Kerur Makes Bid for Clal’s Jafora Stake, Only to Be Told No

Two companies at odds over how much their jointly owned soft drinks company is worth and Kerur’s right of first refusal

Ofer Vaknin

Kerur Holdings on Sunday made a 375 million shekel ($106.6 million) offer to buy out partner Clal Industries’ stake in the soft drinks company Jafora, but Clal quickly rejected the terms and said it was going ahead with its own plans.

The offer from Kerur, which already has a 63% stake in Jafora, came two weeks after Clal said it would spin off its 30.5% holding into a new company and take it public. That is, unless Kerur exercised its right of first refusal under a 1993 agreement to make a better offer.

Kerur’s offer values Jafora, whose products include Spring fruit drinks,Mei Eden water, RC Cola and Schweppes, at 1.2 billion shekels, or six times average earnings before interest, taxes, depreciation and amortization over the past four years.

Tel Aviv Stock Exchange investors were apparently impressed by the offer and bid up Kerur shares on Sunday 4.2% to 104.30 shekels. But Clal, a holding company controlled by American entrepreneur Len Blavatnik, said Kerur was undervaluing Jafora and that it isn’t interested in the offer.

“Clal Industries is continuing plans to float its Jafora holding. Jafora is an excellent, profitable and stable company, and Clal has great faith in it and the market it operates in. The share offering represents an excellent opportunity for institutional and private investors to gain exposure a successful business,” Clal said in a statement.

The plan is to create a new company called Clal Drinks and sell 46% of the company to the public.

The two companies are arguing over two points -- one concerning exactly what rights Kerur has to buy the Clal stake and the other over how much the stake is worth.

Clal is insisting that the agreement only gives Kerur right of first refusal on the 46% of its Jafora holding that it plans to sell to the public.

While Kerur contends it has the right to buy the entire Clal stake, it said it was ready to buy only the 46% -- but at a much lower valuation of 238 million for the entire Clal stake. That is because buying the shares that way will entail an 80 million shekel capital gains tax, Kerur said.

Moreover, Kerur contends that if Clal spins off the shares into a new company their joint operating agreement will no longer be in force, meaning the new entity will not have veto power over things like amending the company charter or issuing new shares. That would make Clal Drinks a less attractive investment for stock market investors.

The two companies are also at odds over what Jafora is worth. Clal said Jafora, which controls more than a quarter of Israel’s soft drinks market, is really worth 2 billion shekels, 800 million than the Kerur offer implies.

The Clal figures reflects a valuation of eight times EBITDA based on Jafora’s 2017 financial reports. That’s roughly the same valuation China’s Bright Food bought Tnuva and nestles SA bought Osem, Clal contends. Moreover, it claims, Kerur’s market cap implies that Jafora is worth 1.9 billion, Clal explained.

Kerur, however, contends that Clal’s previous effort to sell its Jafora stake at that valuation failed, including abortive deals to sell the shares to Israel institutional investors and to Switzerland’s Kharis Capital.

Kerur’s offer is good for seven days. After that, it contends that under their agreement Clal has less than two months to complete its sale and only at a price better than Kerur offered. Failing that, Kerur says it is entitled to make another offer.