A decade after founding its financial services arm, Clal Insurance Enterprises Holdings Ltd. (TASE: CLIS) is winding down subsidiary Clal Finance, and getting out of the business as best it can. Today, Clal Finance signed an agreement for the sale of its mutual funds and portfolio management business, its main activities, to competitor Harel Insurance Investments and Financial Services Ltd. (TASE: HARL), for NIS 210 million.
NIS 185 million of the consideration is attributed to the mutual funds, and NIS 25 million to the portfolio management activity. Completion of the deal depends on fulfillment of several conditions, among them approval by the Antitrust Authority and the Israel Securities Authority, and is expected to take months.
Clal Finance undertook that, after the deal is completed, it will not engage in portfolio management or in management of mutual funds for four years from the completion date. It also undertook to continue its activity as a member of the Tel Aviv Stock Exchange for at least a year from that date.
Clal Insurance, which is controlled by the IDB Holding Corp. Ltd. (TASE:IDBH) group, launched Clal Finance in 2003, and in the following years transferred to it various activities, chiefly the mutual funds it bought from Israel Discount Bank (TASE: DSCT) (Ilanot Discount) in 2006 for NIS 580 million, a sum that has mostly been written down.
Clal Finance will record a loss estimated at NIS 32 million in its financials, and expects a further loss, estimated at this stage at NIS 22 million, mainly arising from writing down fixed assets and severance pay to employees.
In the past, Clal Finance was considered an example of successful financial activity by an insurance company, and represented a model to imitate. However, the company declined in recent years, accumulated heavy debts, and in effect has continued to exist thanks to capital injections from parent company Clal Insurance.
In 2010, some NIS 290 million were injected into Clal Finance. Now, Clal Finance, which recently sold its overseas portfolio management business (Titanium Asset Management Corp.), has become a minor subsidiary. The current sale comes on top of talks to sell Clal Finance Derivatives, while its stock exchange membership is also up for sale.
The sale of Clal Finance's main businesses is one of a series of aggressive and rapid moves by Clal Insurance's new CEO Izzy Cohen to release as much value as possible in as short a time as possible. Cohen, who officially took up his post only at the beginning of December, has already disposed of all the group's overseas activities and replaced much of the company's management, and is even keen to sell further businesses, probably in the area of consumer credit. Cohen intends to focus solely on the group's insurance and pensions businesses. Yesterday, IDB Development, which controls Clal Insurance, announced its intention of selling it to another group company, Koor Industries Ltd. (TASE:KOR).
Cohen, who is also chairman of Clal Finance, said, "The decision on making this deal is part of the company's strategy of focusing on its core activity, which covers insurance and pensions as its main products, and to direct its capital surpluses to this activity. We are making great efforts to absorb in the Clal group those employees who will not be taken on by Harel, in similar jobs to their current ones, or to offer them retraining and employment in other jobs."
Harel Finance Holdings chairman Shimon Elkabetz, who is also joint-CEO of Harel Investments, said, "In this deal we have identified quality activity with professional people which is a good match with our core business of financial activity at Harel."
As far as Harel (controlled by the Hamburger family) is concerned, this represents continued consolidation of the company through acquisition of rival businesses, and a substantial addition to its activity, bringing it closer to The Phoenix Holdings Ltd. (TASE: PHOE1;PHOE5), which currently has the most extensive financial activity among the insurance companies. The CEO of Harel Financial Group is Sami Babkov. After merging the activity of Clal Finance into it, Harel will become the largest mutual funds manager in the market, with assets of NIS 29.8 billion, compared with NIS 28.3 billion for Meitav-DS, and NIS 28.2 billion for Psagot. At the end of the third quarter of 2012, Clal Finance managed portfolios valued at NIS 8 billion (excluding Clal Insurance savings policies).
This deal comes after the acquisition of the life insurance portfolio of Eliahu Insurance Company Ltd. by Harel for NIS 210 million. After completion of the current deal, the Harel group will have NIS 140 billion under management.
Published by Globes [online], Israel business news - www.globes-online.com - on January 7, 2013
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