After several stormy months for the shareholders in Norstar (TASE: NSTR) which controls real estate company Gazit Globe (TASE: GZT), Barak Rosen and Asaf Tuchmair, who control Israel Canada (TASE: ISCN), are launching a takeover bid for the company. This morning, Israel Canada published a non-binding offer to Norstar's shareholders to buy control of the company for NIS 55.55 per share, an offer that values Norstar at NIS 1.95 billion. The offer is 15.3% above Norstar's opening price on the Tel Aviv Stock Exchange this morning. Since the offer was published, Norstar's share price has risen 14.11% to NIS 55.00.
The offer can be accepted in two forms: completely in cash, or partly (up to 50%) in shares of Gazit Globe held by Norstar, in the ratio of 1.88 Gazit Globe shares for each Norstar share. The offer comes a day before Norstar is supposed to proceed with a dramatic move of distributing 14% of Gazit Globe as a dividend in kind to its shareholders. Norstar's board will therefore meet today to discuss Israel Canada's offer, and will probably freeze the dividend distribution in order not to interfere with possible negotiations.
The need for an offer by Israel Canada to all of Norstar's shareholders, rather than a partial purchase of shares in it, arises from the fact that Israel Canada has to achieve full control of Norstar, otherwise it will from an ownership pyramid that is banned under the Concentration Law. Israel Canada's move comes after weeks of a high-stakes battle over Norstar against the other shareholders, among them controlling shareholder Chaim Katzman.
Gazit Globe is an income-producing real estate company that holds commercial centers in Israel and overseas through various subsidiaries. Its current market cap is NIS 4.86 billion, while the market cap of Norstar, which holds 51% of Gazit Globe, was NIS 1.76 billion at the opening of today's trading. Norstar reached this market cap after a 52.8% rise in its share price since the beginning of 2022 and an 88% rise in the past six months.
Although Israel Canada's offer looks attractive for Norstar shareholders in comparison with its current market price, it values Norstar 39% below its peak price of NIS 91 on February 14, 2020, just before the outbreak of the coronavirus pandemic.
The share price plummeted to NIS 11.60 in August 2020, because of the closures of its commercial centers in Israel and abroad. Despite the subsequent relaxation of Covid-related restrictions, the share price has not recovered to its pre-Covid level.
Katzman's dilemma
The controlling shareholder and key person at Gazit Globe, through Norstar, is the CEO of both companies Chaim Katzman. A takeover of Gazit Globe by Israel Canada would raise the question whether he has come to the end of his role at the company. The answer is still not clear, because part of the Israel Canada offer is to pay up to 50% of the consideration in shares of Gazit Globe. This means that Katzman can choose whether to sell Norstar shares for cash, or to receive Gazit Globe shares. In the latter case, he will still be a powerful figure at the company the day after.
The ball is now in the court of the Norstar board of directors, which has to decide whether to enter into negotiations. At a 15% premium, the offer is positive news for Nortsar shareholders, and so while Israel Canada's move is a surprise, it stands a chance of succeeding. Nevertheless, a non-binding offer does not even require reporting under US law, unlike the situation in Israel. We may therefore not be looking at the final act, and there could be more surprises in store.
If Katzman decides to accept the offer and to leave the group, it will the end of decades at the helm of Gazit Globe. Barak Rosen met Katzman in Miami last week to present his offer. He sent the financial details in a WhatsApp message at the end of the week. The Norstar board now has a decision to make.
Published by Globes, Israel business news - en.globes.co.il - on April 24, 2022.
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