One of 1999’s most interesting economic tugs-of-war reached a dramatic conclusion this morning. Discount Bank, holder of 35% of Visa-ICC, is acquiring Bank Leumi’s 65% stake in the company.
Following marathon negotiations, the two banks submitted their price offers in sealed envelopes. Bank Leumi offered a value of NIS 468 million for Visa-ICC, while Discount Bank offered a value of NIS 533 million. Discount Bank accordingly won the company and will pay the average of the two bids, namely NIS 510.5 million – or NIS 332 million for the 65% holding.
The agreement between the two banks provides that a NIS 180 million dividend will first be distributed. In addition, Bank Leumi has undertaken to indemnify Discount Bank in respect of claims itemised in the agreement, and both parties have undertaken to refrain from future claims.
Another provision stipulates that Discount Bank will waive its claims in respect of the Buy & Bonus campaign, and that, instead, an economic arbiter will be appointed to determine whether Discount Bank sustained any damage in respect of the club deal, and, if so, in what amount.
The agreement also provides that each bank will refrain from soliciting the other bank’s customers to switch to its credit card company. Also, Bank Leumi will refrain from soliciting Visa-ICC workers to switch to its employ.
Bank Leumi will shortly start preparations for setting up a new credit card company.
Bank Leumi hopes to create itself a credit card system of its own on the basis of the model prevailing hitherto. The timetable for setting up such a company is estimated at one year to eighteen months. Cost could reach an estimated NIS 300-400 million.
Bank Leumi deputy general manager Yonah Fogel today confirmed the intention of setting up a new company with Visa’s concession and also of making use of a concession from Starcard.
Having now obtained Visa-ICC, Discount Bank intends shortly to go into intensive negotiations with potential partners.
Discount Bank is expected to form a partnership structure for the company, in which it will hold 51% and another bank, namely either Mizrahi or Union bank, will hold 29%. A business entity such as IDB or some other will hold the remaining 20%.
In this way, Discount Bank expects to reduce the acquisition cost, while at the same time roping in as customers the customers of another bank. This will not bring it up to the Bank Leumi customer base of 900,000, but will reduce the losses anticipated in the initial period.
It has been further learnt that Bank Leumi is looking into the possibility of adding several more concessions to the company it will set up. Although Visa credit cards will be the leaders, together with a Mastercard credit card, the bank has already started preliminary negotiations with Morgan Stanley Dean Witter concerning the possibility of acquiring the concession to issue in Israel the Discover credit card.
Published by Israel's Business Arena January 3, 2000