Apax Takeover of Psagot Falls Apart

The deal fell apart after seller York declined to grant more extensions.

Apax Partners' takeover of Tel Aviv-based brokerage Psagot fell apart on Wednesday, after the investment fund and the seller, York Capital Management, failed to reach a binding understanding with the prosecution that criminal charges would not be filed against the company an dits top executives, for alleged manipulation of bond prices. And there went ten long months of negotiations down the drain.

Without a pledge from the prosecution, Apax refused to go ahead with the deal.

Psagot is the biggest brokerage in Israel, with NIS 139 billion in managed assets.

York had extended the deadline for the deal to proceed several times. The last deadline ran out yesterday but in fact, nobody on Apax's behalf even showed up for the meeting, which took place in Azrieli Towers in Tel Aviv. Apax representatives notified York that it had 30 days to rectify violations of agreements reached in December 2009, or as far as Apax was concerned, the deal was off.

Apax's people did clarify that if a binding agreement would be reached with the prosecution, they would be happy to proceed with the takeover.

York however declined to grant another extension to Apax, saying there was simply no reason to do so.

If anything, since the news of the investigation into Psagot began, pointed out the York people, the brokerage's managed assets have grown from NIS 121 billion to NIS 139 billion. Clearly the news didn't cause it damage.

Sources near Apax commented that the fund would still be interested in buying Psagot. "But Apax won't proceed with a dirty deal at any price," the source added.

York's representatives in Israel declined to comment for this report.

So near, yet so far

On Tuesday night lawyers for Psagot, York Capital Management and Apax Partners and representatives of the prosecution were burning the midnight oil to reach a final agreement on Psagot's sale by York to Apax. The deal seemed almost done. It was to involve payment of an NIS 150 million administrative fine and also the departure of Psagot's CEO, Roy Vermos.

Wednesday was the deadline York and Apax had set to close a deal, hence the strain to hammer out the details. But Apax wanted more time, after all.

Apax had been close to agreeing to buy the controlling interest in Psagot for NIS 2 billion. The price is NIS 300 million below the figures originally discussed. Originally, the parties agreed in December 2009 that York would get NIS 2.36 billion for its 76% stake in Psagot, a deal that would have valued the brokerage at NIS 3.1 billion.

But then negotiations dragged on, mainly because the Israel Securities Authority began an investigation by into alleged securities manipulation at the brokerage.

Suspicions centered on two fund managers, who have since left the company, Shay Ben David and David Edri. However, investigators suspect that other managers - possibly all the way to Vermos at the top - knew of the practice.

Following the revelations of malfeasance, Apax demanded a discount and written confirmation that the prosecution wouldn't be pursuing criminal charges against Psagot. Criminal charges would be a deal breaker, Apax clarified: An international body of its standing didn't want the stain by association.