The Bronfman-Schron group will give up control of Israel Discount Bank (TASE: DSCT), and will sell its shares in it. On Monday evening, Citi began distributing shares held by the group to Israeli and foreign investment institutions. The value of the shares distributed was NIS 530 million, and they were distributed at a discount of 5% on the market price, for a total of around NIS 500 million.
The Bronfman-Schron group owns 25% of Discount Bank (before the distribution). This was the first distribution in a series planned by the group, after which it will exit the bank's controlling core, leaving the bank without one. As a result, Discount Bank will become Israel's second bank without a controlling core (the other bank is Bank Leumi (TASE: LUMI)).
Under the terms of the distribution, the controlling shareholders may not sell Discount Bank shares for the next four months, but afterwards, they will apparently sell more shares. By the end of the process, each of the parties in the group will be left with a stake of almost 5%. In other words, after the present distribution, additional distributions of around 8% of Discount Bank are expected. The sale of the shares will reportedly be completed during 2014.
As a consequence of the sale of the controlling core in Bank Discount, the Bronfman-Schron group will have to forego the appointment of directors in the bank, and they will leave in a gradual process.
The Bronfman-Schron group first invested in Discount Bank almost nine years ago. In February 2005, the group acquired 26% of the bank for NIS 1.3 billion. The transfer of control occurred exactly one year later. The Bronfman family acquired 15.6% of the bank, amounting to 60% of the controlling core. Schron acquired 10.4% of the bank, amounting to 40% of the controlling core. The group's stake was subsequently diluted slightly following a rights issue, and it currently owns 25% of the bank's shares, worth NIS 1.9 billion.
Discount Bank's share price has risen almost 30% over the past year, supporting the Bronfman-Schron group's sale of the shares. However, the fact that the group has decided to distribute the shares on the market, instead of selling the controlling interest, indicates that there is no rush to acquire control of the bank, to the point that the group preferred to forego a control premium, and to sell the shares at the market price (if not less than that).
Discount Bank is in a difficult position. First, it is the least efficient bank in the banking system, and it is in the midst of a labor dispute over its streamlining plans. In addition, the bank dealt with a capital problem, and solving it came at the price of growth. Even if the capital problem is close to being solved, there is a long way to go before the bank will again distribute dividends. It should also be noted that there will soon be a change in CEOs: Reuven Spiegel will leave and will be succeeded by Lilach Asher-Topilsky.
Published by Globes [online], Israel business news - www.globes-online.com - on December 3, 2013
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