October 7, 2019

Elco Adds Leumi Partners and the Phoenix as Partners in Supergas

Calcalist – October 7, 2019

 

Two Months After the Acquisitionfrom Azrieli

Elco Adds Leumi Partners and the Phoenix as Partners inSupergas

The investment branch of BankLeumi and the insurance company acquire 20% of the gas company from the Salkindbrothers holding company, at a value of NIS 770 million. This is the same valueat which Elco acquired Supergas from Azrieli. The transaction is expected to becompleted within three weeks

 

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From right:  Mikey and Danny Salkind.  The reason for the high price they paid forSupergas may lie in the company’s customer base

Exclusive to Calcalist -

Golan Hazani

Two months after it signed the transactionto acquire Supergas from Azrieli Group, Elco adds partners to the transaction.

Calcalist found out that theholding company, which is controlled by the brothers Danny and Mikey Salkind,is expected to add Leumi Partners - Bank Leumi's investment branch - and thePhoenix Insurance Company as partners to the deal.

Each entity will acquire 10% ofSupergas shares according to the same value at which Elco purchased Supergas atthe end of July of this year, i.e. NIS 770 million. Leumi Partners and the Phoenixare expected to purchase shares for NIS 77 million each.

The transaction to purchase Supergasfrom Azrieli is expected to be completed by the end of October, i.e., withinthree weeks, and then it is expected that the addition of Leumi and Phoenixwill also be announced, if, of course, the transaction will actually becompleted. The transaction mechanism includes the option to extend the deadline,if necessary, to the end of March 2020. The transaction requires severalapprovals, including those of the Competition Commissioner and the Ministry ofInfrastructure.

It is not clear how the Phoenixand Leumi will pay the consideration. This is because, in the outline of Elco’sacquisition transaction with the Azrieli Group, Elco will pay the bulk of the transaction,NIS 720 million, in seven unequal annual payments, starting from one yearfollowing the date of completion of the transaction. Until then, Elco will makea down payment of NIS 10 million, around the date of signature of theagreement, and an additional NIS 40 million will be paid in the event the transactionshall not be completed by the end of October, all on account of theconsideration.

It seems that Elco is trying tostrengthen the transaction by bringing in strong institutions and to somewhat sharethe risk with the new partners. Adding institutional entities into suchtransactions has become commonplace in recent years, since institutions,especially insurance companies, are eager for meaningful transactions.

At the signing of the agreement,Elco stated that "to secure payment of the postponed consideration, Elcowill encumber 80% of the Supergas shares in favor of Azrieli with a fixed firstranking lien.  The shares will bereleased gradually, according to the mechanism set out in the agreement."In addition, the company also mentioned that it "is exploring variousoptions to finance the acquisition of the sold shares, including use ofexisting cash available to the company or utilization of credit lines."

The Cooperation between Leumi Partnersand the Phoenix is T​ightening

It should be noted that ordinarycompanies have a limit of acquiring 20% of the shares of a financial entity, however,when it comes to a significant real corporation such as Elco, and a largecompany such as Supergas, the restriction is tighter and allows to purchase maximum10% of such shares, according to the provisions of the Anti-Concentration Law.

Since Avi Ortal became CEO ofLeumi Partners in early 2019, Leumi Partners and the Phoenix recently havealready jointly acquired such a holding, as part of their tighteningcollaboration. Each company purchased 20% of Taavura from Clal Industriescontrolled by Len Blavatnik, and each payed a consideration of NIS 250 million.They hold the shares of Taavura jointly with the Livnat family, which holds theremaining 60% of the shares.

Since Ortal took office, LeumiPartners carried out several significant transactions. In addition to theTaavura shares, it acquired 20% of the shares of Miniline, the importer of Samsungand owner of the ALM chain store, for NIS 100 million. Leumi Partners alsoinvested NIS 70 million as part of a large investment by the IPG fund - led byHaim Shani and Moshe Lichtman, in which it is a partner in Cellebrite, whichspecializes in developing data collection tools for mobile devices. The companyhas granted a mezzanine loan in the amount of NIS 100 million to Gindiinvestments for the wholesale market in Tel Aviv, and USD  70 million for a real estate project in the US.Leumi Partners also exercised Super-Pharm shares in the amount of NIS 250million and Aeronautics shares in the amount of NIS 42 million.

Supergas - the Third Largest GasCompany on the Market

Supergas is engaged in theimport, storage and marketing of energy substitutes such as LPG (liquefiedpetroleum gas, used for home cooking), natural gas and compressed gas. Thecompany’s market share in LPG is about 18% - a figure that places it as thethird largest company on the market, after Pazgas and Amisragas.

Elco acquired Supergas at morethan double the price offered three years earlier in negotiations held by theAzrieli Group with Tadiran, controlled by Moshe Mimrod, for the sale of the gascompany, a transaction that did not mature. In fact, Elco acquired Supergas forjust over NIS 1 billion, less Granite's net financial debt, which is estimatedat NIS 250 million.

The retail market estimates thatthe reason why Mikey and Danny Salkind, Elco’s controlling shareholders agreedto pay such a high sum for Supergas, lies within its clientele, which, as becameknown to Calcalist, stands at 500,000. These are loyal customers, as transferringbetween home gas companies is not frequent. Apparently, Elco is building a large customer loyaltyclub that will be comprised of Supergas customers and customers of its otherretail holdings: the Golan Telecom cellular company, Machsaney Hashmal, Shekem Electricand the Globus Max cinema chain - which may include about 2-3 millioncustomers.

Such customer loyalty club willbe one of the largest, if not the largest, in Israel. The marketing optionssuch a club produce are plenty. Among other, the possibility of entering intothe consumer credit niche and granting loans to such customers.

 

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From right: Avi Ortal, CEO of LeumiPartners and Eyal Ben Simon, CEO of the Phoenix

 

Distribution of the holdings isSupergas after the transaction

The Phoenix – 10%

Leumi Partners – 10%

Elco – 80% (sold the segmentaccording to a value of NIS 770 million, identical to the value at which itacquired the company from Azrieli)

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