Senior Israeli Phoenix Assurance sources informed “Globes” last week that the sale of a controlling interest in the Phoenix insurance group to businessmen Jacob Shahar and Israel Kass has been called off. Sources close to Shahar and Kass confirmed that the negotiations have been discontinued.
Sources inform “Globes” that the main reason the negotiations were discontinued was the demand by Supervisor of Insurance Tzipi Samet that Shahar and Kass show $300 million in equity as a condition for approving the transaction.
The requirement was designed to combine two criteria established by Samet: $150 million, which constitutes 33% of the expected proceeds of the deal, projected at $440 million, and another $150 million, amounting to 50% of Phoenix Assurance’s share capital.
Samet explained to “Globes” that she required these sums because the purchasers are not from the insurance sector and are not known by it. She demanded higher guarantees for the good of the public and the policyholders.
Shahar and Kass negotiated with Samet in order to moderate her requirements. Samet initially demanded even higher equity; the figure of $300 million was already a concession on her part. It appears, however, that even after Samet proposed this sum as a compromise, Shahar and Kass had difficulty raising the required equity.
A senior Phoenix Assurance source today told “Globes”, “For all practical purposes, the deal is off, even though we've made no official announcement. Joseph Hackmey negotiated in good faith to sell a controlling interest in the company, and even spent a lot of money to hire tax consultants and other advisors to prepare for the deal. Now that he realizes the deal won't go through, however, he'll devote himself to managing Phoenix Assurance and expand its business into additional fields.”
A source close to Shahar and Kass admitted, “The negotiations have been halted, but I wouldn’t say the deal was off. Nothing significant has happened in the past two or three weeks. There's a dispute with Samet concerning the equity requirement, which is a real problem.”
Shahar and Kass intended to buy Hackmey and his sister’s 58% share in Phoenix Assurance for $280 million and Shlomo Eliahu’s 38% for $160 million, reflecting a company value of $500 million.
The parties negotiated for five months. They were initially optimistic and just before the Passover holiday said they hoped to sign the contract by Israel Independence Day. Various problems arose during the negotiations, however, and prevented a successful conclusion.
One problem was Shahar and Kass’s demand that Hackmey provide a personal guarantee to make up the deficiency, if due diligence should reveal the company value to be less than $500 million. Another problem was Hackmey’s request to buy the company’s art collection. These problems and others were settled, but then Samet intervened with her equity requirement.
Phoenix Assurance is Israel’s third largest insurance company, with an 18% market share. The company’s premium turnover totaled NIS 4.5 billion last year, with a NIS 140 million profit.
These figures also include the Hadar Insurance subsidiary. A few months ago, Phoenix Assurance announced it was examining ways of merging with Hadar, but no official announcement has been made to date.
Among other things, Phoenix Assurance specializes in life and health insurance. The company recently bought 8,000 sq.m. of office space in Vered House in Givatayim for $20 million and plans to transfer its headquarters there in 2002.
Published by Israel's Business Arena on August 19, 2001