in 1997. He died two years later and Shari Arison bought out her partners in a series of deals in 2006 to 2008 to become the sole controlling shareholder. 

Her Arison Holdings also has controlling stakes in property developer Housing & Construction Limited, Salt of the Earth and the water company Miya.

More recently, she sought to sell all or part of her Hapoalim stake because over the last decade regulatory restraints prevented the bank from generating the returns she had come to expect. Four years ago, the Bank of Israel let Hapoalim resume its dividend payments after a long hiatus and it now pays out 40% of its net profit.

Arison is also expected to also sell Isracard, the bank’s credit card unit that is being spun off to meet a government deadline.

The 3.25 billion shekel price tag values Bank Hapoalim shares at 24.82 shekels each for what is in effect a 10% stake in the bank. The valuation amounts to just a 2% premium on the share’s closing price on Tuesday, the last day of trading before the preliminary agreement was announced.

On Sunday, the stock closed up nearly 2% at 24.60 shekels, erasing even that wafer-thin premium. Although Hapoalim shares are trading at a record high, they have been one of the worst-performing bank shares this year, rising just 7% before Sunday.

The new investors will get seats on the bank’s board and it is reasonable to assume they will share control of Hapoalim with Arison. The deal may even presage a further sale of Arison Holding shares that give the group formal control, but for now at least Arison will retain that.

That might explain the small premium the buyers are paying: Hapoalim may end up like Israel Discount Bank after the Bronfman-Schron group sold off its stake after 2013 to the public and left it with no controlling shareholder.

Arison Holdings’ Hapoalim stake is worth about 6.5 billion shekels, but the group also owes 2 billion shekels to banks and bondholders, paying interest of 2.5% to 3.5%. The company has used dividends from the bank to meet payments but even though it would be collecting half the dividends it does now, sources said the company had no plans to pay down the debt, at least at this stage.