The share price of Gamla Harel Residential Real Estate (TASE: GMLA) shot up by more than 60% on the Tel Aviv Stock Exchange yesterday after the company received a takeover bid from Harel Insurance Investments & Financial Services (TASE: HARL), which seeks to delist Gamla Harel at a valuation of NIS 560 million, 80% more than the company’s market cap. Harel Insurance has been a partner in Gamla Harel since the latter was founded in 2006, and it currently holds 17% of the company, which provides mezzanine loans to developers of residential real estate.
Harel Insurance says that it has approached Gamla Harel with a view to entering negotiations on a reverse triangular merger, whereby a subsidiary of Harel Insurance will buy all of the shares in Gamla Harel from the current shareholders. The offer is valid for four weeks, and is subject to completion of a due diligence examination by Harel Insurance, and the signing of a binding agreement.
Since it was floated in 2021, Gamla Harel has lost about 40% of its value, and before the bid by Harel Insurance was announced, its market cap was just NIS 310 million. It is therefore hard to see its board and shareholders turning the bid down.
"35 years experience in real estate"
The big winners from the deal are Adv. Ephraim and Odelia Shpitalni. Through privately held company Gamla Millenium, the couple owns 60.1% of Gamla Harel, and will pocket more than NIS 340 million. Ephraim Shpitalni is the founder of Gamla Harel, and serves as its chairperson. According to the company website, he has "more than 35 years experience in real estate development."
A market source estimated that Harel Insurance had received Shpitalni’s blessing before making its offer, so that the deal is practically signed and sealed. Another source said that he believed that Shpitalni "will agree to the deal."
At the end of June this year, Gamla Harel’s credit portfolio amounted to NIS 1.2 billion. Despite a rise in revenue, the company posted a 30% drop in its second quarter net profit to NIS 7.5 million, because of a threefold rise in provisions for credit losses to nearly NIS 6 million, accounted for by a specific provision. For the first half year, the company earned NIS 21 million on revenue of NIS 72 million. At the end of June, its shareholders’ equity was NIS 332 million.
Family dispute
Gamla Harel was formerly owned jointly by the Shpitalni family and Ephraim Shpitalni’s cousin, vehicle importer Shmuel Harlap. Harlap is one of the wealthiest people in Israel, with a net worth estimated in the past at over NIS 6 billion, partly thanks to the sale of his shares in Mobileye to Intel. Harlap controls Israel’s biggest vehicle importer, Colmobil, which imports, among other brands, Mercedes, Hyundai, and Mitsubishi vehicles. In the lead-up to the flotation of Gamla Harel on the Tel Aviv Stock Exchange, a dispute broke out between the cousins that led to Harlap selling his stake in the company to Shpitalni.
The takeover offer for Gamla Harel comes just a week after Harel Insurance decided to reduce considerably its investment in another non-bank credit company, Michman Finance, controlled by its CEO and founder Yaniv Biton, with Doron Sapir, formerly CEO of credit card company Cal, serving as chairperson. In July, Harel Insurance announced an MOU for the purchase of 25% of Michman Finance for NIS 100 million, valuing the company at NIS 400 million, and a NIS 100 million credit line for the company.
In the end, Harel Insurance will invest just NIS 13.8 million for 4.9% of Michman Finance at a valuation of NIS 270 million, and it has halved the credit line that it will give the company to NIS 50 million.
Published by Globes, Israel business news - en.globes.co.il - on September 3, 2024.
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