Bayside Land Corp. Ltd.(Gav Yam) (TASE: BYSD1) is considered one of the best quality income producing real estate companies in Israel. It is not the largest in terms of market cap, but its high capital multiple in relation to other local companies in the sector indicates how much investors like its activity.
Yesterday, Bayside was traded at a multiple of 1.95 on its shareholders'' equity, i.e., its market cap of NIS 5.24 billion is 95% higher than the equity attributed to its shareholders of NIS 2.69 billion. This price, however, has not deterred Aaron Frenkel, who has decided to invest considerable capital in taking over the company.
Frenkel, who exploited a dip in Bayside's share price earlier this year to build an initial position of 10.3%, agreed a purchase on Friday of a further 15.1% stake from Migdal Insurance and Financial Holdings Ltd. (TASE: MGDL) for NIS 939 million, representing a 20% premium over the stock market price. Completion of that deal will bring Frenkel to a 25.4% holding in Bayside.
The high price that Frenkel agreed to pay Migdal in effect represents a control premium, and reveals his intention of becoming the new controlling shareholder in Bayside. According to market sources, Frenkel seeks to continue buying shares of the company on the market, and to that end he recently met other major shareholders
Among others, Frenkel met representatives of Clal Insurance Enterprises Holdings Ltd. (TASE: CLIS), which holds 9.1% of Bayside, and Chaim Katzman, CEO and controlling shareholder of Gazit-Globe Ltd. (NYSE: GZT; TASE: GLOB), which holds 2.34%. According to the sources, Frenkel has all the financial resources necessary to expand his holding, and he himself is a great believer in income producing real estate, and knows the sector well as the owner of extensive activity in it in Europe.
Bayside, whose share price has shot up 30% since mid-October, specializes in constructing and managing high-tech office parks. It is also active in other parts of the income producing real estate market: commercial, offices, and residential. The largest shareholder in Bayside is Property and Building Ltd. (TASE: PTBL), controlled by Discount Investment.
Property and Building owns 29.9% of Bayside, after selling a large part of its holding last year, and it is no longer officially defined as the controlling shareholder. It was necessary for the company to shed that status in order to comply with the Concentration Law, which forbids pyramids of three layers of public companies. In the current situation, Frenkel can continue to accumulate Bayside shares up to a threshold of 45%, at which point the Companies Law allows a holding to be increased only by a tender offer to purchase for a slice of 5% or more of the shares.
Alternatively, Frenkel could in the future attempt to buy some of the shares currently held by Property and Building. That will be dependent on, among other things, decisions made by the new (or old) controlling shareholders in Discount Investment.
Discount Investment itself is at the center of a heated battle for control between its previous owner, Eduardo Elsztain, and a consortium of investors headed by real estate company Mega Or, controlled by Zahi Nahmias. Elsztain seeks to get back to controlling Discount Investment after losing it following the collapse of IDB Development, which he controlled, and whose main asset, mortgaged to its bondholders, is a 70% holding in Discount Investment.
Published by Globes, Israel business news - en.globes.co.il - on November 2, 2020
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