The committee for encouraging competition in the economy (the oligopoly committee) is about to create a major upheaval in the capital market. Its conclusions will almost certainly compel the separation of financial and non-financial holdings, with borrowers on one side of the fence and lenders on the other. Every controlling shareholder will have to decide where he wants to be - the party extending credit or the party receiving it. The separation will not be universal, but only apply to substantial holdings.
Two big insurance companies will unquestionably be put up for sale: Nochi Dankner-controlled IDB Holding Corp. Ltd. (TASE:IDBH) will sell Clal Insurance Enterprises Holdings Ltd. (TASE: CLIS) and Yitzhak Tshuva-controlled Delek Group Ltd. (TASE: DLEKG) will sell The Phoenix Holdings Ltd. (TASE: PHOE1;PHOE5).
IKEA Israel is apparently not substantial company that will create a problem for the Bronfman family, which also controls Israel Discount Bank (TASE: DSCT). However, five controlling shareholders may face problems:
- Shari Arison, who controls Bank Hapoalim (TASE: POLI) and Shikun u'Binui Holdings Ltd. (TASE: SKBN);
- Zadik Bino, who controls First International Bank of Israel (TASE: FTIN) and Paz Oil Company Ltd. (TASE:PZOL);
- Yuli Ofer, who controls Melisron Ltd. (TASE: MLSR) and Mizrahi Tefahot Bank (TASE:MZTF);
- Mozi Wertheim, who controls Central Bottling Company (Coca-Cola Israel) Ltd. and Mizrahi Tefahot Bank.
- Apax Partners, which controls both Psagot Investment House Ltd. and Tnuva Food Industries Ltd.
A fierce fight will erupt over the definition "substantial", which will engage a lot of lobbyists, lawyers, and judges over the coming year.
Apax Israel CEO Zehavit Cohen may be compelled to sell Tnuva in order to keep its controlling interest in Psagot. But even if it is allowed to keep both companies, the oligopoly committee's recommendations may affect her strategic plan to expand Psagot.
Cohen has never concealed her intentions to turn Psagot into a pensions company that manages long-term savings, since this is a more stable and profitable business that other capital market activities. Psagot is strong in provident funds, but has no pensions or life insurance operations, and entering the sector is desirable. Cohen has also never kept secret the means to achieve her goal: acquisition of an insurance company. Psagot CEO Ronen Tov has even set a target date - March 2012.
A regulatory contradiction that has to be resolved
However, since the Ministry of Finance's Capital Markets, Insurance and Savings Supervision Department will probably adopt a policy banning a controlling shareholder from controlling both financial and non-financial companies, how can Psagot grow, which would increase Apax Israel's power while it continues to control Tnuva? How can Supervisor of Capital Markets, Insurance and Savings Prof. Oded Sarig, a member of the oligopoly committee, allow Psagot to acquire an insurance company?
For Apax Israel, this could be an irreversible blow to its strategy of growing Psagot, because of the high price - at a company value of NIS 2.7 billion - it paid. Banning the acquisition of an insurance company will render Apax's return on investment target an unrealistic fantasy.
There is another issue: the acquisition of an insurance company by Psagot is a clear pro-competitive move. Psagot, as a player in the insurance industry, will increase competition in it and shake up the oligopolist market, but I will be hard for the regulators to settle the contradiction between contribution to competition and Psagot's owner also controlling an important non-financial company in the economy. Sarig will have to decide which is more important - reducing oligopolies in the economy or increasing competition in the insurance industry.
Published by Globes [online], Israel business news - www.globes-online.com - on August 29, 2011
© Copyright of Globes Publisher Itonut (1983) Ltd. 2011