September 19, 2011 / 1:00 PM / 9 years ago

UPDATE 2-Israel looks to break up conglomerates

* Conglomerates will be forced to sell off assets

* Minority shareholders will be stronger in complex corporations

* Panel recommended strengthening Anti-Trust Authority

* Shares of Israeli conglomerates sink (Adds analyst comments, share reaction)

By Ari Rabinovitch and Tova Cohen

JERUSALEM, Sept 19 (Reuters) - The Israeli government, under pressure from protests about high living costs, took aim at big business groups on Monday with a plan to break up of some of the country’s largest conglomerates and boost competition.

A committee commissioned by Prime Minister Benjamin Netanyahu and Finance Minister Yuval Steinitz recommended regulations to increase competition by forcing conglomerates to sell either their financial assets or other “real” assets within four years.

The proposal, which could lead to major companies being put up for sale, hit shares in Delek Group and Discount Investment Corp — among those most likely to be affected and controlled respectively by Yitzhak Tshuva and Nochi Dankner, two of Israel’s richest men.

Delek and Discount Investment shares both lost around 7 percent, helping drag the Israel market down 2.8 percent.

After a summer-long wave of protests, Israeli leaders are under pressure to lower the cost of living and conglomerates have been partly blamed for driving up prices of basic goods. Another government committee aimed at lowering Israelis’ cost of living is expected to present its recommendations next week.

In its interim report, the panel also recommended granting more power to minority shareholders in complex companies that have many tiers of subsidiaries. Minority shareholders would have veto powers over major acquisitions and the issuing of debt or equity.

Israel has one of the highest concentrations of corporate power in the developed world and the Finance Ministry said the country’s 10 largest business groups control 41 percent of the market value of public companies.

Steinitz, who has said that pending a public hearing he will support the recommendations “100 percent”, called the panel’s report “a very positive turning point in the development of Israel’s economy”.

The committee’s final report will be brought to a cabinet vote in about three months and would then need parliamentary approval to change Israel’s regulatory laws.

WHAT TO CHOOSE?

A number of holding companies whose assets include both financial activities — such as banks and insurance companies — as well as interests such as refineries, supermarkets and mobile phones, do not want to be forced to choose between the two and have opposed the measures.

Analysts said IDB Holding for instance would have to divest Clal Insurance , assuming it keeps Cellcom , Israel’s largest mobile phone operator. Delek, one of Israel’s largest energy firms, is expected to be forced to sell insurance group Phoenix .

Similarly, businessman Zadik Bino would have to choose between holding on to First International Bank of Israel , Israel’s fifth-largest bank, and Paz Oil , the country’s largest distributor of refined oil products.

Reuben Eblagon, controlling shareholder of investment house Rosario Capital, said investors were spooked by the “change of rules ... in the middle of the game.

“This could lead to a slowdown in the economy and hurt the middle class, exactly the opposite of what the committee had hoped to achieve,” he said.

Eblagon noted potential buyers of the assets would still have to be large companies. “It is still too early whether the concentration (of power in the economy) would be reduced or whether we will see the creation of new concentration,” he said.

The Finance Ministry said the proposed changes would make it difficult for Israeli conglomerates, which commonly have cascading ownerships and cross-holdings, to broaden their pyramidal structures.

The panel also recommended strengthening the Anti-Trust Authority in order to tackle the problem of concentration and to increase competition.

“(The panel’s recommendations) will bring solutions to problems which many small countries, small markets face,” said Bank of Israel Governor Stanley Fischer, who has said Israeli tycoons had been unfairly treated as criminals in the local press. “I think they (the tycoons) have succeeded and succeeded big time.” (Additional reporting by Maayan Lubell and Steven Scheer; Editing by David Holmes)

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