Shlomo Eliahu is a shrewd businessman. He made his money in a range of fields and built himself up from nothing to a billionaire with his bare hands. His business abilities are being reflected now in the acquisition of Migdal Insurance and Financial Holdings Ltd. (TASE: MGDL) from Generali SpA (BIT: GASI) at a relatively low price. Certainly a lower price than Nochi Dankner was looking to get for Clal Insurance Enterprises Holdings Ltd. (TASE: CLIS).
Estimates are that Eliahu has bought Migdal at a company value of NIS 6 billion, a 13% premium on its market cap. If you look at the insurance group's stock market share price it is clear that it is well below its peak in March 2010 when the value of the company was NIS 8.63 billion. Only in January this year Migdal was being traded at the price level that Eliahu is now paying for it (NIS 6.06 billion) a value significantly lower than that contained in its life assurance, health insurance and pension arrangements portfolios that were worth NIS 11.6 billion at the end of 2010.
Eliahu is in effect profiting from the pressure that Italy's Generali Group is under. Although this is one of the world's largest insurance groups, and a group which is perhaps too big to fall, nevertheless, it is a group that needs to reorganize due to the Greek debt and a portfolio of euro bonds as well as Italian bonds in particular. The sale of Migdal to Eliahu will provide Generali with a significantly strong capital injection - both in the price it will receive from Migdal and the reduction of capital tied up to the Israeli insurance group.
And another point to think about. Generali understands the Israeli market and the changes that it is going through, especially in terms of the pensions saving market, Migdal's main activity. Does the deal teach us that Generali has had enough of regulation in Israel and decided to break away from its regulation and reduced management fees. The answers are known in Italy.
Migdal is everything that Eliahu's insurance group is not. It is Israel's leading financial and insurance group and the largest life assurance and pension arrangements body in the country, traded on the TASE with a market cap of NIS 5.3 billion. These are two insurance companies that come from different worlds. While Eliahu Insurance is a private company operating through agencies and focuses on car insurance, Migdal is a huge group concentrating on pension funds via huge collectives and long-term savings. While Eilahu has modest life assurance activities and no provident and pension funs, Migdal is Israel's largest manager of executive insurance and the second largest manager of pension funds as well as the second largest player in advanced training funds. The type of management is also different. Eliahu is a family company while Migdal, based in Petah Tikvah is managed by highly professional executives with no links to the outgoing Italian parent company.
With the acquisition of Migdal, Eliahu becomes a senior insurance figure on Israel's market alongside his peer Yair Hamburger who controls Harel Insurance Investments and Financial Services Ltd. (TASE: HARL).
Eliahu will hold the largest life assurance portfolio in the market and will be a central player in the field of general insurance. However, Eliahu will not be allowed to hold both Eliahu's life assurance portfolio and that of Migdal's. It is our belief that he will sell Eliahu's life assurance portfolio and it is possible that it will be bought by Psagot Investment House Ltd..
The meaning for Migdal is that it may be transformed from a company controlled by the company's managers to a company controlled by Eliahu himself.
The acquisition of Migdal also probably confirms that Eliahu understands that he wll never gain control of Bank Leumi (TASE: LUMI). The stubborn opposition of Bank of Israel Governor Prof. Stanley Fischer to Eliahu's control of Leumi has beaten Eliahu's own determination. So now Eliahu will be connected to Leumi through Migdal (Leumi has a 9.8% stake in Migdal), while Eliahu will probably sell his own shares in Migdal to finance the acquisition of the insurance company. Leumi has clarified that it is no way a party to the deal.
Eliahu will not only have to relinquish Leumi but will be required to leave the entire banking sector. He holds a 27% stake in Union Bank of Israel (TASE: UNON) and will probably be required to sell that as the Bachar Commission recommended that individual cannot hold more than 10% of both a bank and an insurance company.
Published by Globes, Israel business news - www.globes-online.com - on March 7, 2012
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