European Private Equity Fund CVC Pulls Out of Deal With Israel's Super-Pharm

Sides fail to reach agreement on joint management of the drug store chain

A shopper at a Super-Pharm drugstore branch.
Tomer Appelbaum

Talks for the European private equity fund CVC Capital Partners to buy a 40% stake in the Israeli health and beauty chain Super-Pharm ended without a deal on Tuesday, after it failed to reach an agreement over joint management with Leon Koffler, Super-Pharm’s controlling shareholder.

The negotiations hit a snag over the management issue last week just as an agreement was about to be signed and efforts to bridge differences early this week failed, sources said.

Under the deal the parties were discussing CVC would have taken a 40% stake in the chain, buying a 25% stake from Bank Leumi and Israel Discount Bank and another 15% from Koffler, who would have been left with a 60% controlling stake.

The deal would have valued Super-Pharm, Israel’s biggest retailer in the segment with 238 stores around the country, at between 1.7 billion and 1.9 billion shekels ($480 million-$540 million).

CVC’s pulling out comes at critical time for Super-Pharm and Koffler, the scion of the family that founded Canada’s Shoppers Drug Mart who started Super-Pharm in Israel in the 1970s.

At home, Super-Pharm’s market dominance is about to come under attack from Super-Sol, Israel’s biggest supermarket chain, which is buying the New Pharm chain. In addition, Rami Levy, the discount-supermarket entrepreneur, has said he wants to enter the segment by buying some of the New Pharm outlets Super-Sol has to divest to meet antitrust provisions.

In addition, the entire drug store segment has come under fire from for its high prices. Economy and Industry Minister Eli Cohen in July called on Super-Pharm executives to explain why its prices for toiletries and personal care products are so much higher than the supermarkets’ prices.

Overseas, Super-Pharm has 10 stores in China but its biggest market is Poland, where it 74 stores. Poland, however, has passed legislation that bars existing international chains from adding outlets and new entrants from opening more than four stores. Super-Pharm has been rushing to add outlets for the law goes into effect.

CVC, which last month bought the women’s health business of Teva Pharmaceuticals for $1.4 billion, has experience in the retail health and beauty business. Its portfolio of companies includes the Douglas chain based in Germany and once counted the Danish chain Matas.

One of the reason Super-Pharm’s bank shareholders wanted to bail out was over concerns about developments in the domestic market and Super-Pharm’s difficulties establishing a foothold overseas. CVC was expected to help the overseas drive.