Introduction
On Friday morning, Discount Bank, led by CEO Avi Levy, announced its decision to sell a 72% stake in Cal (Isracard) to Union Investments, owned by billionaire George Horash, and Harel Insurance, controlled by the Hamburger family. The winning bid valued Cal at 3.73 billion shekels, with the potential to rise to 4 billion shekels depending on Cal’s future performance.
The Bidding Dynamics
Union-Harel’s offer surpassed that of businessman Moti Ben-Moshe, whose proposal was reportedly over 4 billion shekels. However, the specifics of Ben-Moshe’s bid were not disclosed. Discount Bank emphasized that financial considerations were not the sole factors in selecting the winning proposal. Key aspects also included regulatory certainty, as the bank assessed the likelihood of obtaining approvals from the Competition Authority and the Bank of Israel. Additionally, the behavior of the minority partner in Cal, the International Bank of Tzvika Bino, which holds the remaining 28% stake, played a significant role.
Timely Completion Before the Holidays
Discount Bank expressed satisfaction in finalizing the deal ahead of Rosh Hashanah. Earlier this year, the bank aimed to meet an ambitious target, and it succeeded, preventing the uncertainty surrounding the acquisition from overshadowing the holiday season. The bank views this transaction as a vote of confidence in the Israeli economy, particularly after a tumultuous week marked by significant stock market declines.
Financial Terms and Impact
The transaction was approved by the bank’s board, chaired by Danny Yamin, on Thursday evening. The sale could yield between 2.7 billion shekels and 2.87 billion shekels for Discount Bank, contingent on Cal meeting predefined objectives. This action is being conducted under the legal mandate to enhance competition and reduce concentration in Israel’s banking market. Precedents include Bank Hapoalim’s separation from Isracard in 2019 and Bank Leumi’s prior divestment of its stake in Leumi Card.
Post-Sale Prospects
Discount Bank anticipates receiving funds within three to six months, pending necessary regulatory approvals. The impending approval process raises several questions, particularly regarding the decision of Tzvika Bino. Should he choose to retain his minority share, it could complicate the new owners’ ability to secure a license for a “lean bank.” Regulatory intervention by the Bank Supervisor’s committee remains a possibility, as they may offer guidance on the matter.
Potential Dividend Distribution
With the bank currently holding excess capital, there is a possibility for a substantial dividend payout, although it remains uncertain if the full amount will be distributed. The bank has faced regulatory constraints that limit its ability to expand into new business areas. Consequently, management views these regulatory actions as restrictive measures that prevent large entities from operating flexibly in the market.
Future Leadership at Cal
The prospective leadership of Cal remains uncertain. CEO Levy has led the company since June 2018 and possesses a strong technological background. Speculation arises that the new owners may appoint a well-known figure from the financial or banking sector, with former Bank Hapoalim CEO Dove Kotler cited as a potential candidate.
Regulatory Challenges Ahead
Although Discount Bank has made efforts to streamline the approval process, obtaining the necessary clearance from the Bank of Israel is likely to be lengthy. Historical cases, such as the drawn-out approval for the Drek Group’s acquisition of Isracard, illustrate the complexities involved. Moreover, the Competition Authority’s previous rejection of Harel’s bid for Isracard raises potential hurdles, even though Harel’s stake in the Union consortium is relatively minor (20%).
Conclusion
As Discount Bank prepares for this significant transition, several uncertainties linger. The outcome of the regulatory approval process, potential leadership changes at Cal, and the decisions of minority stakeholders will shape the future landscape of the banking market in Israel. While the bank celebrates this milestone achievement, the journey ahead is fraught with challenges that could influence the success of this transaction.
