Just hours after saying it was in talks to buy Union Bank of Israel (Bank Igud), Discount Bank on Wednesday agreed to sell all its shares in Ilanot Discount and the operations of Discount Management Provident Funds for a total of NIS 1.31b.
Discount Bank will sell the assets to Clal Enterprise Insurance Holdings, which is 51%-owned by IDB Development, a company controlled by Nochi Dankner.
Discount Bank signed the agreement just six weeks after increasing its stake in Ilanot Discount to 100% by purchasing a 45% stake from IDB Development and its unit, Discount Investment for NIS 229.7m. To accomplish the transaction, which was completed at the end of September, Discount Bank exercised its right of first refusal on the stake and blocked a bid from Solomon Capital Markets.
The deal was surprising because in July the Knesset passed the Bachar reforms into law, thereby obligating the banks to sell their interests in mutual and provident funds. Discount Bank vice president Linda Benshoshan, who heads the asset management division, explained the actions by saying the bank wanted to gain control of the whole company before selling it off.
"We thought that because we need to sell our interests in mutual and provident funds in the future, it was better to sell Ilanot Discount as a whole company. Market conditions made it beneficial to sell now," said Benshoshan.
Discount Bank's strategy was successful, because it made a NIS 40m. profit on the sale - mostly at the expense of IDB Development. A Clal spokeswoman explained the transactions by saying that gaining full control of Ilanot Discount wasn't an option in September.
"Six weeks ago, the controlling stake in Ilanot Discount was not for sale," she said.
Discount Bank will receive NIS 600m. for Ilanot and NIS 710m. for Discount Management Provident Funds. It will book the profit in 2006. Once the deal is closed, Discount Bank will provide distribution, operational and other services to the two units.
Proceeds to Discount Bank will help fund its bid for Bank Igud. Other than confirming the negotiations, Discount Bank declined to provide further details.
However, Shlomo Eliahu, who owns about one-third of Bank Igud, said in a telephone interview that Discount Bank was in talks with the Landau family and the heirs of David Lubinski, who are the other major shareholders. He is not part of the negotiations but will sell his stake when the talks have been concluded.
If Discount Bank is unsuccessful, United Mizrahi Bank may open negotiations for Bank Igud. Eliahu and Mizrahi said the bank is interested in such a merger.
Eliahu wants to sell his stake in Bank Igud in order to allow him to become part of a group that owns a controlling stake in Bank Leumi. Eliahu owns 10% of Leumi and is its biggest shareholder after the government, which owns 24% and which is carrying out a tender to sell 20%. Bidders for Leumi have until Monday to place offers to buy 10% up front and an option to buy the other 10% within 18 months.
Eliahu hasn't formed any alliances yet and is waiting to see who the winner is.
"I don't have any connections with anybody yet but I am still interested in being part of a controlling stake of Bank Leumi," he said.
"Next week will be very interesting," he added.