* Up to $28 bln of assets could be put up for sale
* Diverse range of candidates, from financials to food
* Law aims to dilute concentrated corporate power
* High regulation could dampen foreign demand
By Tova Cohen
TEL AVIV, Feb 13 Israeli conglomerates will
offload billions of dollars worth of assets over the next few
years to comply with a new law designed to promote competition
and dilute the power of big business in a country where a few
tycoons control much of the economy.
The move to redefine Israel's corporate landscape comes
after 400,000 people took to the streets in 2011, the largest
protest in Israeli history, angered by the high cost of living.
The Business Concentration Law, which aims to break up some
of the largest conglomerates and prevent the growth of new
behemoths, could put about 40 firms worth 80-100 billion shekels
($23-28 billion) up for sale, according to Israeli corporate law
firm Gross Kleinhendler Hodak Halevy Greenberg & Co (GKH).
The reform, which was approved in December and is the latest
in a swathe of new business regulations, should result in
smaller holding companies with less debt, said Alon Glazer, head
of research at Leader Capital Markets.
Some fear it could also push Israel's biggest companies to
look elsewhere for growth.
The expected surge in divestments looks set to cover a wide
range of businesses, from insurers and banks to oil refiners and
food companies. Some, including Israel's second-biggest insurer
Clal Insurance and leading food company Tnuva, are
already up for sale.
Potential buyers include foreign firms as well as private
equity funds, possibly teaming up with local partners unable to
buy on their own. Critics say the tighter regulatory environment
in Israel could deter some investors, however, forcing sellers
to lower their prices or float assets piecemeal on the stock
The law, which supporters say is an overdue strike against a
select band of overmighty tycoons, grants conglomerates four to
six years to sell the assets, but experts believe they will act
early to avoid last-minute fire sales.
Corporate power in Israel is more closely concentrated than
almost anywhere else in the developed world, with the 10 largest
groups controlling 41 percent of the $200 billion-plus value of
the 495 companies on the Israeli bourse.
Part of the problem has been that the biggest players have
been able to build "pyramids" with tiers of holding companies,
enabling wealthy individuals to control business empires while
owning only a fraction of the equity in any given entity.
"A lot of assets are going to shake loose," said one senior
The lopsided influence of Israel's financial elite dominated
the political agenda in 2011 when the protesters took to the
streets, demanding greater competition to lower costs for
housing and basic goods.
In response to that pressure, Prime Minister Benjamin
Netanyahu's rightist government swiftly drew up a plan to open
up markets and force service providers to cut consumer fees,
along with a flood of regulations that affected almost every
sector, from mobile phone operators to food
A new generation of politicians promising to tackle vested
interests were swept into parliament in 2013, including former
TV personality Yair Lapid, who became finance minister in
Netanyahu's new government and has railed against "shameless
The new law will limit the pyramid conglomerates to two
layers of listed companies and bar them from holding financial
firms with assets of more than 40 billion shekels and
non-financial businesses with more than 6 billion shekels of
GKH Chairman David Hodak called the law a "big experiment"
to curb private sector power in the economic and political
field, adding: "A process of this kind happens in a country once
in a very long while or as a result of a deep crisis."
The case for breaking up the pyramids was helped by the
insolvency of IDB Holding, the most layered of
IDB Holding, with a market value of 26.8 million shekels,
owns IDB Development, which in turn owns 74 percent
of holding company Discount Investment Corp, which
holds 70 percent of holding company Koor Industries.
IDB Development also owns 55 percent of Clal Insurance.
IDB has already agreed to sell a third of Clal to a group
led by Chinese businessman Li Haifeng for 1.47 billion shekels
and is also in the process of merging Koor and Discount as it
moves towards becoming a two-layer pyramid.
Discount Investment in turn controls some of Israel's most
prized assets: 44 percent of Israel's biggest mobile phone
operator, Cellcom, 48 percent of leading supermarket
chain Super-Sol, and 79 percent of real estate
developer Property and Building.
All are potential candidates in the big sell-off, though IDB
said in a statement last month that the full impact of the new
law was still unclear.
Another affected by the law is businessman Zadik Bino, who
controls refiner Paz Oil and First International Bank
, the country's fifth-largest lender.
Adir Waldman, of the Freshfields Bruckhaus Deringer law
firm, said many foreign clients, especially European private
equity firms, had been sizing up the opportunities.
"They have a lot of money they need to put to work and have
seen what firms like Apax did," he said.
Britain's Apax has invested more than $1 billion in Israel
over the past eight years. However, Apex itself could be subject
to the new restrictions and has held talks with China's Bright
Food over its 56 percent stake in Tnuva, which could
fetch an estimated $1.6 billion.
"There will be attractive opportunities, but there is high
uncertainty for private equity in terms of regulation," said one
private equity source. "Unless we see a new mindset, I don't
think there will be a lot of new players."
Some say it could also have a chilling effect on homegrown
"The regulator is basically saying, 'We don't want you to
grow (in Israel); we want people to come from abroad'," said an
investment source who declined to be named.