What does Dell see in Rami Levy?

Shiri Habib-Valdhorn

MSD Capital does not focus on retail, or any other industry, but invests on the basis of the opportunity it sees in a company, not in an industry.

What is an American high-tech billionaire seeking in an Israeli supermarket chain? Yesterday, Rami Levy Chain Stores Hashikma Marketing 2006 Ltd. (TASE:RMLI) announced that Dell Inc. (Nasdaq: DELL) founder Michael Dell invested NIS 90 million in the company through a unit of his MSD Capital LP. Rami Levy Chain Stores CEO Rami Levy was the seller. Following an earlier purchase of shares, MSD owns 6.1% of the company.

Dell (48) founded his eponymous computer company in 1984 with $1,000 in starting capital. The company's shareholders are facing a buyout offer by Dell at a company value of $24.4 billion. Some shareholders oppose the offer, and the company's market cap has since exceeded Dell's offer price. "Bloomberg" believes that, if and when a deal is closed, MSD Capital may be involved in the financing.

MSD says that it has no direct connection with Dell Inc., although it stresses that it only uses Dell computers. The fund says that Michael Dell has no involvement in its daily management or investments. As a private firm, which is not required to disclose its investments, it is hard to find details about its assets under management or the returns it achieves, but the website's FAQ page states, "It has been reported publicly that MSD Capital manages in excess of $10 billion. As a private investment firm, however, we do not disclose any financial information related to the performance of our investments."

Dell founded MSD Capital in 1998 to exclusively manage his and his family's capital. It initially invested mainly in technology. Later, also in part due to the bursting of the dot.com bubble, the firm also began investing in public companies. It primarily invests in the following areas: publicly-traded securities, traditional private equity, real estate, special opportunities (such as high-yield bonds), and selective partnerships with established third-party hedge fund managers.

What is MSD seeking in Rami Levy, and what has it found? MSD Capital's website states, "The primary objective of the MSD Public Equity Group is to make long-term equity investments in a limited number of outstanding companies, both in the US and abroad. We employ a disciplined, research-intensive analytic process in searching for businesses that possess sustainable long-term competitive advantages and are managed by honest, astute and shareholder-minded management teams."

MSD Capital usually holds a minority interest in companies, but in the interest of its long-term objectives, it considers itself as limited partners in a business. In companies in which MSD sees an opportunity to create value as a member of management, its investment may be greater.

"We firmly believe that businesses create wealth for their owners through the long-term generation of net free cash flow," says MSD. Rami Levy's cash flow from operations rose to NIS 152 million in 2012 from NIS 62 million in 2011.

MSD does not focus on retail, or in any other industry, but invests on the basis of the opportunity it sees in a company, not in an industry.

Did MSD compare Rami Levy's results to those of other publicly traded Israeli retailers, such as Shufersal Ltd. (TASE:SAE), Alon Holdings Blue Square - Israel Ltd. (NYSE: BSI; TASE: BSI), or Victory Supermarket Chain Ltd. (TASE: VCTR)? It may have done so during the initial research, but MSD says that it focuses on the absolute value of the business it invests in, not on its value relative to its peers or stock indices.

In any case, Rami Levy has outperformed TASE indices. Since its IPO in 2007, the company's share price has risen 410%, and its current market cap is NIS 2 billion. Rami Levy owns 53% of the company, and his wife, Adina, owns 0.3%. In 2007-12, the company has distributed almost NIS 400 million in dividends (including the dividend which will be distributed in two weeks), and the couple are the main beneficiaries. Since the IPO, the Levys have also sold 20% of their shares to investment institutions for NIS 170 million, with the sale to MSD bringing the total to NIS 260 million.

Published by Globes [online], Israel business news - www.globes-online.com - on March 28, 2013

© Copyright of Globes Publisher Itonut (1983) Ltd. 2013

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