At the end of the first quarter this year, the Apax Partners investment fund and Mivtach Shamir Holdings Ltd. (TASE:MISH), controlled by Meir Shamir, completed one of the biggest and most successful deals in Israel in years by selling their controlling interest in Tnuva Food Industries Ltd. to Chinese company Bright Food for NIS 8.6 billion, thereby making a profit in the billions of shekels.
Less than six months later, however, sources inform "Globes" that the purchasers regard the deal as less successful for them. According to a source informed about the Chinese group, "There is great bitterness and dissatisfaction towards those who sold Tnuva to Bright Food and the presentations they made during the negotiations for the sale." The source added, "There is anger with Apax about the excessively optimistic presentations about the company made to the purchasers."
No response from Bright Food and Apax was available.
Commenting on these matters, former kibbutzim representative Itzik Bader said, "Bright Food can sue Apax. I wouldn't have paid what they paid for Tnuva, but they paid it." Asked whether the Chinese understood what they were buying, he answered, "Sometimes, a buyer knows things that the seller doesn't. Maybe it was worth more to them." In any case, it is believed that the Chinese will demand organizational changes and cost-cutting measures from Tnuva management in Israel in order to improve Tnuva's profit line. It cannot be ruled out that these measures will also include personnel changes in Tnuva's management.
Bright Food signed a deal in May 2014 to acquire Apax's 56.1% holding in Tnuva, and Apax's partner in the company, Mivtach Shamir (a 20.7% stake), later joined the deal. Following negotiations with frequent changes and muscle flexing, the deal was completed this year, and Bright Food paid Apax a total of NIS 4.8 billion (€936 million).
Bright Food now holds 76.8% of Tnuva's shares, with the kibbutzim and moshavim (collective and cooperative communities), who were not part of the deal, holding the remaining 23.2%.
The deal was very successful for Apax and Mivtach Shamir. Apax, managed by Zehavit Cohen, posted a profit of €800 million (over NIS 3.5 billion) on its holding in Tnuva, which it acquired only in 2008, when it acquired control of Tnuva together with Mivtach Shamir. Mivtach Shamir made a NIS 462 million profit on the deal, in additional to dividends and other payments totaling an additional NIS 500 million.
Another source informed about Tnuva told "Globes" that Bright Food was angry at Apax's actions, because "the value of Bright Food's deal does not reflect an ordinary economic value for such a deal in Western terms. The source added, "The buyer is in disorder. They had trouble explaining the deal to their principals after it was completed as part of the process of transferring the shares in Tnuva to the companies in the group."
Bright Food sources said that the Tnuva shares were being distributed among the Bright Food group's companies as part of preparations for an offering, which at the moment was being postponed due to the crash in the Chinese financial market, not because of the value of Tnuva in the deal with Apax.
As a business company, Tnuva is going through a difficult period. On the one hand, the regulator is taking measures to open the market to competition, while on the other hand, its competitors are entering with greater force categories in which Tnuva formerly enjoyed complete domination. For example, Shufersal Ltd. (TASE:SAE) has issued a private brand of milk and fresh meat, and Tnuva is bearing the brunt of this competition. The expansion of Shufersal's private brand is expected to inspire imitation by other supermarket chains, and the damage suffered by Tnuva is therefore expected to grow. For its part, Tnuva has attempted to disrupt the launching of Shufersal's meat brand by announced that it would import meat from Poland at much lower prices, but it is already clear that Tnuva's Adom Adom meat company can expected substantial damage.
The opening of the market to imported yellow cheese by eliminating customs duties has created strong price competition for Tnuva, in addition to Tara Dairies' launching of its Noam brand of yellow cheese and other measures.
All these developments are having a direct negative impact on Tnuva's sales and profits.
Sources said that Tnuva expected a drop in sales as a result of the slowdown in the market and growing competition, but the actual effect was much worse than expected. "Tnuva is far from earning a lot of money. That is clearly disturbing. The market is on a downtrend, and we see the numbers," the source said.
Published by Globes [online], Israel business news - www.globes-online.com - on September 2, 2015
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