888 Holding plc (LSE:888), which has a $1.1 billion market cap, has announced that the Ben-Yitzhak family has reduced its stake in the company from 10.9% to 2.6% by selling shares for $85.8 million (NIS 320 million), therefore ceasing to be a party at interest in the company. The threshold for a party at interest in the UK capital market is 3%, not 5%, as in the US and Israeli capital markets. This means that if and when the family decides to divest itself of its remaining shares, currently worth $28.4 million, the market will not be aware of it. The Ben-Yitzhak family - Shay, Ron, and their younger sister Dafna - hold shares in 888 through a trusteeship registered in the Virgin Islands that for all intents and purposes is a tax shelter. Ron and Dafna Ben-Yitzhak were not involved in 888. Shay was the only one of the family involved in 888, but the entire family has kept its distance from the media.
The current sale of shares, together with two other sales since the company held its IPO a decade ago, is making the Ben-Yitzhak family one of the most liquid of Israel's tycoon families, with NIS 1 billion in cash now available for any new investment it chooses.
Timing of the sale
Parties at interest customarily sell when the share price is at a peak, and this sale of shares in 888 conforms to the rule. The current share price is £2.14, the highest in a decade, and only 13% below the record reached shortly after 888's IPO in the summer of 2005, shortly before the US market closed and the share plummeted. In other words, the company has returned to its value before the closing of the US market, 888's main market, indicating a noteworthy recovery.
The sell-off by the Ben-Yitzhak family, however, was not designed merely to take advantage of the peak price. The family is in effect liquidating its holding in the company, and completely severing the umbilical cord that connected them for 20 years, the past decade with 888 as a public company. This is legitimate, logical, and by no means rare in these parts.
This case, however, is more complicated. Of the Shaked brothers, fellow founders of 888, Shay Ben-Yitzhak was always closer to the late Aharon Shaked, who died in early 2010. His relations with Avi Shaked, on the other hand, were never that good. When Aharon died, and his children his daughter Tal and his son Ohad took charge of the family wealth, relations between Shay Ben-Yitzhak and Avi Shaked took a turn for the worse, and the fact that even Aharon's heirs did not really get along with Avi was of no help.
A clear indication of the lack of harmony between the company's four pillars is the failure of the negotiations for the sale of the company to UK competitor William Hill in February 2016. William Hill offered £2 a share plus a £0.03 dividend per share, and as far as is known, the Ben-Yitzhaki family was willing to sell at this price (which reflected a 40% premium on the share price at the time), but Shaked demanded £3 a share, William Hill refused, and it ended there.
In retrospect, the Ben-Yitzhak family is liquidating its holdings at a slightly higher price than the one that William Hill was willing to pay - a fact that indicates how eager the family was to sell at the time. From now on, the Shaked family is in control of 888. Each of the brothers owns 24.2% of the capital, making their joint stake a little less than half. There is no real harmony between Aharon Shaked's heirs and Avi Shaked, however, and it will be no surprise if the former follow in the Ben-Yitzhak family's footsteps, as long as no other sale proposal is on the horizon.
The future of 888
Shay Ben-Yitzhak has played a considerable role in 888's great success since the company was founded. Up until a year after the IPO, he was the company's CTO and responsible for its research and development center in Israel. When he resigned those positions in mid=2006, he moved aside, until he was forced to return in order to assist in the recovery of the company, which suffered serious reverses in early 2011 and was subject to liquidity problems as a result of poor management by then-CEO Gigi Levy. Ben-Yitzhak did not assume an executive position, but he worked hard behind the scenes together with then deputy CEO Itai Frieberger (now CEO) to put 888 back on the road to growth and profits, and it worked. At that time, 888 was worth a quarter of its current value, and its earnings before interest, taxes, depreciation, and amortization (EBITDA) in 2015 was $81 million.
Frieberger himself, 45, was rewarded for his substantial contribution to the recovery process by being appointed CEO last March. Frieberger and the rest of 888's senior management are actually the reason why the Ben-Yithak family's separation from the company is not a disaster. Although 888 has not yet become part of the recent consolidation trend in its industry (neither being acquired nor making acquisitions), it is a stronger company than it was previously, and is well-positioned to cope with the numerous challenges facing this industry: higher taxation, intensifying competition, and stricter regulation.
Published by Globes [online], Israel business news - www.globes-online.com - on May 15, 2016
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