Dexia rejects Bank of Jerusalem merger

Four and half months after the Bank of Jerusalem (TASE: JBNK)( submitted a merger proposal to Dexia Israel (Public Finance) Ltd. (TASE:DXIL), Dexia today announced that it was rejecting the proposal for reasons of synergy and price.

"Accepting the proposal will make no real contribution to the bank from the standpoint of the merged bank's business and synergy. Given the characteristics of the two banks, there is no reason to think that synergetic advantages will be created as a result of merging their activities. The saving on costs asserted in the proposal is not definite, and will be offset by the financing cost of paying the Dexia shareholders for the merger. The profit portrayed in your letter is only on paper, and does not necessarily reflect an increase in economic profit," Dexia wrote in a letter to the Bank of Jerusalem.

Dexia's board of directors also regards the price as inadequate. The Bank of Jerualem is offering the Dexia shareholders NIS 326 million plus 31% of the Bank of Jerusalem's shares. "From the perspective of the bank's shareholders, including the minority shareholders, the offer makes it possible to sell their holdings for cash or shares. At the same time, the cash element of the offer is limited, and is based solely on the market price of the listed bank's shares, while the advantage of receiving Bank of Jerusalem shares is based on the unfounded assessment that the synergy between the two banks has advantages that will raise the merged bank's share price," Dexia writes.

At the same time, the deal is not definitely off the agenda, and the announcement could be just a negotiation ploy. The Bank of Jerusalem, which has invested a great deal in analyzing the deal and formulating its offer, will decide soon whether to make a better offer.

The Bank of Jerusalem said in response, "The Bank of Jerusalem is considering Dexia's response, and will make decisions after studying it." It appears that the rejection of the proposal did not exactly move the investors. The two banks' shares, traded at a market cap of nearly NIS 550 million for each bank, remained unchanged in morning trading.

In December 2014, the Bank of Jerusalem, managed by CEO Uriel Paz, proposed a merger with Dexia, after having tried to acquire the latter three years ago. The Bank of Jerusalem planned to acquire 100% of Dexia's shares in a shares and cash deal, following which Dexia was slated to become a private company owned by the Bank of Jerusalem.

Completing such a deal appears to be a difficult task. While Dexia International wants to sell control of the bank and withdraw from business in Israel, a full merger is no simple matter, principally because Dexia Israel has five types of shareholders, each of which has different rights.

Dexia deals in municipal credit, while the Bank of Jerusalem engages in retail business and recently began capital market activity by acquiring the brokerage business of Clal Finance.

Published by Globes [online], Israel business news - www.globes-online.com - on April 29, 2015