Shamir, Leumi battle over Tnuva acquisition

Mivtach Shamir today said the sale was cancelled because of the position of the Securities Authority.

Mivtach Shamir Holdings Ltd. (TASE:MISH) controlling shareholder Meir Shamir and Bank Leumi (TASE: LUMI) are battling bitterly over terms of the sale of Tnuva Food Industries Ltd.. Mivtach Shamir is trying to press Bank Leumi for an extra NIS 100 million, after Israel Securities Authority demands led to cancelling an options clause in the sale agreement. The clause is supposed to compensate Mivtach Shamir for a rise in value by Tnuva.

Meir Shamir upped the ante today. In a notice to the TASE, the company said that the sale of the Tnuva stake was cancelled, and that the deal under its current structure would not go ahead. Mivtach Shamir did add, "The company and the bank are jointly considering the possibility of a different deal."

Bank Leumi believes that since the option works in both directions, which gives the bank a safety net, cancellation of the deal does not require renegotiating the price for Tnuva. Sources close to the deal said that there were few companies in Israel that could replace Bank Leumi in the deal, and that Shamir should remember that he may have no alternatives. "If he continues to make difficulties, the deal could fall through, and he will have to look for other buyers instead of the bank," said a source.

Bank Leumi is due to acquire Mivtach Shamir's stake in the special purpose vehicle (SPV) which owns Tnuva, a stake which represents 20.7% of Tnuva, for NIS 1.23 billion. The bank will acquire half of Mivtach Shamir's stake, and distribute the rest of the SPV shares between four private investors, each of which will own 3.4% of the SPV. Mivtach Shamir owns 27% of the actual SPV.

A well-informed source called Shamir's step "astonishing", especially since the deadline for closing the deal was recently extended to February 20. The source said, "This is a tactical move intended solely to pressure Bank Leumi to accept Shamir's demands." He added that, notwithstanding Mivtach Shamir's announcement today, the sale of Tnuva will go ahead because "it is in the interest of both parties."

Bank Leumi said, "The original structure agreed to by the parties cannot be kept because of regulatory restrictions on Mivtach Shamir. The parties are therefore negotiating an alternative structure."

The disputed option involves a clause in the agreement which sets out an adjustment mechanism valid for four years, and which will be activated in case of "a sale event". This event is defined as an IPO by Tnuva or transfer of control in the company. If the event is made at a lower price that in the sale of Mivtach Shamir's stake in the company to Bank Leumi, Mivtach Shamir will pay Bank Leumi up to NIS 430 million. If the event involves an upside, and Tnuva is sold at a higher value, Shamir will receive up to NIS 278 million. The problem is that the Securities Authority wants the option value reported, which can point to the actual value of Tnuva, which is staunchly opposed by Apax Israel, the other investor in Tnuva.

Mivtach Shamir's market cap is NIS 1.18 billion. Bank Leumi's share price fell 1% to NIS 17.70.

Published by Globes [online], Israel business news - www.globes-online.com - on January 17, 2011

© Copyright of Globes Publisher Itonut (1983) Ltd. 2011

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