With the acquisition of Israel Phoenix Assurance (TASE: PHOE1;PHOE5) now complete, Delek Group Ltd. (TASE: DLEKG) controlling shareholder Yitzhak Tshuva now has holdings in three insurance companies: Phoenix; Menorah Holdings (TASE: MORA1;MORA5); and US company Republic. Tshuva is ready for more acquisitions both in Israel and overseas, although a deal of the size of Phoenix is not likely to happen in the near future.
Tshuva’s acquisitions have added another core line of business to Delek’s traditional areas of activity: insurance. Republic, which Delek now wholly owns, posted a net profit of NIS 65 million in 2005, Menorah posted a net profit of NIS 273 million (of which 15% will be credited in Delek’s financials), and Phoenix posted a net profit of NIS 304 million.
After the large amounts invested in its establishment, Delek’s insurance business is likely to yield annual profits of tens, and even hundreds of millions of shekels. The acquisition of Shlomo Eliahu’s 33% stake in Phoenix was transacted through Delek - Investments and Properties Ltd., while the 28.5% stake of the Shachar-Kass group was acquired through Delek Capital. Delek Capital is likely to absorb all the group’s financial holdings, including the stake acquired from Eliahu and the group’s stake in Menorah.
The acquisition of the controlling interest in Phoenix has boosted Delek’s presence in the local financing market, through the control of investment house Excellence Investments Ltd. (TASE: EXCE), which is part of the Phoenix group.
Delek’s financial arm did not exist until two years ago. The group felt that the lack of such an arm was a substantial disadvantage and moved to correct this. Within two years, Tshuva invested $770 million in various insurance companies. He began by acquiring 15% of Menorah, Israel’s fourth largest insurance company and the owner of Mivtahim Pension Fund. He then acquired 33% of Phoenix, and a month ago, he acquired the US company Republic. The picture has now been completed with the acquisition of the controlling interest in Phoenix.
Since the early 1990s, Phoenix has been increasingly weighed down by management difficulties. It is not a focused company and is not identified with any specific area of insurance like Migdal Insurance (TASE: MGDL), (life insurance), Clal Insurance Enterprises Holdings Ltd. (TASE: CLIS), (general and financial insurance), Harel Insurance Investments (TASE: HARL), (health insurance), or Menorah, (pensions). The lack of focus dragged the company down and harmed its ability to compete with its rivals.
Tshuva is now supposed to deliver change and make Phoenix a substantial player on the local insurance scene. This gives rise to a number of questions. Will Tshuva succeed in merging Menorah and Phoenix to create the second largest insurance group in Israel? The Ministry of Finance strongly objects to such a merger but informed sources believed it is possible. Also, does Tshuva intend to integrate Republic in Phoenix’s business activity, thereby creating an insurance giant with a domestic and an overseas arm?
Tshuva’s team includes three executives with vast experience in the insurance sector: Eyal Lapidot, the former successful CEO of Direct Insurance - Financial Investments (TASE: DIFI), who now serves as Delek Energy Systems Ltd. (TASE: DEOL) and is committed to a cooling off period through August 200; Danny Guttman, former CEO of Clal Finance Mutual Funds Ltd., Israel’s leading non- banking financing arm, and former Africa-Israel Investments Ltd. (TASE:AFIL; Pink Sheets:AFIVY) CEO Pini Cohen who recently joined Delek and served in the past as CEO of Ararat Insurance. These three are expected to have a substantial role in advising on policy for Phoenix, if not in the management of the company itself.
One of the key actions that will be taken once control transfers to Delek will be to improve the liquidity of Phoenix’s stock. Phoenix is traded on the Yeter Index alongside companies that are many times smaller. This is because the proportion of the company owned by the public (the float) stands at 9.3% which is too low. “Lack of liquidity is, without doubt, one of Phoenix’s disadvantages,” says Delek Group CEO Assaf Bartfeld.
What will happen? Tshuva is likely to sell some of his shares, since he does not need 61.5% to exercise control in Phoenix. There will be probably be an offer for sale of 10% of the shares in the near future. The Meir Group is likely to join in too with an offer of 9%. Once the public holding reaches 30%, the share’s liquidity will rise, and Phoenix will once again be listed on the Tel Aviv 100 Index, and who knows, it might even make it back to the Tel Aviv 25 Index. “There is no reason why, with proper management, Phoenix should not be traded at a value of $900 million,” says a senior industry source.
Insurance is just one of Delek’s diverse range of activities, and not its main one. Delek is considered to be one of Israel’s largest holding companies, with operations in energy, real estate and vehicles. At the beginning of May, Tshuva floated Delek US Holdings Inc. (NYSE:DK), which coordinates the group’s energy activities in the US.
Aside from its energy businesses, Delek has real estate interests in Israel and overseas through Delek Real Estate Ltd. (TASE: DLKR), and Delek Belron International Ltd. (TASEDLKI.B1), which is set to make an IPO in the UK in the coming months. Delek Real Estate has a market cap of NIS 3.5 billion. Another of the group’s cash cows is Delek Automotive Systems Ltd. (TASE: DLEA), importers of Mazda and Ford vehicles.
Published by Globes [online], Israel business news - www.globes.co.il - on August 28, 2006
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