The declines on the capital markets have led the controlling shareholders of Israel Canada (TASE: ISCN). Barak Rosen and Asaf Touchmair, to freeze their plans to take over Norstar (TASE: NSTR) , which holds income producing real estate company G City (TASE: GCT) (Gazit Globe). Since the beginning of the year, the pair has conducted a takeover battle for Norstar, reaching a 21.6% holding. They saw the company's market cap as representing a rare opportunity to take over G City's extensive real estate activity, with the possibility of floating its Israeli business separately in the future.
In the last month, however, the sharp declines on the stock exchange and the rapid rise in interest rates have led to considerable difficulties in moving ahead with the deal. Norstar's share price, which climbed earlier in the year as the takeover battle intensified, has fallen 17% in the past month. The company's market cap was NIS 1.44 billion this morning, while Rosen and Touchmair's bid for it was at a valuation of NIS 2 billion.
Furthermore, the spread between corporate bond yields and government bond yields has opened up, meaning that a company like Israel Canada will find it expensive to raise debt to finance a takeover. The company's series 7 bonds opened this morning at a yield to redemption of 6.4%; at the beginning of the year the yield was 3.98%.
Following these development, Israel Canada has reported that its board of directors has decided to freeze negotiations in the light of "the situation on global markets".
Meanwhile, the asset that drew this takeover bid, G City, reported a first quarter loss of NIS 321 million this morning, versus a NIS 137 million profit in the corresponding quarter of 2021. The switch to a loss was largely caused by exchange rate fluctuations.
Published by Globes, Israel business news - en.globes.co.il - on May 24, 2022.
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