Israel Discount Bank (TASE: DSCT) provident fund sale to Clal Insurance Enterprises Holdings Ltd. (TASE: CLIS) is on the verge of falling through. Sources close to the negotiations say that the parties have not yet discussed the price reduction for the purchase, but analysts estimate that Clal Insurance will ask for a reduction of NIS 100-150 million from the original price of the transaction, NIS 710 million.
It is believed that Clal Insurance is not happy with the Discount Bank deal, in light of the reduction in the assets of Ilanot Discount which were purchased parallel to signing the purchase agreement for the provident funds. Additionally, the negotiations between insurance companies and the banks over the provident funds are significantly different from the agreements regarding the mutual funds. This is because of the complexity of the distribution and operation agreements for the provident funds.
A Clal Insurance source believes that the company fears that Discount Bank will do to the provident funds what it did to its mutual funds, and will withdraw money from the purchased assets. According to the source, Discount Bank recently contacted self-employed customers to cancel standing bank orders for fund transfers to provident funds, in view of Amendment 3 the Tax Regulations for Self-Employed which deals with the first level of provision for pension savings before tax benefits are granted for self-employed savings in a capital track (such as a provident fund.)
Clal Insurance also fears the Ministry of Finance plans to enable mobility between pension instruments, products and companies, and a situation in which a great deal of money would move from provident funds to pension funds in response to the encouragement of the pension instrument by the state. We would mention however, that Amendment 3 as well as the mobility were both "up in the air" before the agreement of principles was signed between Clal Insurance and Discount Bank.
In November, Discount and Clal Insurance had agreed upon the largest financial transaction ever, until the Bank Leumi (TASE: LUMI) sale of Psagot Ofek Investment House to York Capital Management. Clal Insurance had agreed to purchase all of the provident funds and mutual funds owned by Discount for NIS 1.3 billion, of which NIS 710 million were for the provident funds.
Clal Insurance CEO Avigdor Kaplan: "the negotiations (with Discount Bank) are being conducted and have encountered many difficulties. Currently I cannot tell whether a final agreement will be reached." Discount said, "the bank has a binding agreement with Clal Insurance; we are currently working out its final details. It is unfortunate that some people choose to conduct negotiations through the press."
Published by Globes [online], Israel business news - www.globes.co.il - on August 20, 2006
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