Recently, the Israeli capital market has undergone a process of consolidation. Just last week, Israel announced that the winning bid for its 9.99 percent stake in Bank Leumi would go to the consortium of New York-based hedge funds, Cerberus Global Investments and Gabriel Capital. The event made headline news in most Israeli business newspapers. However, another, much smaller deal is also deserving attention—between Phoenix Assurance and Excellence Investments.
Israel Phoenix Assurance announced to the Tel Aviv Stock Exchange that it had signed an agreement to purchase 41% of Excellence Investments Ltd. for NIS 318 million (close to US$70 million). The price reflects a value of NIS 775 million for Excellence.
According to Globes business daily, sellers Roni Biram, Dr. Gil Deutsch, and United Mizrahi Bank are the controlling shareholders in Excellence. Of the 41% of Excellence that Phoenix will hold, 25% represents Mizrahi's entire stake in Excellence. The remaining 16% is being sold by Biram and Deutsch. Following the transaction, Phoenix will have joint control with Biram and Deutsch, with the last two owning 41% of Excellence and Phoenix having a similar stake.
This latest deal surprised many market observers and also raised crucial questions. Topping concerns was the fact that the chairmen of Excellence and Phoenix are brothers in-law. This may indicate possible weaknesses of the due diligence process, though concrete information regarding this point is lacking. One thing is obvious – family contacts and the imminent deal were not properly reported as they should have been when two public companies are in question.
Unfortunately, this was not the first time that Excellence Investments' name was linked to dubious transactions. In 2004, the Tel Aviv District Attorney decided to indict Excellence Investments co-owner Golan Cohen and an employee of Excellence Investments' Tel Aviv 25 index department, Ronen Reshef, on suspicion of violating securities laws.
Cohen and Reshef are suspected of fraudulently influencing the share price of Partner Communications on July 31, 2001, the day before it was included in the Tel Aviv 25 index. Excellence Investments' owners, co-CEOs Deutsch and Biram were also questioned during the investigation. They were released after questioning.
Cohen and Reshef own and work for Ofmat Investments Ltd., Excellence Investments' arm for trading financial instruments and making non-financial investments. Excellence Investments owns half of Ofmat. Biram and Deutsch lashed out at the accusations and said that although the rise in the price of the Partner share was irregular, authorities were in place to ensure proper trading.
This affair damaged the image of Deutsch and Biram, but posed more of a danger for Excellence, possibly exposing it to further charges, the extent of which is still hard to assess.
The court ultimately decided to sue Excellence, and if convicted, the case could spell the beginning of other similar representative law suits.
In 2002, in fact, the Tel Aviv Magistrate Court was presented with an earlier representative law suit involving Excellence's manipulation of shares of the Partner firm. It should be noted that in January 2002, the owners of Excellence expressed their conviction that all deals between Excellence and Partner had been lawful and legitimate, and that further investigation into the matter would prove so.
Rumors then surfaced that Excellence had mixed their Nostro files - a claim that is unfounded. Only a thorough examination, however, of the company's computer files will reveal the ultimate truth in the matter.
Furthermore, in February 2002, a law suit was brought against Excellence by an unnamed dentist, who claimed that the company misled him in connection to structure notes, as well as with a business deal which he undertook through Excellence.
The business deal between Excellence Investments and Phoenix Assurance was most assuredly of the "Family" sort, with neither Excellence nor Phoenix revealing any information ahead of time regarding the deal between the two companies. The deal was agreed upon between in-laws, and furthermore, undertaken on a weekend—far from the public's eye.
