Shikun & Binui Holdings Ltd. (TASE: SKBN), controlled by businessman Naty Saidoff, wants to increase its share of the group of companies operating Highway 6 and other important roads in Israel.
Shikun & Binui, which currently holds 35.5% of the group, yesterday sent a letter to its partners, Africa-Israel Investments Ltd. (TASE:AFIL) (35.5%) and Dor Alon Gas Filling Stations and Energy Marketing (TASE: DRAL) (29%) with an offer to buy their direct and indirect holdings in the group for NIS 278 million (NIS 153 million for Africa Israel and NIS 125 million for Dor Alon). The offer reflects a NIS 431 million value for the operating group of companies.
Shikun & Binui is demanding an answer from its partners within seven business days. Africa Israel and Dor Alon are in a state of bankruptcy and are now controlled by institutions that hold most of their bonds, which are expected to oppose the current offer. The parties are likely to begin negotiations, however, which could result in a deal later.
"Interested in gaining control of the company"
Shikun & Binui chairperson Tamir Cohen said, "The offer reflects a fair value for the operating group of companies, together with a fine return for Shikun & Binui later. Shikun & Binui plans to continue looking for activities that complement its main business, and to expand its mergers and acquisitions activity in Israel and elsewhere."
Shikun & Binui CEO Moshe Lahmani added, "We do not necessary want to reach full ownership of the operating group, but we do want to control the company. We will now wait for an answer from the investment institutions in control of Africa Israel and Dor Alon. Our goal is to developing operation and maintenance within Shikun & Binui, which are strategic and generate regular annual revenue."
The controlling shareholder in the operating group of companies is Canada Israel Highways Management, a private company, a company founded by the Alon group when it was controlled by Shraga Biran and David Wiessman (who was also chairperson of the operating group). They group's main activity is its holding in Derech Eretz Highways Management Corporation, the operating and maintenance contractor for Highway 6 (while Derech Eretz is the franchise holder for the toll road).
The Highway 6 operating company, founded in 1999, currently accounts for 60% of the operating group's revenue. The company is responsible for operating the toll systems and traffic control, road maintenance, customer service, landscaping, repair, immediate response in emergencies, toll collection, and marketing.
Based on the success of Highway 6 and the experience accumulated with it, Canada Israel Highways also entered other important transportation projects as a contractor, including Carmel Tunnels in Haifa, Highway 431 connecting the Ayalon Highway to Modi'in, and Northern Routes Engineers - a new road network in northern Israel.
Dor Alon left with a 29% holding
An agreement was signed in December 2012 in which the Alon group sold 43% of the shares in Canada Israel Highways to Africa Israel and Shikun & Binui in equal shares. Both of these companies already had direct holdings of 24.5% each in the operating group, giving them direct and indirect holdings of 35.5% each following the deal.
Alon group was left with 29% of the shares in the operating group, but the sale agreement signed by the three concerns, which highlighted David Wiessman's dominance at the time, gives Alon the right to appoint most of the operating company's directors (three out of five), and in effect leaves it in control of this activity.
The operating company is a goose laying golden eggs; its annual net profit is believed to be NIS 40-50 million. As of the beginning of 2018, the company's cash totaled NIS 130 million. The company refrained from distributing dividends to its shareholders in recent years, some of which needed cash desperately, because of disputes between them.
Talks for sale of the holdings in ADO Group
Shikun & Binui recently reported that it was negotiating for the sale of its holding in income-producing real estate company ADO Group (TASE: ADO), which operates in the residential real estate market in Berlin. If the negotiations produce a deal, Shikun & Binui will probably sell all of its 37.5% interest to its current partners (and former rivals) in the controlling interest - Apollo Global Management, which holds 22% of ADO's capital, and the Dayan family, which owns 19.7%. Other concerns may also be involved. The price of Shikun & Binui's holdings in the deal being negotiated is apparently NIS 800-900 million.
Shikun & Binui's market cap is NIS 2.3 billion, following a 30% drop in its share price over the past year. The group has faced many difficulties in the past two years. In the third quarter of 2018, its revenue was NIS 1.5 billion, the same as in the corresponding quarter in 2017, while its gross profit rose 38% to NIS 230 million. A sharp increase in financing expenses and tax payments resulted in a NIS 1.5 million loss in the quarter, compared with a NIS 51.6 million profit in the third quarter of the preceding year, following a number of one-time events at Solel Boneh International (SBI) that cost Shikun & Binui NIS 37 million in losses.
Shikun & Binui's net profit in the first nine months of 2018 totaled NIS 184.7 million, 59% more than in the corresponding period last year, following a large one-time profit on the sale of its holdings in Carmelton Group (Carmel Tunnels) and Northern Routes Engineers.
Published by Globes, Israel business news - en.globes.co.il - on January 16, 2019
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