Taking Stock / Bino, the Square

Zadik Bino was disappointed. After Benny Gaon's consortium fell apart, and Yitzhak Tshuva's group withdrew at the last second, Bino figured nobody could beat his bid for Blue Square.

Based on the paralysis gripping most of Israel's major business concerns, coupled with the tremendous leverage weighing down the nation's biggest players, Bino seemed to be the only one left in town with the money, the will and the clout to take over a megalith like Blue Square. And he was backed by Bank Leumi, no less. He could almost feel the supermarket chain in his pocket.

But this week, when the bid envelopes were opened, it turned out that there was somebody hungrier. The offer filed by the group led by Dudi Weissman, together with American millionaire Matthew Bronfman, carried the day, beating Bino's bid by 25 percent.

Losing to Weissman was especially nettlesome, because while Bino heads Israel's most profitable (and probably the nation's most liquid) energy group, Paz, all Weissman has is that bitty young rival company, Alon-Dor, which is more leveraged, at that.

Unsurprising loss

But the truth is that Bino's defeat comes as no surprise. Because if there's one thing that's characterized him from the day he first hit the headlines, it's that he likes to buy cheap.

Over the last seven years, Bino has looked at half or more of the biggest deals done in Israel. He looked, sniffed, squeezed, and sometimes even put together consortia and financing packages. But he always walked away. Too expensive, he'd rule.

A look at most of the biggest investment companies and players in Israel shows that his strategy proved wise. While all his buddies are leveraged up to their necks, and out hundreds of millions on their investments, with some unable to even pay interest on their loans, Zadik Bino is liquid, strong and eager to hunt.

In Blue Square's case, the conditions seemed ripe for Bino to take advantage of his relative advantage and finally, finally go for the big one. For months, also, he'd been telling his friends, "The Square is mine."

But barring surprises at the courts or financing obstacles, the Square is Weissman's and Bronfman's for NIS 1.8 billion - a premium of 25 percent over its market value.

Refreshing the investors

The high price may hearten investors in Blue Square, in retail chains and in Israeli stocks in general. After the long drought, somebody's willingness to risk a deal that size for a premium that fat feels like a long, cool, minty lemonade.

But the price is still 50 percent below the price at which Blue Square was trading just a year ago. How steep is the fall? Well, when the Co-Op society started its efforts to sell Blue Square, the expectation was that holders of its certificates would get $25,000 for each certificate. Even at Weissman's price, they're getting no more than $13,000.

This means that all those complaints about the tiny, low-turnover Tel Aviv Stock Exchange pricing securities unrealistically are nonsense. The Blue Square auction proves that prices on the TASE are key to decisions by Israel's investors and bankers alike.

As usual, Bino refuses to be interviewed, but we can guess what he told his partners and advisers yesterday, after the chain slipped between his fingers. Weissman paid too much, he probably told them. The recession isn't over and Blue Square, and Israel's other retailers too, aren't about to reverse to profit growth. With real interest rates at 7 percent, he probably shrugged and said: I don't understand how Dudi persuaded the banks that he can return the investment and carry the interest rates.

An open question is whether the Blue Square deal will be the banks' latest overpriced leveraged buyout, just another deal in which the borrower and lender wind up desperately rowing the boat; or whether it will turn out to be the breakthrough that makes Weissman one of the biggest players.

Judging by the behavior of the stock and bond markets in the last month, there's a turnaround around the corner. This may explain the optimism evinced by Weissman and Bronfman. But going by the cold-eyed calculations of capital gains and interest that Bino doggedly uses, Dudi Weissman has just got himself into the situation that most of Israel's tycoons are frantically trying to escape.