Sources inform ''Globes'' that Psagot Investment House Ltd. is in advanced talks to acquire the life insurance business of Eliahu Insurance Ltd., owned by Shlomo Eliahu, reportedly for NIS 350 million. The parties have not yet agreed on the final structure of a deal, and no deal may be reached at all, especially given the upheavals at Psagot, Israel's largest investment house.
Psagot wants to acquire life insurance operations to correct its handicap compared with its competitors, because it lacks an insurance license. Shlomo Eliahu must sell his life insurance business to obtain regulatory approval for his acquisition of Migdal Insurance and Financial Holdings Ltd. (TASE: MGDL). Eliahu reportedly initially asked for 40% more than the NIS 350 million capital market sources believe is the price tag for the deal.
Psagot and Eliahu declined to comment on the report.
Eliahu has signed an agreement to acquire the 69% controlling interest in Migdal, Israel's largest life insurance company, at a company value of NIS 6.05 billion from Italy's Assicurazioni Generali SpA's (BIT: G), even though the present value of future profits (PVFP) of Migdal's life and health insurance and pension business was estimated at over NIS 8.86 billion at the end of 2010.
Eliahu is therefore acquiring Migdal at a value of 68% of its PVFP, net of taxes on its pensions and life insurance operations as of the end of 2010 (and ignoring the value of Migdal's other businesses). However, he may end up selling Eliahu Insurance's life insurance business at a premium of 124% of its PVFP to Psagot, which is controlled by Apax Partners.
Apax Israel, run by CEO Zehavit Cohen, acquired Psagot at a dubiously high valuation, mainly with the intention - unrealized to date and far from being achieved at all - of becoming a major player in the pension market. While Psagot has extensive provident fund operations, its pension business is negligible and it has no life insurance business at all. Worse, provident funds have become a very problematic financial product in recent years.
Therefore, to strengthen its position in the strategic and growing pension market, Psagot wants to acquire additional pension instruments. It previously held talks to this end with Ayalon Holding Ltd. (TASE: AYAL), and Hachshara Insurance Holdings Ltd. (TASE: ILDH).
Published by Globes [online], Israel business news - www.globes-online.com - on May 13, 2012
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