The huge NIS 2.5 billion deal for the sale of IDB Development Corporation Ltd.'s (TASE:IDBD) 55% stake in Clal Insurance Enterprises Holdings Ltd. (TASE: CLIS) to Chinese concern Macrolink fell through yesterday. Shareholders in IDB Development and Clal Insurance are now considering the potential damage, given that Supervisor of Capital Markets, Insurance, and Savings Dorit Salinger has made it clear more than once that IDB Development will not be allowed to continue as the controlling shareholder in Clal Insurance.
A process of selling off the holdings through the Tel Aviv Stock Exchange (TASE) or through non-strategic off-floor deals is therefore expected to begin. These deals will not include a control premium. The sale of the Clal Insurance controlling interest is now in the hands of Salinger and the trustee on her behalf, Moshe Tery.
In late 2014, Salinger notified IDB Development that without being shown an agreement for the sale of the controlling interest (at least a 30% stake) in Clal Insurance, "The trustee will take action to sell the controlling interest in Clal Insurance at his exclusive discretion, subject to the Supervisor's instructions."
With the withdrawal of Macrolink from the deal yesterday, this scenario has now materialized. The timetable set by Salinger requires IDB Development to sell 5% of its Clal Insurance stake within four months either on the TASE or off-floor, and to continue selling a further 5% every four months, until all the shares in excess of 5% have been sold (a holding of less than 5% in an insurance company does not require Ministry of Finance approval).
Another problem is that the sale of its controlling interest through the TASE is likely to put heavy downward pressure on the share price. This will affect all the shareholders, not only IDB Development, especially Bank Hapoalim (TASE: POLI), which owns a 9.5% stake in Clal Insurance. Sale of its controlling interest through the TASE is to a large extent good news for Clal Insurance, which will continue operating on its present format as a company managed by its board of directors, headed by chairman Danny Naveh and CEO Izzy Cohen, with little pressure being exerted by the shareholders. The company will be free of pressure to distribute dividends, and can devote its efforts to reinforcing its capital.
Sources close to the negotiations with Macrolink said today that the deal had fallen through because the Chinese company's representatives, who had recently met with Ministry of Finance officials, feared that the Ministry of Finance Capital Markets, Insurance, and Savings Department would put them through a long and exhausting process in order to approve the acquisition, and that even had Macrolink entered the process, it would eventually have been denied approval by the Ministry of Finance.
Published by Globes [online], Israel business news - www.globes-online.com - on January 7, 2016
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