Ofers Negotiating to Buy 33% of Paz

The Israel Corporation is negotiating to buy 33 percent of the Paz fuel company for about $400 million.

The board of directors of The Israel Corporation met and approved the talks with Paz yesterday, the day after Paz shocked the Israeli energy sector by buying the Ashdod Oil Refineries for a whopping NIS 3.501 billion bid.

The price would be a good one: The energy sector thinks Paz, which is privately held by a consortium headed by Zadik Bino, is worth around $600 million. The value of the refineries adds another $600 million to Paz, and the offer fully reflects the $1.2 billion total value for Paz including the Ashdod refineries.

The move would also give Paz the backing of one of Israel's strongest holding companies, but the hookup of the two firms is not intended to provide just financial backing for the refineries deal. The two companies clearly intend to start a long-term cooperation both in Israel and overseas.

Ownership of Paz breaks down to Bino (51 percent), Bank Leumi (20 percent), the heirs of Jack Liberman of Australia (19 percent), Paz CEO Modi Ben Shach (7 percent) and others.

The main attraction for The Israel Corporation, which is owned by Sami and Idan Ofer, is presumably the refinery. The money from The Israel Corporation's investment will certainly help Paz pay for its acquisition.

Following its snapping up of the Ashdod refinery, which is likely to close in two to three months, Paz is expected to announce intentions to float on the stock exchange, which would bring it fresh capital.

Bino said yesterday that Paz is ready to issue on the stock market at any moment, and has a shelf prospectus ready, which has been updated every year. "We are constantly studying our expansion, and it may likely include a strategic partner, a financial partner or capital that we may raise from the public," explained Bino.

Bino added that in any case he will not give up control of Paz, and management of Paz will remain jointly in the hands of himself, Ben Shach and the heirs of Jack Liberman.

The Israel Corporation sold its 26 percent holding in the Oil Refineries to the state for $135 million last year, and is now hoping to return to the sector with a foothold in Ashdod after it was forced to sell its shares in the refineries back to the state.

The price paid by Paz for the Ashdod refineries, $800 million, represented about a 30 percent premium on the estimated value of the refineries.The refineries offering included $315 million in inventory, $250 million in other assets and land worth $50 million, while the newly privatized firm carried about $115 million in debt.

However, the main reason that Paz was willing to pay over the market value is the expected synergy between the refineries and the fuel company. The new, combined company will have a share of almost the entire fuel supply chain, from the refineries to gas stations.

While the money from a sale to The Israel Corporation could be used to finance the purchase of the refineries, Paz had already arranged bank financing from a consortium lead by Bank Hapoalim. Other banks thought to be included in the financing are Bank Leumi and Mizrahi.

In any case, the final shareholdings after the deal are expected to be: Bino and his group, 35-45 percent; The Israel Corporation 33 percent; and with the remainder issued to the public.

Bino also said that several other groups had expressed interest in becoming partners in Paz, and Paz had also approached other companies at its own initiative to interest them in the Ashdod investment.

The Israel Corporation released an announcement to the Tel Aviv Stock Exchange saying that its board had instructed management to examine the possibility of investing in Paz as a result of Paz's success in the Ashdod Oil Refineries tender.

The Israel Corporation's spokesman said: "The Israel Corporation does not report when it holds board meetings and what is their content." As to the numbers involved, the spokesman explained that the company had nothing further to add to its announcement to the stock exchange.