Bronfman Group Buys Control of Israel Discount Bank (REUTERS) By Tova Cohen TEL AVIV, ISRAEL Additional reporting by Steven Scheer 02/01/05 06:01 PM ET)
Reuters News Service
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TEL AVIV (Reuters) - A group led by U.S. businessman Matthew Bronfman
acquired a controlling 26 percent stake in Israel Discount Bank
(DSCT.TA: Quote, Profile, Research) on Tuesday, a deal the government
hopes will boost competition in the banking sector.
Bronfman´s group paid 1.3 billion shekels ($297 million) for the
government stake in Israel´s third largest bank. The group also has
an option to buy a further 25 percent at a similar price but Bronfman
said it was too early to say whether he would do so.
"The Discount Bank transaction is an expression of confidence in
Israel´s economy," Bronfman told a news conference at the signing of
the deal, rejecting the notion he bought the stake for Zionistic
"We believe this is an opportunity to make a very good return ... The
bank really started to turn around 18 months ago," he said. "This was
a purely an economic interest.."
Most of the funds for the purchase came from a family trust, said
Bronfman, son of World Jewish Congress head Edgar Bronfman.
"Three years ago the family decided to increase its involvement in
the Israeli economy," he said, noting that the move would enable
Discount to develop its activities in Israel and abroad.
Bronfman´s brother, Edgar Bronfman Jr., led a group of investors last
year to buy Warner Music from Time Warner Inc (TWX.N: Quote, Profile,
Research) for $2.6 billion.
Prior to the Israeli deal, the state held 57 percent of Discount and
had planned to sell up to 51 percent to a private investor, with the
remaining 6 percent to be offered to bank employees.
Yitzhak Klein, head of the bank privatisation agency MI Holdings,
told Reuters that a new deal with employees had been signed and the 6
percent would remain in government hands for now.
According to the deal, employees will receive a bonus of 130 million
shekels and an additional 120 million shekels in lieu of benefit they
were to receive to buy the bank´s shares at a discount.
Shares in Discount closed 2.9 percent higher at 6.38 shekels -- a 52-
THIRD TO HAPOALIM, LEUMI
The deal with Bronfman concludes years of failed attempts by the
government to sell Discount and bolster competition with two bigger
banks -- Hapoalim (POLI.TA: Quote, Profile, Research) and Leumi
(LUMI.TA: Quote, Profile, Research) -- that largely control the
Finance Minister Benjamin Netanyahu said he was seeking to complete
the privatisation of Leumi by November.
"Our wish is for the buyers to increase competition with the other
two big banks that dominate the Israeli market," said Finance
Ministry Accountant-General Yaron Zelikha.
Israel´s government embarked on a plan two years ago to sell its
stakes in state-owned companies. So far, Discount joins shipping
company Zim, national carrier El Al Israel Airlines (ELAL.TA: Quote,
Profile, Research) and Hapoalim as main companies the government has
"The sale of the controlling stake in Bank Discount to private
investors is an important and positive event for the Israeli economy,
particularly the Israeli banking sector," said Hapoalim Chairman
Shlomo Nehama in a statement, adding he welcomed "healthy and
Nehama noted that the privatisation of Hapoalim, the largest Israeli
bank, in the 1990s had resulted in a more efficient banking industry
in Israel while "significantly boosting" the bank´s standing in the
Discount was hit hard in the early 2000s due to a heavy loan exposure
to the battered technology sector. But belt tightening and an
improved Israeli economy has turned the bank around.
Selling Discount was difficult because of its poor financial results
and difficulties with the bank´s labor unions. But the state pressed
on with the sale and initially received significant interest when the
tender was issued in late 2004.
In the end, the Bronfman group was the lone bidder and offered 1.1
billion shekels -- below Netanyahu´s firm minimum price of 1.3
billion shekels. A deal was initially agreed two weeks ago but the
signing was delayed due to Bronfman´s wedding.
The deal was made possible after the government´s bank privatisation
agency drew up a proposal to resolve a labor dispute at the bank.
The Finance Ministry has been engaged in talks with Discount workers
who have been seeking to guarantee that their rights are preserved in
During the privatisation process the workers went on strike, saying
that some of their demands tied to the sale such as payments to
employees were not met. (Additional reporting by Steven Scheer) (©
Reuters 2005 02/01/05)
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