Sources inform “Globes” that, two weeks after negotiations began between Viola Private Equity and IDB on the acquisition of control in IDB Holding Corp. Ltd. (TASE:IDBH) unit Clal Industries and Investments Ltd. (TASE: CII), Viola has put forward a proposal that includes a seller’s loan to the tune of NIS 700-800 million from IDB. This represents about half the size of the deal whereby Viola, headed by Harel Beit-On, Jonathan Kolber, and Shlomo Dovrat, seeks to take over IDB’s industrial and biomed arm.
IDB Holdings, controlled by Nochi Dankner, holds 60.5% of Clal Industries through IDB Development Corporation Ltd. The negotiations reported by the sides two weeks ago are for the sale of 40% of Clal Industries at a company valuation of NIS 3.8 billion. This is a similar valuation to that at which IDB conducted negotiations last month to sell control of Clal Industries to the Livnat family, and represented a premium of 45% on the company’s market cap at that time. If the current negotiations, which are at an advanced stage, mature into a deal, Viola will pay a total of NIS 1.52 billion.
The would-be buyer seeks to obtain two further benefits that will reduce the effective valuation at which it buys control of Clal Industries, so that the premium over the market price will be about 10%. The first is an option to buy further shares in Clal Industries from IDB (which will be left with 20.5% of the company after the sale) at a lower price; the second is a compensation mechanism to protect the buyers in the event of a fall in value of Clal Industries’ subsidiaries.
Institutions not keen to join in
The exclusivity period that IDB granted Viola Private Equity for buying the controlling interest in Clal Industries ended today. Viola, which manages investment funds totaling $2 billion, does not have free cash available for an investment of this magnitude, and so it sought partners for the deal, and approached several institutions. This was the way it took over technology companies ECI Telecom Ltd. and Lumenis Ltd. in the past.
Migdal Insurance and Financial Holdings Ltd. (TASE: MGDL)is believed likely to participate in the deal, if Viola’s offer is accepted. Other institutions approached by Viola that declined to join mentioned among their considerations in turning the deal down the fact that they already have holdings in Clal Industries, so that they will benefit from any future realization of value in the company, and that buying shares above market will force them to recognize an immediate loss, since it is a matter of a tradable asset. Clal Industries currently has a market cap of some NIS 3 billion, so that the offer price represents a premium of 26%.
Clal Industries is a veteran holding company in industry and venture capital. It holds 75% of monopoly Nesher Israel Cement Industries Ltd., 50% of haulage company Taavura Holdings Ltd., and controls a long list of other companies, among them Hadera Paper Ltd. (AMEX: AIP; TASE: AIP), Israel’s largest paper manufacturer; fashion and homeware retail chain Golf & Co. (TASE:GOLF); Clal Biotechnology Industries Ltd. (TASE: CBI), which itself holds several medical device companies; as well as holdings in industrial companies such as Cargal Ltd. (TASE: KRGL.B1), Jafora-Tabori, and Bet Shemesh Enginesn Ltd. (TASE: BSEN).