Eduardo Elsztain is again trying new tricks in the hope of raining control of Clal Insurance Enterprises Holdings Ltd. (TASE: CLIS). His latest maneuver is a sale of shares in Clal Insurance by IDB Development, a company under his control that will no longer be able to regain control of the insurance group, to Discount Investment Corporation Ltd. (TASE:DISI), also controlled by Elsztain.
At the same time, although Discount Investment is more financially sound than IDB Development, the biggest obstacles to Elsztain regaining control of Clal Insurance via IDB Development will also apply to Discount Investment, regardless of how financially sound it is, due to its control structure.
Clal Insurance, IDB Development, and Discount Investment today reported that the IDB Development board of directors had appointed an independent committee “in order to devise an offer for the sale of a controlling interest in all insurance business to Discount Investment and discuss the terms of such a deal.” Last Thursday, the committee sent “a letter to the chairperson of the Discount Investment board of directors proposing negotiations for acquisition of control in Clal Insurance. In the letter, the company proposed no conditions whatsoever for the deal, and no response to the letter had been received yet from Discount Insurance.”
Discount Investment today said, “The company and its authorized organs will examine the letter” and “There is no certainty that the company will receive any offer whatsoever from IDB Development and/or that the company will begin negotiations for such a deal.”
As far as is known, Elsztain is leading this maneuver without any understanding with the regulator responsible for overseeing Clal Insurance – the Capital Market, Insurance, and Savings Authority, led by supervisor Dr. Moshe Bareket. The background to Elsztain’s proposal for a large and complicated parties at interest deal is the supervisor’s order in December to refrain from conducting swap deals for the Clal Insurance’s shares that Elsztain is obligated to sell periodically, and to carry out real sales. At Bareket’s order, one ordinary sale of Clal Insurance shares owned by IDB Development has already taken place.
As of now, IDB Development own 25.3% of Clal Insurance’s shares with a market value of NIS 673 million, including 20.3% through a trustee for the controlling interest appointed by the regulator in August 2013. IDB Development asserts that its investment in Clal Insurance “in addition to this holding, also includes an investment through swap deals for the company’s shares amounting to 29% (in addition to the shares it holds in an ordinary way, R.S.).”
The trustee on behalf of the Capital Market, Insurance, and Savings Authority is Moshe Tery, who exerts de facto control of Clal Insurance instead of Elsztain and IDB Development. Tery was appointed when IDB collapsed under its previous owners, Nochi Dankner and the Manor and Livnat families. After his appointment by the previous Capital Market, Insurance, and Savings Authority supervisor, agreement was reached that IDB Development would set a schedule for selling the controlling interest in Clal Insurance by the end of June 2016. If this did not take place, subject to several milestones, Tery and IDB Development would gradually sell the shares in Clal Insurance.
IDB Development failed to find a buyer approved by the regulator, including Elsztain’s efforts to change the control structure in Clal Insurance, while leaving him with the controlling interest, and an attempted sale of packets of Clal Insurance shares through the capital market failed to go through.
Complicated control structure in Discount Investment
Transfer of control in Clal Insurance to Discount Investment is not a deal whose completion can be taken for granted; on the contrary, because obtaining a permit to control an insurance company, as in the banking sector, is subject to a very long approval process led by the responsible regulator. This process involves a thorough examination by the regulator, including personal examination of the final controlling shareholder. These examinations, called fit and proper, are very complex, in addition to the need to devise a plan that the holders of Discount Investment and IDB’s shares and bonds will approve, while not arousing the opposition of the supervisor of the Capital Market, Insurance, and Savings Authority.
Just how complicated is ownership of Discount Investment, which is liable to complicate obtaining approval for controlling control of an Israeli insurance company? 80.1% of Discount Investment’s shares are owned by Dolphin IL, a company fully owned by Dolphin Netherlands, which is indirectly controlled by Elsztain and companies under his control.
Discount Investment also has a holding in Epsilon Investment House, which has no long-term savings activity.
Published by Globes, Israel business news – en.globes.co.il – on January 20, 2019
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