Delek Group Ltd. (TASE: DLEKG) will report a pretax capital gain of NIS 1.91 billion on the sale of 22% of subsidiary, Ford and Mazda importer Delek Automotive Systems Ltd. (TASE: DLEA) to its CEO, Gil Agmon.
The financial results of Delek Auto are included in the consolidated financial reports of Delek Group which owns 54.8% of the company. If and when the sale of the stake of Delek Auto is closed, Delek Group will cease to the controlling shareholder in Delek Auto. In accounting terms, the event will be considered as if Delek Group sold its entire holding in the subsidiary, after which it bought back the minority interest
Delek Group will therefore report a capital gain on the entire stake, and the balance of the cash that it keeps will be valued according to the market cap. Delek Group books its investment in Delek Auto according to Delek Group's share in Delek Auto's shareholders' equity (NIS 330 million).
The sale of 22% of Delek Auto to Agmon will be booked at a value of NIS 132 million, so Delek Group will report a pretax capital gain of NIS 868 million on the total estimated gross proceeds of NIS 1 billion. Delek Group's remaining 32.8% stake in Delek Auto is currently booked at a value of NIS 198 million, and Delek Group will likely revalue the holding on the basis of Delek Auto's market cap.
On the basis of Delek Auto's current share price, the revaluation will be NIS 1.05 billion. There will be no taxes paid on this because the holding was not sold. The result is a pretax capital gain of NIS 1.91 billion.
Published by Globes [online], Israel business news - www.globes-online.com - on September 6, 2010
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