Elco Holdings Ltd. (TASE: ELCO) offer to buy between 27% and 29.8% of the shares of Discount Investment Corporation (TASE: DISI) for NIS 400 million demonstrates the potential that controlling shareholders Daniel and Michael Salkind see in realizing and enhancing the company's assets. Discount Investment is a holding company laden with debts, which increases the risk of the investment but also the opportunity to achieve substantial returns on the investment.
As of November 2020, Discount Investment had financial commitments of NIS 3.64 billion and liquid assets worth NIS 1.91 billion, reflecting a debt of NIS 1.73 billion.
The company's assets have enhancement potential. These include a 74% stake in Property and Building Ltd. (TASE: PTBL), a 46% stake in telecom company Cellcom Israel Ltd. (NYSE:CEL; TASE:CEL), 61% in technology company Elron Electronic Industries Ltd. (TASE: ELRN) and 44.5% of agricultural land company Mehadrin Tnuport Export LP (TASE:MEDH).
These are assets worth over NIS 2.77 billion with enormous potential for enhancement. Mega Or chairman and controlling shareholder Zahi Nahmias who has led the purchase of control in Discount Investment, has already spoken in the past about the intention of the purchasers to work towards realizing the assets that are not connected to real estate and strive to reduce the debt.
In other words selling the stakes in Cellcom and Elron for a significant premium on the market value, which could add hundreds of millions of shekels to the shares' current value. In addition, Nahmias sees (and probably the Salkind brothers also want to join such a deal), major potential in enhancing Property & Building Co. also because it is in fact a leveraged investment company with a focus on the real estate sector.
Property & Building holds a 29.9% stake worth NIS 1.57 billion in income producing offices company Bayside Land Corp. Ltd.(Gav Yam) (TASE: BYSD1) as well as private operations in the residential construction sector including land still listed at its historical cost. Property & Building also has full ownership of the HSBC building in New York, whch has a current value of $855 million (about $470 million net of the loans to finance the asset), and which can now be sold following the end of the arbitration with the Schimmel family, which brokered the acquisition.
Another two major assets owned by Property & Building are in various stages of being sold. The first is the commercial centers of Ispro - The Israel Properties Rental Corp. Ltd. (TASE: IPRO), which should be acquired by Kidon Dahari and Liron Adiv by the end of March. The second is the Tivoli commercial and office project in Las Vegas, which will be sold depending on the state of the real estate market in the city.
The stake in Bayside and the residential property activities currently represent the growth potential of Property & Building while selling the holdings in Ispro, and in Las Vegas and New York will contribute to reducing the corporate debt and will support possessing sources of local growth and their expansion.
Published by Globes, Israel business news - en.globes.co.il - on March 7, 2021
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