Social Protest May Have Rescued Apax From Having to Sell Its Investment Bank

Could the cottage cheese protest have saved Apax from having to choose between Tnuva and Psagot?

Immediately after the committee on economic concentration issued its recommendations for socioeconomic reform, calculators started working overtime. Which controlling shareholders would need to sell off their holdings in financial companies? Three main suspects quickly floated to the top of the list: Zadik Bino, who would have to choose between his holdings in the First International Bank of Israel (Beinleumi ) and Paz; Nochi Dankner, who would have to choose between IDB and Clal Insurance; and Yitzhak Tshuva, who would have to choose between Delek and Phoenix Insurance.

In the background were three other suspects whose positions were less clear. They include two controlling shareholders who hold large private companies, whose annual sales figures aren't publicly known.

Shari Arison - Itzik Ben-Malki - 20092011
Itzik Ben-Malki

These shareholders are the Apax group, which controls Psagot and the private company Tnuva; and Mozi Wertheim, who controls Bank Mizrahi-Tefahot and the private company Central Bottling Company (Coca-Cola Israel ).

Due to lack of data in the public domain on Coca-Cola and Tnuva, it isn't clear whether their annual sales turnover passes the NIS 8 billion bar set by the committee, after which point they would be forced to sell off one of their holdings.

Analysts think Tnuva is near the cutoff point. In 2007, its sales were estimated at NIS 7 billion. They may well have increased to NIS 8 billion since then. Ironically, if Tnuva doesn't make the cutoff, it could be because its growth was inhibited by the social protests targeting the company over the past few months.

Saved by the protest?

Could the cottage cheese protest have saved Apax from having to choose between Tnuva and Psagot? We'll find out only during the hearing by the committee, scheduled within the next few months.

As for the last suspect, the Ofer family, the question is whether the holdings of the two deceased patriarchs - Sammy Ofer and Yuli Ofer - are separate entities. If the family has indeed split completely, and Sammy's son Eyal Ofer is no longer part of the Israel Corp., then the family may not have to sell off its bank holdings.

The economic concentration committee set three numbers: NIS 8 billion in annual sales or a NIS 20 billion annual balance sheet for a non-financial company; and managed assets of NIS 50 billion for a financial company. These limits mean that three controlling shareholders will definitely need to choose between their financial and non-financial holdings - Dankner, Tshuva and Bino - and that a few others might make the list, too.

Could it be that the numbers were set just so to ensure that these three or four people would be forced to sell off holdings, but not others? Why NIS 8 billion a year, which lets off the hook Shari Arison (Shikun & Binui has annual sales of NIS 5 billion ) and maybe Tnuva too?

Committee members swear the numbers were not set with certain people in mind, and they say they're not arbitrary. They say they tried to set limits based on the size of Israel's economy. Thus, they set a limit of 0.5% of the country's total business product for a non-financial company (NIS 8 billion ) and 2.5% of the public's money for a financial company (hence NIS 50 billion ).

Thus the committee is attempting to protect itself from a High Court petition and provide a convincing economic explanation for the numbers. The results - a change in ownership for two insurance companies and one bank (and possibly also a second bank and Psagot ) - are coincidental, committee members argue.

What will be sold?

The committee members predict that the controlling shareholders who are forced to sell will part with their financial holdings. Two of them are trying to sell these holdings already: Dankner has been negotiating to sell Clal Insurance for quite a while, while Tshuva has made no secret of his desire to sell his holdings in Phoenix. Managing a financial company is a very complicated affair, draws considerable public criticism and also involves endless regulation. .

That's why analysts believe we won't be seeing any partial selloffs. For instance, Bino is not expected to sell Ashdod Oil Refineries in order to reduce Paz's annual turnover so he can continue holding both Paz and Beinleumi. In any case, Bino is free to choose that path. The committee set maximums, and the parties affected are free to meet the terms through partial selloffs.

The committee's recommendations don't only affect people who currently control both financial and non-financial holdings, but also anyone who could have such holdings in the future. The limits will be applied to all companies within Israel.

This means that firms like Teva, Israel Corp., the Elovitch group, Elbit Systems, the Alon group, Blue Square, Azrieli, the Fishman group and possibly also Gazit-Globe and Africa Israel will have future acquisitions curbed. For instance, while Bino will be forced to choose between Paz and Beinleumi, the Alon-Blue Square group will not be able to buy Beinleumi from him.

This is part of the importance of the committee's recommendations - they're also designed to limit economic concentration in the future, and prevent one huge company from taking the place of another.

Who will be buying?

Yet the recommendations mean that these companies will be limited when it comes to selling their holdings. Since all of Israel's big businessmen and companies will not be able to buy banks or insurance companies, who will be able to buy them? We can predict that the big companies' main objection to the recommendations will be based on that point: You can't force us to sell while forbidding all the potential buyers from buying.

There's one main answer for that, and it's that there is a buyer. It's the public at large.

There's no reason the financial companies can't be sold off in their entirety on the capital market. The Bank of Israel already paved the way for banks without controlling cores, and the Knesset needs to approve the bill that would make this law, first off, so that the government can finish privatizing Bank Leumi. If the controlling interests in Beinleumi, Clal, Phoenix and possibly also Mizrahi are all sold in the capital markets, it apparently won't cause much damage.

True, there are disadvantages to financial companies that do not have a single controlling shareholder - these companies are then run primarily by their executives. Yet the central bank believes its strict oversight is enough to regulate the executives who would run Bank Leumi, and it probably could likewise regulate Beinleumi, Clal and Phoenix.

There would be poetic justice in this: In place of concentration, we will have rule by the public. The public will control its own financial assets. Who knows, maybe those financial companies will start putting the public's interests before the interests of their shareholders.