In a multifaceted deal designed to put the financial-service companies controlled by Israel’s Schneidman family in line with the business concentration law, Bank Leumi agreed on Sunday to lead a group investing in the family’s Direct Insurance Financial Investment company.
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Under the terms of a memorandum of understanding, Leumi Partner, the bank’s investment arm, will buy 150 million shekels ($41.8 million) in shares via a private placement in Direct Insurance and find a group of investors to buy another 330 million shekels of stock.
That will give Leumi and its fellow investors a 30% stake in Direct Insurance and provide the capital to buy out the 23% of shares now owned by the public and traded on the Tel Aviv Stock Exchange. Direct Insurance has carved out a place in the industry by selling policies directly to customers rather than through agents.
The move aims to make Direct Insurance private and remove a publicly traded tier in the pyramid-structured holdings of the Schneidman family.
Under Israel’s 2013 business concentration law, holding groups like the Schneidmans’ are barred from having more than two publicly traded tiers of companies and the family now has three, with Direct Insurance controlled by publicly traded Tzur Shamir atop it and controlling the publicly traded real estate company Adgar Investments below.
In addition, the move would enable the family to move forward with plans to take its Mimun Yashir consumer finance unit public. Leumi has a 20% stake in the company and has been urging the Schneidmans to float its shares at what is expected to be a 500 million shekel valuation.
However, for the Leumi deal to work, the sides will have to overcome obstacles, including buying out minority shareholders and enlisting the other investors for its group because under the law a bank can’t hold more than 10% of an insurance company.
The Leumi deal, which includes an option to take another 5% stake, values Direct Insurance at no more than 1.44 billion shekels, a 20% discount on its market valuation and as much as 20% less than its net asset value.