Alon Group subsidiary Alon USA is still far from being declared a phenomenal success, but for now Gmul Investments (TASE:GMUL) and Marlaz - Shore Area Construction Property and Holding have no reason to be ashamed of the results from their joint gas station investment in March. Marlaz subsidiary DJG Industries (TASE:DJEG) financial report indicates that Marlaz and Gmul's joint US gas station and convenience store venture posted a net profit of $780,000 on $97 million in sales in its first three and half months of operation.
This is the first time that DJG and Gmul have reported the activities of Fas Mart Convenience Stores, which they acquired from the receiver appointed by the US court as part of Fas Mart's creditors arrangement. Gmul and Marlaz established GPM Investments, which they own in equal shares. Fas Mart has a chain of 169 gas stations and conveniences stores in the Southeast US. GPM acquired Fas Mart, including $8 million in inventory of fuels and accompanying products, for $34.7 million.
Marlaz and Gmul invested $16 million in equity in equal shares, financing the rest of the acquisition from banking and non-banking sources. During the year-long negotiation before the deal was closed, Granite Hacarmel Investments (TASE:GRNT) (which owns Sonol) and Polar Investments (TASE:PLR) withdrew from the deal.
A large part of GPM's $240,000 profit in the reported period was recorded in the 10 days following the acquisition, apparently due to the Iraq War, which caused a spike in global fuel prices. Two-thirds of GPM's revenue came from the sale of fuels and the rest from sales by the convenience stores.
GPM recorded a net profit of $540,000 on $86.2 million in revenue in the second quarter of 2003. GPM reported $4.5 million in equity and a balance sheet total of $41.5 million. GPM streamlined Fas Mart by cutting operating costs and personnel, reducing rents for its gas stations, and closing unprofitable stations during the quarter.
Through the Fas Mart deal, DJG is now the main activity of Marlaz, controlled by chairman Mordechai Yona and Assaf Barazani. This situation will probably change completely when Gmul completes the acquisition of the controlling interest in Marlaz subsidiary Mediterranean Properties Investments (MPI) (TASE:MPI). Gmul is the partner of DJG and one of Israel's largest investment companies.
An agreement was signed in late June 2003, under which MPI and Gmul's current controlling shareholders, brothers Eddie and Jules Trump of the US, will found a new company. MPI will own 70% of this company. The Trump brothers will transfer their holdings in Gmul, 64.9% of the equity and the $71 million outstanding loan taken from Bank Hapoalim (LSE:BKHD; TASE:POLI) to finance the acquisition of the Gmul shares, to the new company. MPI will have an option to buy the Trumps' shares in the joint company for $7.5 million.
The Gmul deal is intended in part to improve Bank Hapoalim's position. The bank extended the Trumps a non-recourse loan for their investment. The deal reflects a company value of $120 million for Gmul, four times its market cap, and about the same price the Trump brothers paid to buy the shares two years ago from Bank Hapoalim and the Histadrut (General Federation of Labor in Israel) pension and provident funds.
Gmul also published its second quarter and first half of 2003 financial reports. Gmul reported a profit of NIS 29.2 million in the second quarter and NIS 21.6 million profit in the first half of the year, thanks to the capital market boom. Last year was catastrophic for Gmul: it lost NIS 132 million, which cut its equity by a quarter.
Gmul has five main business areas: the capital market, financial activities, real estate, technology, and fixed investments. Gmul has a wide range of investments, but the main reason that MPI is prepared to take on this huge commitment seems to be Gmul's liquid assets, which exceeded NIS 1 billion in the second quarter, including NIS 400 million in current assets, and the rest in long-term investments and loans.
Gmul reported NIS 39.4 million in profits from negotiable securities transactions and the sale of investments in the second quarter. Gmul sold most of its holdings in real estate company Gazit-Globe (TASE:GLOB) to institutional investors for NIS 69.6 million.
MPI, which is expected to shortly acquire the controlling interest in Gmul, reported a loss of NIS 3.4 million in the second quarter, mostly due to the fall in value of EMED Investment and Real Estate, of which MPI owns 30%. EMED, the property arm of Dan Cooperative Society for Public Transport, posted a net profit of NIS 804,000 in the second quarter of 2003, compared with NIS 12.8 million in the corresponding quarter last year.
EMED posted a net profit of NIS 8.2 million in the first half of 2003, compared with NIS 25.7 million in the first half of 2003. Revenue totaled NIS 210 million and its operating profit was NIS 61.6 million in the first half of 2003. Most of EMED 's revenue came from its subsidiary Dan Rent-A-Car (Avis Israel).
MPI's parent company, Marlaz, posted a NIS 2.8 million loss in the second quarter and a heavy NIS 12.6 million loss in the first half of 2003. In addition to closing the Gmul deal, Marlaz is expected to liquidate its joint holdings with Walt Disney Holding Co.'s (NYSE:DIS) investment arm, Shamrock Holdings, which has reservations about the Gmul deal.
Marlaz's divorce from Shamrock will include its acquiring Shamrock's 43.8% stake in MPI for $10.2 million (mostly through taking on Shamrock's $7.1 million debt to Bank Hapoalim), and Shamrock's stake in the New Tel Aviv Central Bus Station for $10.1 million.
While still on the subject of Marlaz, although the partnership between Yona and Barazani still exists, "Globes" has reported that Yona wants to replace Barazani with a different partner, and it appears that Barazani's wife no longer works for the company.
In June 2002, DJG announced that it would hire Mrs. Barazani at NIS 10,000 a month to establish and develop a subsidiary in the US. The subsidiary will buy property, represent DJG in overseas markets, and be responsible for other tasks designated by DJG's board of directors. The subsidiary suspended operations in February 2003, after $200,000 had been spent, and it stopped paying Mrs. Barazani management fees.
Published by Globes [online] - www.globes.co.il - on September 2, 2003