Univercol Sale Runs Into Obstacles

Deal on hold for a week as institutional shareholders object to high selling price

The Shrem Fudim Kelner (SFK) group has run into difficulties with the sale of Univercol by its subsidiary Orlite Industries to Ytong because of objections by institutional investors. Authorization of the sale was postponed for a week after the institutionals raised objections at the shareholders meeting.

About six weeks ago, less than a week after Orlite, which is controlled by SFK, made the last payment to Azorim Investment Development and Construction for the purchase of the construction materials manufacturer Ytong, Orlite announced the sale of the controlling share (51.6 percent) of the paint manufacturer Univercol to Ytong for NIS 43 million.

Yesterday, Ytong's shareholders were to have approved the transaction, which is considered a controlling shareholders transaction. Such a transaction requires the fulfillment of two conditions: an extraordinary majority of at least a third of the votes of the controlling shareholders who do not have a personal interest in the deal and must be present at the shareholders meeting, or that the total number of votes opposing the transaction does not exceed 1 percent of voting rights in the company.

As a result of objections raised by institutional investors, the transaction was not raised at the shareholders meeting, which was left open for a week with the approval of the controlling shareholders in Orlite.

The major shareholder in Ytong among the institutional investors is Bank Hapoalim's Gmulot pension fund, which has a 3.7 percent share in the company and could bring down the deal. Gmulot apparently wants the price of the transaction reduced significantly in exchange for its support. Negotiations with Gmulot are expected ahead of the continuation of the shareholders meeting next Sunday.

One of the minority shareholders in Ytong said yesterday that the only party to profit from the machinations of Shrem Fudim Kelner group is the group itself and that it is the minority shareholders that stand to lose. "Nobody has profited so far from the partnership with the financial acrobats from SFK," he said. "If they want to execute such a transaction let them publish a purchase offer, buy 15 percent of the shares held by the public and do what they want. Now we can see why Orlite was willing to pay the highest price for Ytong," he added.

The transaction was not supposed to generate a capital gain for Orlite, but it could save it from a loss as its price is 65 percent higher than the company's stock market valuation. Univercol's value was set at NIS 75-85 million plus a controlling premium of 7.5 percent, while the company's stock exchange value stood at NIS 50 million.

SFK claim that compared to the price Granit paid Discount Investments for the paint manufacturer Tambour - which holds a 45 percent share of the market - the price set for Univercol is low. Granit paid Discount Invesments a premium of 50 percent on Tambour's equity, compared with 14 percent that Ytong is to pay Univercol, which holds a 20 percent share of the market. Univercol's equity of NIS 73 million is higher than its market capitalization, but SFK claimed that this was unjustified and resulted from the company's situation on the stock market. It would seem that the institutionals did not accept this point of view.

A spokesman for SFK said that the purchase of Univercol was a natural step for Ytong, given its position in the construction materials market and added that the deal reflects far lower values than those set in the Tambour deal.