York Capital Management is buying a chunk of Bank Hapoalim, in a deal eerily reminiscent of the bailout of the big boys overseas, UBS and Citi after the subprime debacles. The U.S.-based equity fund yesterday signed a memorandum of understanding with Hapoalim, to pay NIS 735 million in exchange for 52.5 million ordinary shares. The deal prices Hapoalim stock at NIS 14, a discount of about 4% compared with its opening price on the Tel Aviv Stock Exchange yesterday morning. No doubt about it, York is getting its piece of Hapoalim on the cheap - certainly compared with the price at which Shari Arison bought her controlling interest, but she had little choice following the bank's midadventures with derivatives.
York could increase its holding: The deal includes options for 7.5 million shares, to be exercised in 12 and 24 months at NIS 19 and NIS 22 per share, respectively.
The acquisition is expected to boost Hapoalim's tier-1 capital, which has become vulnerable due to the bank's heavy reliance on mortgage-backed assets, by 0.35%.
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The latest deal was put together by Jeremy Blank, a managing director at York Capital, and Hapoalim chairman Danny Dankner.
York Capital, which manages $14 billion in assets, has been showing quite an interest in choice Israeli assets in recent years. In late 2005, it bought a controlling interest in the Psagot Ofek investment firm from Bank Leumi, for NIS 1.35 billion. That was its second significant foray into Israel, following its $60 million investment in Gilat Satellite, and it represented York Capital's real debut on the local market. To win Psagot's hand, as it were, a move that was completed in September 2006, York Capital knocked out serious rivals such as Africa Israel, Migdal Insurance and Apax Partners.
York Capital had previously joined the Benny Alagem group in a bid for Bezeq, which it lost to the U.S.-based Apax investment fund.
Yesterday was not the first time that Blank, who heads York Capital's Israel branch, and Dankner have worked together. Earlier this week Hapoalim, which is controlled by Shari Arison, sold off the last of the provident funds under its control, Gadish, to Psagot for NIS 629 million.
Hapoalim shareholders were apparently unmoved by the deal yesterday: the bank's stock ended down 0.4%, well within the realm of random fluctuation. The bank's market value has lost about NIS 10 billion since May 2007, and is currently trading at a cap of about NIS 18 billion. That assumes an equity multiple of less than 1 - meaning that again, Hapoalim is trading a hair below its shareholders equity. That was also the basis for the deal with York, which also got an additional break on the market price.
At Psagot Ofek's investor conference at the end of last year, Jeremy Blank wandered around among the 1,000 attendees, schmoozing in English mixed with American-accented Hebrew and looking like a college kid in suit and tie.
Nothing in Blank's appearance or his demeanor at the conference betrayed the fact that he was one of the most important people there. At 30, the youngster is a managing director at York Capital and has closed major deals for the firm. He is known for being sharp and focused, a quick decision maker, and he has the full backing of the main office in New York. The word in the business community is that Blank operates like an American hedge fund manager - "killers who know what they're looking for."
Yesterday's deal had a lot in common with the investment deals being put together by American banks hit hard by the subprime crisis, with injections of capital from funds in the Far East and the Persian Gulf.
One can assume that Blank would have preferred to acquire shares in Bank Leumi. But unlike Hapoalim, Leumi is relatively untouched by the subprime meltdown and ensuing credit crunch. unlike Hapoalim, and unlike their big brethren abroad, it is not in need of a fast injection of capital. It doesn't need a white knight to come sailing in and whisk it off at a fire-sale bargain price.
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