Hagai Shalom, who acquired troubled Haargaz Ltd. for pennies ten years ago, has made a NIS 240 million real estate exit - a 250% return on his investment. BSR Projects Ltd. (TASE: BSRP) today announced that the conditions have been met for creating a buyers group to purchase the company's 20-dunam (five-acre) lot in Tel Aviv at this price, after Supervisor of Capital Markets, Insurance and Savings Prof. Oded Sarig allowed Migdal Insurance and Financial Holdings Ltd. (TASE: MGDL) and Harel Insurance Investments and Financial Services Ltd. (TASE: HARL) to acquire half the group. The companies plan to build two 40-storey buildings on the Haargaz lot, at 94 Yigal Allon Street.
The NIS 1.3 billion deal (including the cost of the land) is a precedent for a buyers group. The buildings will only be completed in five years, at which point it will be known whether there is room for an additional 120,000 square meters of office space so close to the 140,000-square meter Azrieli Towers.
Hagai Shalom and Yitzhak Tshuva acquired Haargaz, a troubled Histadrut (General Federation of Labor in Israel) owned manufacturing company, in 2000. "The banks told me that I'd have to invest NIS 100 million, and I didn’t have a penny. Yitzhak Tshuva, who earlier offered me the chairmanship of Delek Group Ltd. (TASE: DLEKG), provided a NIS 50 million guarantee, and the banks another NIS 50 million," Shalom said today. Haargaz retains 3% of the lot, and will be a party in the buyers group.
Haargaz owns other properties, which are reportedly worth hundreds of millions of shekels. "I bought Haargaz from the courts when it was virtually worthless. No higher bids were offered. Everyone was afraid to invest in the company because it was owned by the Histadrut and had a militant workers committee, which gave me an edge. I jumped into the water," said Shalom.
"Globes": How much did you pay for the company?
Shalom:
"I believe that I paid NIS 4 million, and I had to inject NIS 100 million into it to rebuild it. The bank told me, 'We'll match every shekel you bring, and then Tshuva guaranteed me NIS 50 million, which the bank matched. I signed the deal, studied it, knew what I was going to do, and relied on myself. I knew there would be a tough battle with the workers, which we waged quietly and successfully. I've since cleard the debts and liabilities. The company is now worth hundreds of millions of shekels."
Eight years ago, Shalom bought out Tshuva for a negligible sum and released his guarantees.
Did you know you'd achieve such an exit?
"I didn’t think about future exits. Not at all. A lot of people looked at Haargaz. Almost every company in Israel tried to buy it for its properties in Zerifin and Tel Aviv. Everyone, including Tshuva, thought that I would sell the properties, but they discovered that I was an industrialist. I took a liquidated company and rebuilt it, which is not something to be taken for granted. I have friends who've crashed with companies."
Will you float Haargaz on the TASE?
"No. That's not on the agenda at this time. The reason is very simple - I don’t need the money. This is a family firm, and I like it that way."
Haargaz's core business is its bus assembly plant. The company assembles buses for Egged Israel Transport Cooperative Society Ltd., Dan Public Transport Ltd., and private companies, and has a market share of over 30%. The company has four other factories: one in Ramle for the manufacture of industrial and transportable structures; a second for the manufacture of refrigeration and display systems; a factory in Barkan for defense products; and Taditel Ltd., which manufactures electronic valves for the automotive industry.
What shape is the company in?
"We're in excellent financial shape, and money is not a limiting factor. I need to build a new factory at an investment of NIS 100 million, and I'm considering entering the bus industry in India. I build buses, I have vast know-how, and I want to use it in larger markets, in collaboration with a local company. In addition, I might have to move a factory or two to India if the minimum wage is raised."
Haargaz has 600 employees. It owns the 10-dunam (2.5-acre) lot in Barkan, as well as 65 dunam (16.25 acres) in Timorim, near Kastina, slated for construction of the company's new bus assembly plant.
Published by Globes [online], Israel business news - www.globes-online.com - on February 2, 2011
© Copyright of Globes Publisher Itonut (1983) Ltd. 2011