Blue Square Properties, traded on the Tel-Aviv Stock Exchange, has decided to enter negotiations for the sale of its shares in the Hamashbir LaZarchan department stores chain to the Co-op Co-operative Society. Co-op Co-operative Society is the controlling shareholder in Blue Square Israel, parent company of Blue Square Properties, traded on Wall Street.
The Hamashbir LaZarchan chain-store presently numbers 40 branches, half of them department stores for the sale of clothing products, cosmetics and household goods, and the rest of them branches of the Bon-Mart, Zara, Guess and Paul and Bear fashion chains. In the first quarter of 1998, the revenues of Hamashbir LaZarchan amounted to NIS 269 million, and it posted a NIS 6 million loss.
Over and above the effects of the recession and seasonal fluctuations, Hamashbir LaZarchan has suffered mainly from the business results of the Bon-Mart chain, which specialises in low price clothing items. This June, all management teams of Bon Mart, numbering 8 retail outlets, were replaced, less than two years after the chain started operating in Israel. The Zara chain-store, with three outlets, has been operating with great success for three quarters. Despite heavy set-up expenses, the chain broke even at the end of the period.
Blue Square Properties presently holds 79.65% of the shares of Hamashbir LaZarchan. The balance of the shares are held by the Co-op North Co-operative Society, which has first right of refusal for purchasing the shares of Blue Square, under an agreement for the merger of Hamashbir LaZarchan branches of the two co-operative societies as of the end of 1995.
According to a letter of intent sent by the Co-op Co-operative Society to Blue Square, the consideration in respect of the share of Hamashbir LaZarchan will be determined in negotiations between purchaser and seller, based on an evaluation to be prepared by an independent expert, and subject to its approval in a fairness opinion due to be prepared for the Society. The evaluation will be performed by Giza, and sources close to Hamashbir LaZarchan today estimated its worth at $70 million.
Yaakov Gelbard, chairman of the board of Blue Square Properties and general manager of parent company Blue Square Israel, today explained the reasons for the move: "In the past two years, we have tried to interest international strategic investors in acquiring a part of our holding in Hamashbir LaZarchan, with a view to upgrading its activity. The attempt did not succeed, and I can’t explain why. The size of the Israeli market may have been a barrier, or possibly changes in the Israeli economy".
Gelbard, who claims that "the level of interest among international chains was not particularly high", revealed that Blue Square was assisted by the Merrill Lynch investment bank and UBS, to find a partner in Hamashbir LaZarchan. The last to reject the offer was the European department store chain Debenham’s.
This being so, Gelbard says, "The Co-operative Society reached a strategic decision whereby Blue Square will focus on foodstuffs".
Published by Israel's Business Arena July 21, 1998