A possible complete takeover of Osem Investments Ltd. (controlled by Nestle SA (SWX:NESN)) (TASE: OSEM) by global company Nestle and delisting of Osem from the TASE became the talk of the day in the retail market. Senior market sources said that Nestle had decided to take Osem out of the spotlight and away from public criticism.
"With their profits, I'd also delist them," a senior retailer said. "Why should they be in the middle of the social protest storm and be criticized all thetime for how much they earn? Look at the Central Bottling Company (Coca Cola Israel). Look at the hoops Tnuva Food Industries Ltd. jumped through so that Mivtach-Shamir Food Industries Ltd. (TASE:SHAM) wouldn't have to publish their financials. Look at the differences in public criticism between a private company like the Central Bottling Company and a public company like Strauss Group Ltd. (TASE:STRS), Shufersal Ltd. (TASE:SAE), and Rami Levy Chain Stores Hashikma Marketing 2006 Ltd. (TASE:RMLI), where you know what's going on. If they knew how much Coca Cola Israel was earning, they would kill them.
"There is also a lot ofcriticism of the money that Osem sends overseas. The Israeli public pays for Osem's products, but the profits go to the Swiss consumer, who indirectly benefits from the cost of the brands developed by the local company. I'm not sure that this will go over so well with the public."
"Globes": Do you believe that this move will increase consumer awareness of the fact that Osem has not been an Israeli company for some time?
"This move weakens Osem's connection to Israel. Whenyou're a public company, you give an accounting to the Israeli public every year, and Osem is now discontinuing its accounting to the Israeli public, and accounting for its actions to global company Nestle. It could therefore be that Osem can now do things that a public company can't do on this format, because it no longer has to give an accounting to anybody."
Such as what?
"Look at the fact that the first company to raise its prices after the social protest was Unilever (an international company not listed on the TASE, I.H). Could the CEO of an Israeli company have done such a thing? I'm not sure. Maybe he could, but the record says no."
Will it be easier for Osem to raise prices?
"It will be easier for Osem to do things that a public company is more restricted in doing. Price hikes are one thing, and there are others. When I read the instructions issued by Osem CEO Itzik Tzaig, he talks about social protest and all sorts of things relating to the Israel public, and accepts all sorts of constraints. Tomorrow, there won't be any analysts meetings,release of quarterly reports, reports to the TASE if someone wants to get more money or less money, or reports if results get better or worse. It lives only for itself. They won't get mad at it when its operating profit or its gross profit goes up. That's how every meeting with them starts. Why are you earning 13% and we're earning nothing? Why are you earning 30% in the milk substitutes sector and we've got a 30% operating loss on the products?"
A senior source in one of the import companies told "Globes," "Nestle is right that this way, no one will look too hard at how much money they're making. Profit figures will not be disclosed to the public, and so Osem will reduce the risk of a protest against its excessive profits, especiallywhere it has a monopoly. It's also impossible to ignore the saving in reporting costs, which are substantial."
Osem said in response, "The opposite is the case. Storenext reports this year already show a 5% drop in Osem's prices. Nestle's knowhow will enable Osem to continue and reinforce the streamlining and innovation trend, and pass the benefits on to the consumer."
Published by Globes [online], Israel business news - www.globes-online.com - on February 4, 2016
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