Non-binding bids received for Discount Bank NY

Bidders are proceeding to the due diligence stage, with the possibility of buying the bank outright or a 30% stake.

The sale of Discount Bank of New York is making progress,. Israel Discount Bank (TASE: DSCT) announced today that it had received non-binding bids for its New York business.

Some of those who made bids are proceeding to the due diligence stage. After that stage is over, the contenders will submit final bids, and the Discount Bank board will make a final decision on whether to sell the New York unit, and if so, to whom.

There are two possible tracks. The first is the acquisition of Discount Bank of New York outright, for which it is believed Discount Bank seeks a price of about $1 billion (giving a multiple of 1.2 on the New York bank's shareholders' equity). The second is an acquisition of just 30% of the bank.

Discount Bank also announced today that it might sell Discount Bank Latin America, a subsidiary of Discount Bank of New York, operating in Uruguay. However, selling its Latin American business is not Discount Bank's main aim, and it will probably do so only as part of a larger deal.

There are two main categories of potential buyer for Discount Bank of New York: foreign banks, which would mostly be interested in an outright acquisition; and private equity firms, which would be more interested in buying a 30% stake.

Private equity funds buy assets for a limited amount of time. The idea is that a fund should buy part of the bank, Israel Discount Bank will continue to control it and will seek to enhance its value, and then after a few years will float it, enabling the private equity fund to make an exit.

Capital market sources say that $1 billion is a high price for Discount Bank of New York, and that it is doubtful whether Discount Bank will obtain it. Discount Bank of New York's shareholders' equity is $830 million, and on average it generates a return on equity of only 5%. On the other hand, it is recognized that there is room for improving the bank's performance, while the current low interest rate environment, which makes it hard to generate high profits, will at some stage give way to higher rates, leading to a considerable improvement in profitability.

Published by Globes [online], Israel business news - www.globes-online.com - on September 12, 2013

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

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