After weeks of speculation, the board of directors of Migdal Insurance and Financial Holdings Ltd. (TASE: MGDL) decided on Sunday on the identity of the company's new CEO: Ran Oz, chairman of credit card company CAL-Israel Credit Cards, which is controlled by Israel Discount Bank (TASE: DSCT), will replace Doron Sapir, who in his previous job was CEO of CAL. Sapir decided to leave Migdal shortly after its previous chairman Oded Sarig left because of his deteriorating relationship with Migdal controlling shareholder Shlomo Eliahu and was replaced earlier this year by Nir Gilad.
Yesterday evening, Migdal announced that Sapir would leave the group on July 1, and that in the period between his departure and Oz's arrival, Joseph (Yossi) Ben Baruch, the group's CFO and manager of its financial division, would serve as acting CEO of Migdal Insurance. Before his current post, Ben Baruch was CEO of the group's investment house, Migdal Capital Markets.
When the appointment was announced, Oz presumably received warm congratulations from colleagues and friends, as is usual on these occasions. It is not unlikely, however, that he also heard questions about why he had chosen to go to a company that, ever since it passed to Eliahu's control, has undergone many personnel changes at the top, with managers finding their style cramped, a challenge that Oz will probably face as well, particularly as Gilad has acquired a reputation as a centralizing and strongly opinionated chairman who concentrates a great deal of power in his own hands.
All the same, for all the piquancy surrounding relations with the owner, who has replaced chairpersons and CEOs several times since taking control of Migdal, Oz's challenge there will be greater than getting along with him and the chairman.
In the not-too-distant past, Migdal was the undisputed leader of Israel's insurance industry. Its management was considered authoritative on everything to do with insurance, particularly on the company's most important business, namely pensions. It was seen as an exporter of managers and innovative products to the entire insurance sector. That is not the case today.
Migdal has a current market cap of NIS 3.93 billion, lower than that of Harel Insurance Investments and Financial Services Ltd. (TASE: HARL) (NIS 5.83 billion) and ofThe Phoenix Holdings Ltd. (TASE: PHOE1;PHOE5) (NIS 5.56 billion). In fact, Migdal's market cap is closer to that of Menorah Mivtachim Holdings Ltd. (TASE: MORA) (NIS 3.3 billion) and of Clal Insurance Enterprises Holdings Ltd. (TASE: CLIS) (NIS 3.2 billion), the first of which was much smaller than Migdal in the recent past, and the second of which has, like Migdal, undergone a marked deterioration in its status in the past few years. Moreover, at its peak, in March 2010, Migdal had an adjusted market cap of NIS 8.625 billion, more than double its market cap today. Incidentally, when Eliahu acquired control of Migdal, at a discount on the market price, it was traded at a market cap of NIS 5.51 billion.
Migdal has lost its undisputed status as the biggest insurance company in terms of premiums, pension contributions and profits, partly because of exogenous factors, but also because of management mistakes, such as were made a few years ago in the pensions market.
Nevertheless, Migdal is still the insurance company with the largest total of assets under management in Israel. It has a longstanding insurance portfolio that could yield huge profits with supportive interest rates and capital markets. Migdal also owns the largest distribution arm in the market, with some of the biggest and most prominent insurance agents in the country. It is thus capable of regaining its dominance. To do so, it needs good management, and luck.
In appointing Oz, Migdal has for a second successive time gone for an appointee from outside the company with experience in financial management in the broad sense, but none in the core insurance business.
Over the past few months, Gilad, who was formerly a senior manager at Migdal, mainly responsible for investment and strategy, has sought a successor to Sapir. The assessment in the insurance market was that the appointment was delayed because the candidates wanted clear demarcation of the role in order to ensure freedom of management. Gilad has now found an appropriate manager with a good reputation, whom some even call "a talent", someone who knows how to manage and has broad understanding of finance, but who is not an insurance person familiar with the agents, for example, or the regulation unique to the industry.
This is Oz's first appointment as CEO of a business group in his career, after filling senior management roles in several large enterprises. As far as he is concerned, he is coming to Migdal to do what Lilach Asher-Topilsky has managed to do at Discount Bank - to take over as CEO of an uninviting organization and to succeed there in the face of skepticism in the market about the chances of that happening.
At any rate, the situation is that Migdal is owned by an insurance industry veteran who grew up mainly in general insurance, and whom the regulator does not want to see involved in day-to-day management of the insurance company he controls, which is mainly dependent on life insurance, and it will very soon be managed by two people who are not insurance people in the full sense: chairman Gilad, who was a senior manager at Migdal, CEO of Israel Corporation (TASE: ILCO), and Accountant General in the Ministry of Finance; and Oz, who comes from a background in financial control in many companies and who became a senior finance person during his years at Discount Bank.
Migdal is not hiding what it expects from Oz. In its announcement of his appointment it mentions that in the companies at which Oz worked in the past he led "turnarounds", acquisitions and mergers, investments, the building of enterprise infrastructures, and growth strategies yielding value to shareholders. Eliahu added that, as far as he was concerned, Oz was chosen "to lead and manage Migdal in the coming years, in which Migdal should establish its leadership in the insurance industry, in all areas of its business." Eliahu thus alluded to the erosion in Migdal's relative status in the insurance market.
Eliahu bought control of Migdal in late 2012, and he has not hidden his dissatisfaction with the group's results since. Before Sapir, Migdal was run by Eliahu's son Ofer Eliahu, who also left the post because of tensions with his father, who wanted to see a rapid transformation in the results of the company he controls.
Migdal is looking for new growth engines, in credit, among other areas. Outgoing CEO Sapir, who overlapped with Oz for a short time at CAL, marked this as an important area for the company. Actually, about twelve years ago we wrote that Migdal was intending to enter the consumer credit business through collaboration with one of the credit card companies or customer clubs with credit cards attached, and it even held talks on acquiring a stake in Leumi Card, but these did not come to fruition.
This may well turn out to be an important comfort zone for Oz when he takes up the CEO post. No date for this has yet been set, since the appointment depends on the consent of the Commissioner of Capital Markets, Insurance and Savings Insurance, which is expected to be forthcoming.
Published by Globes, Israel business news - en.globes.co.il - on June 18, 2019
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