Road open to Egged sale

Egged buses Photo: Nati Yefet

After Egged members overwhelmingly supported the move to turn the public transport cooperative into a limited company, it will now look for an investor.

The agreement to turn Israeli public transport cooperative Egged into a limited company passed by a majority of 91% of the cooperative society's 1,300 members last week. Actually, they had no choice. The move was part of the operating agreement signed with the state last November. Had the proposal been rejected, the state could have canceled the agreement and issued tenders for Egged's routes, or imposed various sanctions on the cooperative until it consented to incorporation.

Each Egged member will receive NIS 1 million from its restructuring. Egged members will also be shareholders in the new company, and can sell their additional shares.

Egged is now searching for an investment bank to manage its sale to an investor, and hopes to select one by the end of June. According to a  valuation by Ernst & Young Israel, Egged's business is currently worth NIS 3.6 billion, but its value net of its NIS 1.9 billion debt and its obligations to the state is NIS 1.3 billion. Egged believes that it will be an interesting investment for various companies because of the regular cash flow that it generates, combined with its low risk, and its expansion into light rail operations.

The bids filed for acquiring Egged will be voted on by the cooperative's members, who will become shareholders in the new company until it is sold.

Egged's organizational structure will soon be changed. Avi Friedman, who currently chairs Egged's secretariat, the cooperative's executive body, will become chairperson of its board of directors. The cooperative's management, which oversees its activity, will become its board of directors, subject to formal court approval.

Savings for the state: NIS 1 billion

Conversion to a limited company is another stage in the long process of turning Egged from an outdated monopoly into a competitive concern in the transportation market. Passengers will not feel the change in the short term, but looking ahead, Egged's service should take a big step forward and become more efficient.

The state has been trying to detract from Egged's monopoly since early in the preceding decade in order to improve passenger service. Egged's market share fell from 70% to 35%, and new private companies, such as Metropolitan, Superbus, and Kavim entered the picture. Egged received a great deal of money in return in the form of compensation for each member who retired from the cooperative society (a total of NIS 785 million), plus a payment mechanism for compensating Egged for a decline in its revenue, although in fact its revenue actually increased.

When this agreement expired, the state had an opportunity to turn Egged into a regular competitor in public transportation. In exchange for its NIS 1 billion annual subsidy, Egged promised that it would become a limited company, sell a 50% stake to an external investor, and implement a streamlining plan. The Ministry of Finance says that the agreement will save the state NIS 1 billion in a decade. By the end of 2030, all of Egged's bus routes will be opened up to competition. Tenders are scheduled for publication this year for operating 80 routes in Jerusalem, half of the public transportation services in the city.

Egged's future: A transition to light rail operation

Egged is reaching a new stage in its history with an empty treasury, but it is establishing more and more public transportation activity. In addition to operating regular public transportation routes, Egged is increasing its transportation activity for tourists and schools. Its main efforts, however, lie in light rail operation. After many unsuccessful attempts to become a partner in Jerusalem light rail operator CityPass, Egged will bid tomorrow, in partnership with Shikun & Binui and French company Meridiam, in the tender to select a company to replace CityPass and operate both the existing Red Line and the new Green Line to be constructed in Jerusalem. Egged also plans to bid for operating the future Blue Line in the capital.

In the greater Tel Aviv area, Egged has already won the tender to operate the Red Line, and is competing in the pre-qualification selection to operate the Green and Purple Lines. Egged is also pinning its hopes on what it calls "smart transportation" - ridesharing based on an app like the one used by Dan in Tel Aviv in cooperation with Via under the brand name Bubble. Egged has a license for conducting such trials in Haifa and Jerusalem, which are scheduled to begin soon. Egged also has public transportation activity in Europe; its ESB subsidiary operates in the Netherlands and Poland, and it also operates a service in Kharkov and Warsaw.

Nevertheless, following its corporatization, Egged will have to sell one of its important holdings - Egged Taavura, a company it owns jointly with the Livnat family's Taavura company. Egged Taavura operates 500 buses in various areas in Israel, including Netanya and Maale Adumim. Proceeds from selling this company will contribute to renewing Egged's old bus fleet, and to buying 150 electric buses.

Published by Globes, Israel business news - en.globes.co.il - on May 12, 2019

© Copyright of Globes Publisher Itonut (1983) Ltd. 2019

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Egged buses Photo: Nati Yefet
Egged buses Photo: Nati Yefet
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