Apax Partners is concerned about the blow to the goodwill of Psagot Investment House Ltd. following the investigation by the Israel Securities Authority at the firm. Apax is considering raising this argument in order to lower the price that it will pay for the controlling interest in the firm, say sources involved in the deal.
The sources added that Apax was "sitting on the fence" and waiting on developments in the investigation, and that it will probably make a decision on the basis of such developments.
Similar assessments were made earlier this week, following the arrest by the Securities Authority of two former managers at Psagot Securities, David Edery and Shay Ben-David on suspicion of front-running of bonds.
In December, Apax Partners' Israeli unit, run 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. Markstone Capital Partners Group LLC owns the other 26% of Psagot.
Psagot executives with stock options are liable to be affected by any downward revision in price tag of the firm by Apax. The executives affected include Psagot CEO Roy Vermus, who could expect to make NIS 27 million on his options at the original price, and chairman Arik Steinberg, who stood to make NIS 13 million. Other Psagot executives could expect to make NIS 4 million between them.
If Apax demands a price reduction, because of the damage to Psagot's goodwill, it will be necessary to hire assessors to quantify thes damage that necessitates a price reduction. Apax has not yet made any requests on the matter, and is waiting to see if the scandal is a fleeting affair, or if will have a lasting effect on Psagot's goodwill. So far as is known, Apax executives are in constant contact with their counterparts at Psagot, and are receiving regular updates.
Commenting on yesterday's rumors that Apax should take into account that part of Psagot's returns were achieved through fraud, the sources said these rumors assume that the Securities Authority's allegations will be verified. If the allegations are proven, they will lower Psagot's value, which would allow Apax to demand a reduction in the price for the firm.
The sources added that Psagot's nostro profit was not calculated in the price tag, because Psagot had closed its nostro activity by the time of the deal. Therefore, even if part of the nostro yield was obtained fraudulently, this should not affect the price of the deal.
Published by Globes [online], Israel business news - www.globes-online.com - on February 4, 2010
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