Paz Profits Are More Than All of Its 3 Rivals Combined

Paz has long been considered the dominant player in the country's petroleum market, but now it has delivered the goods. According to the company's pre-IPO forecast, Paz recorded profits of NIS 167 million in 2005, nearly triple the combined profits of its "big three" rivals Delek, Sonor and Dor Alon.

Paz's 2005 profits were NIS 162 million. In the first half of 2006, it chalked up profits of NIS 84 million for an annualized profit of NIS 168 million, representing annual growth of about 3 percent in net profits.

Paz cemented its lead in the local energy market when it purchased the Ashdod Oil Refineries. Paz has 260 gas stations, most of which are fully owned by the company.

The total value of the company is not known, but the range of $1.2 billion to $1.4 billion is being used in the negotiations with the Israel Corporation.

Talk of a London flotation had previously been reported but capital market experts now see Tel Aviv as the most likely target.

Paz saw many changes between its 1922 establishment and its purchase in 1988 by the Lieberman group.

In 1999, Zadik Bino acquired a controlling interest in the company, and in 2000, Bank Leumi purchased a 19-percent stake to become a partner.

Bino looking to sell

Bino is now in talks with a few different investors with an eye to selling between 20-30 percent of the company according to a valuation of $600 million, say sources close to the negotiations. They say the likelihood of the Israel Corporation coming in as a partner is very low.

The potential partners want the price of the deal to reflect the company's value prior to the Ashdod Oil Refineries purchase.

The Israel Corporation has been in intensive negotiations with Paz in the past few weeks for the purchase of 30-40 percent of the company for somewhere around $500 million, according to a valuation of $1.2 billion to $1.4 billion. Israel Corp., which is controlled by Sami and Idan Ofer, is demanding as part of any deal that Bino give up his exclusive controlling interest in Paz. Legal restrictions on the amount of credit that local banks can extend to partners could scupper the deal.

There are two points of contention between the parties. The first concerns Israel Corp.'s demand for a 32-percent stake in Paz, which would reduce Bino's stake from 81 percent to only about 49 percent.

The second concerns the price, which Bino's group considers to be too low. The gap between the parties appears unbridgeable, but negotiations are continuing nonetheless.