This month has marked the end of an era, when the share of Paz Oil Company Ltd. (TASE:PZOL) lost its place on the Tel Aviv 35 Index, the most important index of the Tel Aviv Stock Exchange (TASE), 11 years after it was first included in the index. The fall in the company's market cap in recent years came together with headlines about disputes between its executives.
The underperformance of Paz's share price highlights the wisdom of the decision by Zadik Bino, Paz's controlling shareholder until 2016, to sell the controlling interest in favor of his other main investment in First International Bank of Israel (TASE: FTIN), whose share price and financial results have been moving in the opposite direction than those of Paz.
Since September 2016, when Bino stopped being Paz's controlling shareholder, Paz's share price has dropped by 20%, while First International's share price has soared 145%. The share price of FIBI Holdings Ltd. (TASE: FIBI), through which Bino holds the controlling interest in First International, has climbed 140% during the same period.
Bino's decision prompted by the Promotion of Competition and Reduction of Concentration Law
The catalyst for Bino's selling his controlling interest in Paz was the Promotion of Competition and Reduction of Concentration Law, which made him choose between a non-financing holding (Paz) and a financial one (FIBI). Bino made a huge profit from this choice. Since 2013, and for several years, Bino was among the leading parties at interest on the TASE in the volume of his sales, mainly due to the sale of his Paz shares. During these years, he sold most of his shares in Paz for nearly NIS 2.5 billion, mostly in deals at prices far higher than the shares' current value.
In addition to the money he made on the sale of Paz shares, Bino also reaped large dividends during his years as the company's controlling shareholder, both before and after the company's IPO. His share of the dividends amounted to nearly NIS 1.5 billion.
Bino was also paid tens of millions of shekels more for the management services that he provided to Paz. After subtracting the investments that he made in Paz, including his purchase of the controlling interest in the company, Bino's profit is estimated at nearly NIS 4 billion, in addition to a holding in FIBI, the controlling shareholder in First International (market cap - NIS 10 billion), with a market value of over NIS 1 billion.
Advanced from teller to CEO
Bino began his banking career as a teller in one of First International's branches, where he was promoted, until his appointment as the bank's CEO in 1978, at age 34. He resigned from First International in order to move to a larger bank - Bank Leumi. Bino acquired control of Paz in late 1999 from the heirs of late Australian billionaire Jack Liberman, with whose business he became familiar as CEO of Bank Leumi. The acquisition cost him $220 million, reflecting a company valuation of $420 million.
When Bino was calling the shots, investors usually regarded Paz as a solid, stable company (Bino had the reputation of a cautious and calculating businessperson). Most of the company's activity was concentrated in a chain of filling stations combined with convenience stores, and in operating the oil refinery in Ashdod. The company also operated in related industrial fields, including production of oil for industry and cars, manufacturing of sealing products, etc. Bino held the company's TASE IPO in late 2006. The company's value grew; less than three years after the IPO, its share was included in the Tel Aviv 25 Index (then the main TASE index).
During its years with Bino at the helm, things went well at Paz. The company's board of directors worked shoulder to shoulder to apply the strategy designed according to guideline set by the controlling shareholder. In recent years, however, Paz's business environment has been challenging, leading to friction between its leading figures.
The resignation of chairman Yitzhak Ezer in late 2018 exposed harsh disputes between hem and the company's management, headed by then-CEO Yona Fogel and financial institutions holding a majority of Paz's shares. In recent months, following a prolonged dispute, it was agreed that Fogel would resign after 12 years as CEO of Paz, and his replacement was announced last month - former Cellcom CEO Nir Sztern.
Falling profits since 2016
Paz's profits have been on a downtrend since 2016, reaching NIS 400 million in 2018, compared with NIS 570 million in 2017 and NIS 545 million in 2016. The trend continued in 2019, with net profit down 14% to NIS 260 million in the first nine months of the year, compared with NIS 300 million in the corresponding period in 2018.
Paz gave another indication of its negative direction in recent week with the publication of initial estimates for the activity of its oil refinery in Ashdod, on which it made a NIS 55-65 million operating loss in the fourth quarter of 2019.
The question of whether it is worthwhile for Paz to hold the Ashdod oil refinery has been in dispute for a long time. On the one hand, some cite the latent potential of this holding with results likely to improve according to the market conditions (among other things, with the support of a new standard for marine diesel oil), following an investment of tens of millions of dollars in renovating some of the oil refinery's facilities. Others, however, fear a decrease in the value of the oil refinery, following the global transition to environmentally friendly energy at the expense of conventional fuel. The oil refinery's results have featured a large degree of volatility in recent years.
Published by Globes, Israel business news - en.globes.co.il - on February 23, 2020
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