Bank of Jerusalem (TASE: JBNK) is in advanced negotiations for a merger with Dexia Israel (Public Finance) Ltd. (TASE:DXIL). A proposal for the acquisition of Dexia Israel was made at a meeting of the Bank of Jerusalem board of directors today. Dexia Israel's main business is providing credit to the local authorities. Bank of Jerusalem is managed by CEO Uriel Paz.
The aim is to buy 100% of Dexia Israel, making it a private company fully owned by the Bank of Jerusalem.
The Bank of Jerusalem aims to pay for the acquisition in both cash and its own shares, as follows: NIS 326 million in cash for 60% of Dexia Israel's shares, constituting a 1.1 multiple on Dexia's relative equity, and an allocation of shares amounting to 31% of Bank of Jerusalem's capital (after the allocation), based on a multiple of 1 for Bank of Jerusalem's equity, for 40% of Dexia Israel's shares. Under the mechanism to be established, each shareholder in Dexia Israel will be able to choose cash or shares.
At a time close to the date of the acquisition deal, it is possible that a foreign fund specializing in banking that has expressed readiness to buy shares in Bank of Jerusalem could be asked buy such shares soon after the deal is completed.
The Dexia group, which owns 66% of the voting rights in Dexia Israel, has announced in the past its intention to sell its branch in Israel. According to previous media reports, negotiations were conducted with Israel Discount Bank (TASE: DSCT), Mizrahi Tefahot Bank (TASE:MZTF), and Bank of Jerusalem. It appears that negotiations with Bank of Jerusalem were recently renewed. One of the complicating factors in the sale of the bank is its control structure, which includes five different types of shares.
The equity of Dexia Israel, managed by CEO David Kapah, totals NIS 770 million. The bank's share is currently traded at a NIS 507 million market cap, amounting to a 0.6 multiple on capital. The bank enjoys a high 21.8% capital adequacy ratio (compared with 9% at the rest of the banks). Dexia Israel's credit granted to the local authorities accounts for NIS 5 billion of the bank's total credit of NIS 6 billion. Its market share in the local government sector is 40%. Dexia has also made several large loans in the municipal sector that deviate from the Bank of Israel's single borrower restriction.
Dexia Israel (formerly Bank Otzar Hashilton Hamekomi) is controlled by the global Dexia Group. The Dexia Group was severely affected by the 2008 financial crisis, and was nationalized by the French and Belgian governments, which injected capital into it and provided it with guarantees. After its nationalization, a program of reorganization and cost cutting was instituted, including the sale of subsidiaries and the cutting back of activity. It was decided that Dexia Group would exit some markets, including Israel. It was previously thought that the decision to exit Israel was also due to political pressures from the pro-Arab lobbyists, but sources at the bank denied this. In its fourth quarter financial reports, Dexia Israel said that in the first half of 2013, Dexia Group had completed the sale of all its holding in the world earmarked for sale under its reorganization plan, except for Dexia Israel.
Published by Globes [online], Israel business news - www.globes-online.com - on December 16, 2014
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