The scandal at Psagot Investment House Ltd. could not have come at a worse time for York Capital Management LLC. In December 2009, Apax Partners Israel, managed by CEO Zehavit Cohen, reached a deal to acquire 74% of Psagot from York, Plainfield Asset Management LLC, and Seneca Capital LP for NIS 3.1 billion, the largest acquisition in years in Israel's financial industry.
Despite the scandal, Psagot's sale to Apax is not in jeopardy, and it is due to be closed in a few months. So far as is known, the contract has no escape clause for Apax in the event of such a problem at Psagot. However, sources at Psagot believe that the price tag for the firm will probably be affected.
Psagot's price tag reflects the firm's strong brand name, as well as the amount of its assets under management. The price was presumably derived from Psagot's operating profit or cash flow. If the scandal strongly affects either of these variables, Apax may demand that the price for the firm be adjusted accordingly.
Since the scandal involves Psagot's nostro portfolio, the firm is not exposed to lawsuits from clients, as was the case at Prisma Investment House, when investors in its provident funds lost money because of unauthorized heavy exposure to risky assets. Apax therefore has no need to worry about future lawsuits arising from the scandal.
Markstone Capital Partners Group LLC finds itself again involved in a scandal, however. The former owner of Prisma now owns 26% of Psagot following its acquisition of Prisma's provident funds. Markstone is already embroiled in problems in the US related to charges that chairman Elloit Broidy's bribed New York State pension officials to invest in the firm. Markstone is expected to keep its Psagot holding.
Both York and Apax declined to comment on the report.
Published by Globes [online], Israel business news - www.globes-online.com - on February 2, 2010
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