Mizrahi Tefahot in talks to buy Union Bank
Mizrahi Tefahot Bank announced on Monday that it is in talks to buy control of Union Bank of Israel, the country’s sixth largest bank. Led by CEO Eldad Fresher, Mizrahi Tefahot said that the purchase price would be a multiple of 0.6 of Union Bank’s equity at a valuation of NIS 1.4 billion, a 10% premium on the bank’s current market price.
Mizrahi Tefahot’s announcement comes one day after the Landau and Manor families and Dr. Yael Almog Zackai announced that they planned on joining Shlomo Eliahu by selling their shares in Union Bank.
“Subject to receiving suitable offers acceptable to each of us, we are jointly and individually considering the possibility of joining the Eliahu group by selling our holdings, which constitute the controlling core in the bank. We are considering various ways available to us for selling our holdings, and various parties are showing interest,” the shareholders’ joint announcement read. The proportion of shares up for sale thus grew from 27% to 74.8%.
Another candidate for acquiring Union Bank’s shares is Israel Discount Bank. In addition to the acquisition’s potential and the increase in market share, however, acquiring Union Bank and merging it into the existing banks constitutes a serious challenge, and neither of the two medium-sized banks is showing enthusiasm for the deal, and they are therefore willing make the acquisition only if the price is attractive. It was previously reported that former Mizrahi Tefahot CEO Eli Yones had held initial talks with the Union Bank controlling shareholders for forming a group of investors to acquire the bank.
Eliahu has been under the obligation to sell his 27% stake in Union Bank since he acquired control of Migdal Insurance and Financial Holdings Ltd., because the law bars the same person from controlling both a bank and an insurance company. Eliahu has already received several postponements from the Bank of Israel for the sale of his Union Bank shares. Union Bank is traded at a capital multiple of only 0.5, and Eliahu, who wants to maximize the proceeds from his shares, is in no hurry to compromise on the price. Now that his partners in the bank are officially joining him in the sale, the chances of such a deal going forward have improved. If no such deal emerges, Eliahu is liable to find himself forced to sell the shares on the capital market at their current price there.
Managed by CEO Israel Trau, Union Bank’s market cap is NIS 1.17b. The bank suffers from dis-economies of scale, reflected in a poor efficiency ratio and a lower return on equity than that of the other banks. The bank faces a major challenge in disengaging from Bank Leumi’s computer system and connecting to a new system. This difficult project is a burden for the bank.