The Competition Authority believes that it has put a stop to the deal whereby Harel Insurance Investments and Financial Services (TASE: HARL) was to have acquired credit card company Isracard (TASE: ISCD) for NIS 3.3 billion. On Monday, the Competition Authority, headed by Michal Cohen, notified the two companies that it opposed completion of the deal. The Authority’s main reason for its decision is Harel’s dominance in the health insurance market and the fear that information it holds on customers might be passed on to Isracard, and vice versa. Harel, however, is not giving up, and is inclined to take the matter to court. It will make a decision within the next few days.
The Competition Authority’s recommendation is not quite the final word from the regulatory point of view. That lies with the Exemptions and Mergers Committee, which is due to convene shortly to decide whether to accept the recommendation.
If the deal does not go ahead, two potential buyers for Isracard are two of Harel’s competitors in the insurance industry, Menorah Mivtachim and The Phoenix Holdings, which are already deeply involved in the credit business. Loans have become the growth engine of the credit card companies, as revenue from their core activities of credit card issuing and clearing declines.
Menorah Mivtachim did in fact bid against Harel for Isracard last year, offering to buy a 30% stake at a valuation of NIS 3.5 billion.
What happens now?
As far as Harel is concerned, it needs to notify Isracard by the end of the month whether it is giving up on the deal or filing an appeal in the court. If Harel decides on legal action, it is in effect seeking a year’s extension for the deal, and Isracard’s shareholders will need to approve that. Harel believes it has strong arguments with which to persuade the court to overturn the Competition Authority’s recommendation, and there is the precedent of the decision to allow the merger between Union Bank of Israel and Mizrahi Tefahot Bank despite the objection of then director general of the Competition Authority Michal Halperin.
On the face of it, Isracard ought to be indifferent to the decision. It’s a public company with no controlling interest, and it can remain so indefinitely, or wait for another suitor to take it over.
To judge from the behavior of Isracard’s share price, the market believes that the deal will not go ahead, or at least that the price will be adjusted. The share price fell from NIS 13.48 on Monday to NIS 12.24 yesterday, although it has recovered slightly today. Isracard’s market cap is around NIS 2.5 billion, some NIS 800 million below the deal price.
Harel’s share price, meanwhile, has been fairly stable. Over the past year, it has responded more to events in the insurance market than to developments in the Isracard deal. Harel’s market cap is around NIS 5.8 billion.
The Competition Authority’s decision to oppose the Harel-Isracard merger comes after the two other regulators concerned, the Capital Markets, Insurance and Savings Authority and the Bank of Israel, approved it, although the former did make approval conditional on certain restrictions. The inter-ministerial team formed by Minister of Finance Bezalel Smotrich also recently recommended removing the restriction that up to now has prevented insurance companies from buying credit card companies directly from the banks, in effect paving the way for the sale of Cal Israel Credit Cards by Discount Bank to an insurance company.
The Competition Authority apparently gives greater weight to competition within the insurance industry, and prefers not to get into the question of competition with the banks, even though the number of companies active in Israel’s insurance market is much larger than the number of banks, and competition in most segments of the insurance industry is far more significant than the competition in banking. The Supervisor of Banks in the Bank of Israel, Daniel Hahiashvili, on the other hand, sees the credit card companies as a means of promoting competition in the banking system.
Published by Globes, Israel business news - en.globes.co.il - on January 24, 2024.
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