The continual loss of revenue and profitability at Partner from its traditional communications and cellular business, combined with the developing reforms in the financial industry, lay behind the company’s announcement last Thursday that it was weighing an entry into the credit card business.
Partner announced this new direction in its fairly mediocre Q1 report, in which it stated that it is “examining new engines of growth.”
Bank Hapoalim and Bank Leumi are preparing to part from their credit card subsidiaries – Leumi Card, in which it has an 80% stake in partnership with the Azrieli Group, and Isracard, in which Hapoalim owns a 98.2% stake. The two big banks have to reduce their stakes in the credit card companies by January 2020. Leumi Card has already submitted to the stock exchange a prospectus for a possible IPO.
Isracard’s equity (including American Express) was 3.2 billion shekels ($896 million), contributing 11% to Hapoalim’s profits. The bank is seeking a valuation of around 4.5-5 billion shekels, which seems on the high end. Leumi Card’s equity was 1.9 billion shekels as of March, accounting for 5% of Leumi’s profits. The bank is hoping to sell it based on a valuation of 2.5 billion shekels.
Partner officials assert that they are considering an acquisition from one of the two companies, but because of the gaps in the size and value, as well as its financial situation, Leumi Card seems the more realistic option. Major international firms are also reportedly interested them, among them private investment funds and companies already in the payments business, which have deeper pockets.
Partner officials refused to detail the company’s plans for the future, and stressed only that the report regarding possible entry into the credit card market was made to be transparent with investors. The company also announced a plan to buy back shares.
The announcement sent Partner share soaring 7% last Thursday, but the company is still trading at a market cap of just 2.4 billion shekels, a plunge of 36% since the beginning of the year.
Sabina Levy and Alon Glazer of Leader Capital Markets say Partner realizes its core business is weakening and sees how companies like Super-Sol and Rami Levy have benefitted from their credit card businesses. They add that Partner wants to leverage the client information and technology it has, seeing the potential in marketing products like travel insurance, benefit programs and cellular packages.
Partner has not been a satisfying investment for investor Haim Saban, who lives in Los Angeles and is considered one of the richest men in the world. He has sunk in some 363 million shekels, and his 29% stake in partner is worth around 700 million shekels, but he owes a debt of 1.1 billion shekels to East Asian concern Hutchinson, which effectively owns Partner. If Partner’s situation improves, he will be able to pay off the debt. If not, control will return to Hutchinson. Getting into the credit card business is thus his long-term opportunity to reduce the debt caused by his investment in Partner.
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