Muzi Wertheim will not be able to transfer the banking license that entitles him to a controlling stake in Mizrahi-Tefahot Bank to his two adult children, Banks Supervisor David Zaken ruled last Thursday.
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Zaken said the two Wertheim children, David and Drorit, could be given the 22% stake in the bank, but because of the Business Concentration Law that bars cross-holdings between major financial and nonfinancial companies, they would have to put the shares in the hands of a blind trust.
That means they would not be able to exercise any control over the shares, which at Mizrahi’s current market valuation are worth some 2.2 billion shekels ($562 million).
“I have received a letter from the licensing unit of the Bank of Israel’s banks supervisor, which states that, for legal and procedural reasons, [he] cannot recommend to the Bank of Israel governor to award the licenses we were seeking. The Wertheim family is examining the letter and its implications,” said Muzi Wertheim’s attorney, Ran Gazit.
“Mr. Moshe (Muzi) Wertheim continues to hold the banking licenses as he had until now,” said Gazit, who is Muzi Wertheim’s former son-in-law. Wertheim and the Bank of Israel both declined to comment on the report.
Shares in Mizrahi-Tefahot – Israel’s fourth-largest bank – fell 1.1% to 43.03 shekels in Tel Aviv Stock Exchange trading yesterday.
Zaken’s ruling upsets plans by Wertheim, 84 – one of Israel’s wealthiest and most powerful tycoons – to pass down to the next generation his extensive holdings. Wertheim’s plans were devised before the Knesset passed the Business Concentration Law at the end of 2013.
Earlier that year, Wertheim announced he would transfer the Mizrahi holding to David and Drorit, contingent on the banks supervisor’s approval. As part of disengaging from the bank, last September he stepped down from Mizrahi’s board after 20 years. Two years before that, Wertheim handed over his shares in Central Bottling Company, the Israeli Coca-Cola bottler and a big enough business to be considered a major nonfinancial holding.
Under the Concentration Law, Wertheim has until 2019 to divest one of the two businesses.
Observers said the Wertheims have other options in addition to the trust, but they carry serious downsides.
One would be to split the family’s holding, so that one gets the bank shares and the other Central Bottling. That, however, would require David Wertheim to give up some of the wealth due him, since under Muzi Wertheim’s 2012 plan, David would receive 63% of all the stock in both the bank and the bottler, while Drorit would get just 37%.
A third option, though one sources said is much less likely, is for Central Bottling to sell off enough of its business, downsizing it enough that it would no longer be defined as a major business under the law. Divesting part of Central Bottling’s operations, however, would reduce its value and its economies of scale.
The law presents the same problem for Mizrahi’s other controlling shareholder, the Ofer family, whose holdings include the big shopping mall developer and manager Melisron. But the Ofer family is more likely to meet the terms of the law by divesting some of Melisron’s malls.
If the Wertheims decide to divest Mizrahi, it is not clear how the banks supervisor will respond, and whether he will allow the Ofer family to be the sole controlling shareholder.