The huge deal for the sale of The Phoenix Holdings Ltd. (TASE: PHOE1;PHOE5) to Chinese investment company Fosun Group is close to being signed. The period of exclusivity agreed between Fosun and the seller, Yitzhak Tshuva's Delek Group Ltd. (TASE: DLEKG), for the purpose of arriving at a binding agreement recently expired, but the parties want to sign a deal, and it is believed that they will sign a detailed and binding agreement in the coming days.
The parties have already agreed on the price for the deal, reflecting a 10% discount (up to NIS 200 million) on the price mentioned at the beginning of the negotiations between them. There are still, however, several obstacles to be removed before an agreement is signed. Sources inform "Globes" that the Chinese buyer is demanding guarantees of indemnification from Delek Group in the event of certain problematic scenarios materializing in the acquired company after control passes to Fosun.
This involves mainly Fosun's demand that Delek Group promise indemnification with respect to the results of the Israel Security Authority's investigation against Excellence Investments Ltd. (TASE: EXCE), controlled by Phoenix Holdings. As far as is known, Delek Group wants the deal to be as smooth as possible, and does not wish to remain exposed to what happens to Phoenix Holdings and Excellence Investments in the distant future.
Another remaining problem that the parties must solve includes the need to reach agreement with Phoenix's workers, who are unionized in the Histadrut (General Federation of Labor in Israel) framework. There is also the matter of Phoenix Holdings CEO Eyal Lapidot. According to insurance sector sources, the Chinese are considering leaving Lapidot in the the group, albeit in a different position, with the payment for his remuneration being shared by Phoenix and the acquiring company. The recent regulations concerning remuneration for executives and chairmen in financial entities, however, have complicated the solution of this question.
Under the initial agreement between Fosun Group and Delek Group signed in January 2015, Fosun will acquire 42-52% of Phoenix Holdings's shares at a price reflecting the insurance company's equity as of the end of the third quarter of 2014 - NIS 3.7 billion, plus 4.7% interest starting at the end of the third quarter of 2014, until the deal is completed.
In view of this agreement, even after the expected discount, the proceeds for Delek Group will be far above the market value of the Phoenix shares, which as of now reflect a company value of NIS 2.55 billion. Fosun has already conducted thorough due diligence for Phoenix Holdings.
If and when the Chinese sign a binding agreement, completion of the deal will be subject to another substantial hurdle: Fosun must obtain approval from the Ministry of Finance Supervisor of Capital Markets, Insurance and Savings for holding a controlling interest in an Israeli insurer. This is no small matter, but it is believed that Fosun has a strong case to present to the Supervisor, because it already holds insurer's licenses in the European Union (in Portugal) and the US.
Published by Globes [online], Israel business news - www.globes-online.com - on June 16, 2015
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