Mizrahi Tefahot Bank (TASE:MZTF) announced this morning that it has signed an agreement to acquire Union Bank of Israel (TASE: UNON) from its owners Shlomo Eliahu, the Landau and Manor families and Dr. Yael Almog Zackai. The agreement has been signed four months after Mizrahi Tewfahot, led by CEO Eldad Fresher, announced that it was in talks over a merger at a multiple of 0.6 on Union Bank's equity.
Mizrahi Tefahot now says that the deal will go through at this multiple, reflecting a valuation of NIS 1.4 billion for Union Bank, in line with the Israeli bank's current market value. The structure of the deal involves Union Bank issuing a dividend of NIS 100 million to its shareholders, prior to its sell to Mizrahi Tefahot. The bank will also issue an offer to purchase for the remaining 25% of share held by the public at a similar price. This will be an all-share deal without cash and at the end of the transaction, Union Bank's shareholders will own a 9% stake in Mizrahi Tefahot. Because the acquisition is being conducted at a lower value than Union Bank's equity, the deal is expected to yield over NIS 900 million in capital gains for Mizrahi Tefahot.
Despite the signing of the agreement, the merger is far from a done deal with a number of conditions to be met. The main obstacle will be regulatory approval. Although Supervisor of Banks Hedva Ber has announced her backing for the merger on the assumption that it will make Mizrahi Tefahot more competitive, the Israel Antitrust Authority is yet to have its say. In the political realm, both Minister of Finance Moshe Kahlon and Minister of Economy and Industry Eli Cohen have expressed opposition to the merger out of concern that it will reduce competition in Israel's banking sector with a major player disappearing. Consequently, approval of the deal cannot be taken for granted.
Another obstacle is Union Bank's workers committee with Mizrahi Tefahot having no intentions of taking in all of the acquired bank's 1,200 employees. Mizrahi Tefahot has already said that it will only take in 700 of Union Bank's employees. Union Bank's workers committee has already begun sanctions on the matter and will fiercely oppose the merger.
Published by Globes [online], Israel business news - www.globes-online.com - on November 28, 2017
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