Introduction
In a significant move, Discount Bank, under the leadership of Avi Levi, announced its decision to sell its 72% stake in Cal (Isracard) to Union Investments, led by billionaire George Kores and his children, along with Harel Insurance. The acquisition comes with a valuation of 3.73 billion shekels, potentially rising to 4 billion shekels, contingent on Cal’s future performance. This sale not only marks a strategic shift for the bank but also reflects broader trends in Israel’s banking sector regarding competition and regulatory adherence.
Competitive Bidding and Selection Criteria
Union-Harel’s proposal outbid an offer from Moti Ben Moshe, which was rumored to exceed 4 billion shekels. However, details about Ben Moshe’s bid were not disclosed, and Discount Bank emphasized that financial value was not the sole determinant in the proposal evaluation. The bank prioritized regulatory certainty, focusing on the likelihood of securing approvals from the Antitrust Authority and the Bank of Israel, along with considerations regarding its minority partner, Bank of Jerusalem, holding the remaining 28% of Cal.
Strategic Timing and Market Confidence
Discount Bank expressed satisfaction in finalizing the deal ahead of the Jewish New Year, aiming to avoid uncertainty during a critical holiday period. This transaction is viewed as a statement of confidence in the Israeli economy, especially after a week marked by considerable stock market fluctuations. The bank’s board of directors approved the sale, allowing Discount to receive an estimated 2.7 billion shekels, potentially rising to 2.87 billion shekels based on Cal’s performance against set targets.
Regulatory Landscape
The sale is mandated by legislation designed to enhance competition and reduce concentration in Israel’s banking market. Previous actions by major banks, including Bank Hapoalim’s divestiture of Isracard in 2019 and Bank Leumi’s sale of its stake in Leumi Card, underscore the trend towards greater market diversification. The timeline for receiving funds from this sale is projected to be between three to six months, pending regulatory approvals and the decision-making of the minority stakeholder.
Potential for Dividends and Financial Strategy
With current capital reserves, Discount Bank is positioned to consider a substantial dividend payout. However, regulation restricts the bank’s ability to engage in new ventures, prompting concerns about the restrictive nature of regulatory actions which inhibit larger financial institutions from expanding their operations. It’s uncertain if a dividend will ultimately be declared or if other financial strategies will be pursued.
The Future of Cal’s Leadership
As the transition unfolds, questions arise about the leadership of Cal moving forward. Current CEO Lavi Halevi, who has extensive technological expertise, might be succeeded by a notable figure from the finance sector, with former Bank Hapoalim CEO Dov Kotler mentioned as a potential candidate. Ownership transitions within Union Investments, including the leadership of Ronen Barel, reflect a dynamic strategy moving into the future.
Regulatory Hurdles Ahead
While Discount Bank has made efforts to minimize regulatory obstacles, securing approval from the Bank of Israel is a lengthy process, as previously observed in the Isracard-Daniel deal. The Antitrust Authority could also present challenges, especially given Harel’s existing investments in retail sectors that overlap with Cal’s operations. The implications for both companies and their respective markets remain uncertain.
Conclusion
The transaction between Discount Bank and Union Investments represents a pivotal moment in Israel’s banking landscape. While the agreement is a step towards enhancing competition and addressing regulatory demands, the road to completion includes navigating potential challenges that could affect both the market and consumer interests. As the situation develops, stakeholders will be closely monitoring regulatory decisions and market responses.
