Super-Sol, Israel's Largest Supermarket Chain, Signs Deal to Buy New Pharm

NIS 130m acquisition of distant No. 2 rival to Super Pharm likely to win antitrust approval

Eliyahu Hershkovitz

Super-Sol, Israel’s largest supermarket chain, said Sunday it had signed an agreement to buy the New Pharm drugstore chain for 130 million shekels ($35.6 million) from Hamashbir 365 Holdings.

With 67 branches and 1,100 employees, New Pharm is the second-largest chain in Israel, selling not only prescription medicines but cosmetics, toiletries and even some packaged foods. However, it is a distant second to Super Pharm and its 220 stores and has been struggling in competition with its bigger rival.

Last year, New Pharm posted a 16 million-shekel loss on sales of 711 million shekels, following an 11.6 million loss on sales of 697 million the year before. It had negative shareholders’ equity of about 68 million shekels as of the end of last year,

Those problems, however, could help Super-Sol clear any antitrust objections to the deal.

Regulators will have three months to examine the acquisitions, which Super-Pharm is likely to fight on the grounds that Super-Sol is already a major player in the segment because some 70% of New Pharm’s offers overlap with Super-Sol’s. But given New Pharm’s poor performance Antitrust Commission Michal Halperin is likely to clear the deal, sources said.

The deal is also contingent on Super-Sol, a unit of holding company Discount Investment Corporation, completing due diligence.

In what analysts said was a win-win deal for both sides the deal, Super-Sol shares ended 0.1% higher at 18.10 shekels Sunday while shares of Hamashbir 365 finished 4.5% ahead at 2.87 shekels.

Gil Datner, analyst at Leumi Capital Markets, said the price Super-Sol paid for the chain was reasonable because if the food retailer can boost New Pharm’s operating margin to just 3% that would value the chain at 229 million shekels.

He said Super-Sol should be able to bring its buying power versus suppliers in the area of toiletries, which account for a third of New Pharm sales, but will have a harder time in the pharma and cosmetic segments.

For Rami Shavit, the controlling shareholder of Hamashbir 365, the sale eases a lot of the financial pressure he faces, which has caused him to engage in a series of assets sales that will leave him mainly with his core business, the Hamashbir Lezarchan department store chain.

Shavit is close to selling his 365 technologies unit after it ran up losses of 40 million shekels over the past three years.

Hamashbir 365 recently sold a 10% share in then tourism company Kesherei Teufa and before that his failed Cost 365 supermarket chain and half its 365 Club buyers’ club.