The Bronfman-Schron group will make a handsome profit on the exit from its investment in Israel Discount Bank (TASE: DSCT), but not a great one. The shares bought for NIS 1.3 billion are now worth NIS 1.9 billion. The group did not greatly benefit from dividends: the bank distributed only one dividend over the years, and it made a rights issue, which offset the group's income from the dividend.
Bottom line, over nine years, the Bronfman-Schron group made a profit of NIS 600 million on its investment, reflecting a return of 46%, or less than 5% a year.
The final profit could be lower, because the group will sell the shares for less than the market price. In addition, the knowledge that the group is about to sell shares will put pressure on the share, pushing it down. However, it is important to note that the strengthening of the shekel over the years that the Bronfman-Schron group held Discount Bank works in its favor. Since the group is American, so it is more correct to consider the return in dollar terms.
During the period that the Bronfman-Schron group has held Discount Bank, the shekel has strengthened 23% against the dollar, resulting in a return on investment of 92%, or 9.5% a year.
Nevertheless, the Bronfman-Schron group's profit could have been much bigger. When Discount Bank was privatized in 2005, the group received an option, valid through the end of 2008, to acquire an addition 25% at NIS 5.08 per share (linked to the Consumer Price Index (CPI) of December 2004). When the deal was closed, the share price was already more than 40% higher, and the group decided not to exercise its option, notwithstanding the latent paper profit. Discount Bank's share price subsequently fell, putting the option out of the money, and it was not exercised.
Published by Globes [online], Israel business news - www.globes-online.com - on December 3, 2013
© Copyright of Globes Publisher Itonut (1983) Ltd. 2013