TheMarker - February 25, 2021
Elco will replace Levy in a transaction to acquire Discount Investment, after the Ministry of Communications informed Levy that he could not simultaneously own Discount Investment, which controls Cellcom, and its cellular operations. Elco has high liquidity, is not leveraged and continues to seek opportunities. Discount Investment jumped yesterday by 7%
By Michael Rochwerner
Elco Holdings, controlled by brothers Michael (Mikey) and Danny Salkind, joins the group of investors led by Mega Or as a partner in the transaction for the acquisition of 82% of the shares of Discount Investment. Elco will replace Rami Levy in the transaction and will acquire 27%-30% of Discount Investment in exchange for NIS 400 million. This, after the Ministry of Communications indicated to Levy that he would not be authorized to simultaneously hold Discount Investment, which owns the communications company Cellcom, and its cellular operations.
Elco will join the deal on terms similar to those of the investors group, which includes, alongside Mega Or, Chen Lamdan, the contractor Chen Shachar and others. Although Levy is still trying to reach an understanding with the Ministry of Communications, the chances of him receiving a permit to hold Cellcom are slim.
Increases at Cellcom, Properties and Building, Elron and Mehadrin
Following the agreement, Discount Investment jumped by about 7.1% yesterday, and the group's value rose to about NIS 1.2 billion. The main subsidiaries of Discount Investment as well, Cellcom, Properties and Building, Elron and Mehadrin recorded increases of up to 9%.
Elco is a holding company traded at a market value of about NIS 4.5 billion. The group controls several large companies such as Electra Ltd. (49%), Electra Consumer Products (51%), Electra Real Estate (60%), Supergas (67%) and Home Cinema (100% - formerly Globus Max). Unlike Levy, Elco is not expected to have difficulty obtaining a permit for holding Cellcom. This, after the subsidiary Electra Consumer Products completed a few months ago the sale of Golan Telecom to Cellcom for NIS 600 million, and at a profit of NIS 350 million.
Elco is a very liquid group and is not leveraged - which continues to find opportunities. In 2020, Elco conducted negotiations, together with Leumi Partners, for the acquisition of Delek Israel's assets, through its subsidiary Supergas. However, the negotiations did not mature into an agreement. At the same time, Electra is currently in talks with Nahum Bitan to acquire control of the Bitan Wines retail chain, which is suffering from cash flow difficulties.
Most of the investments that Elco has made in recent years have been successful, except for the investment in Globus Max, in which Elco burned more than NIS 100 million. This success allowed Elco to significantly lower its leverage, so that its net financial debt now amounts to only NIS 200 million. Since September 2017, when the family head Gershon Salkind passed away, Elco's share has jumped by about 142%, compared to 28% on the Tel Aviv 125.
The group of investors led by Mega Or is expected to purchase the shares of discount Investment from the bondholders of its parent company, IDB Pituach, at a company value of NIS 1.35 billion. For 70% of Discount Investment, the group will pay NIS 950 million to Series N bondholders; and NIS 164 million will be paid to Series O bondholders. The group of investors has already deposited NIS 250 million in purchase guarantees but has not yet completed the transaction.
Avoiding a Pyramid
Elco joins the Discount Investment transaction not as part of a controlling interest, i.e., the investment in the Discount Investment will be a financial holding only. This form of investment is essential to Elco in order not to violate the provisions of the Anti-Concentration Law, which prohibits a pyramidal structure of more than two "layers" of public companies (parent company and subsidiary). Since this is a financial holding, the public companies in the Discount Investment pyramid are not taken into account as part of the "layers" of Elco's pyramid.
The court already approved three months ago the sale of the controlling shares (82%) in Discount Investment to the group of investors - but the completion of the transaction has been delayed due to difficulties raised by the Ministry of Communications. The Competition Authority as well makes the granting of the permit for the deal contingent on arranging the existing overlap between the business centers of Ispro - a real estate company that is part of the Discount Investment Group, and which is about to be sold to Kidan Dahari and Yaron Adiv – and of Mega Or in Modi’in and Kiyat Gat.
Mega Or is mainly interested in the real estate activity of Discount Investment, which includes control of Properties and Building (74%), which owns about 30% of Gav Yam; And a holding in Mehadrin (44%). On the other hand, Elco may also be interested in Discount Investment's holdings in Cellcom (46%) and in the Elron Investment Company (61%).