Delek Real Estate Ltd. (TASE: DLKR) and Blenheim Property Group Ltd. have cancelled their planned CHF 3.5 billion (NIS 12.2 billion) acquisition of Switzerland’s Jelmoli Holdings AG (SWX:JEL). Jelmoli owns 88 properties across Switzerland.
Delek Real Estate CEO Ilik Rozhansky told “Globes”, “We made a deal whose economic worthwhileness was never in doubt until the credit crisis, which affected the cost of capital and sale prices of properties. These affected the viability of the deal, which we tried to correct.”
Rozansky added, “It’s true that this was the biggest recent real estate in Europe, and I can see the headlines, but I’m not afraid of them. I won’t go ahead on a deal at any price. I act in order to create value, and if the headlines say that I failed, so be it.”
As for Delek Real Estate’s financial partner, Rozansky said, “Merrill Lynch did not budge for a moment. They promised us a loan of CHF 2.7 billion, and stood behind it.”
In July, Delek Real Estate, a subsidiary of Delek Group Ltd. (TASE: DLEKG), controlled by Yitzhak Tshuva, and Blenheim Properties Group, owned by Igal Ahouvi, announced the takeover of Jelmoli. However, difficulties over the price tag emerged in September in the wake of the market conditions created by the global real estate crisis.
Rozansky said, “We realized that macroeconomic changes, reflected in higher financing costs and lower sale prices for properties, meant that we had to revise the deal and the Swiss agreed. However, we were unable to reach agreement. It’s important to remember that the cost of raising capital has risen sharply, and it’s much harder to sell properties whose prices have also fallen. These factors affected the economic viability of the deal, which we tried to correct.”
Putting aside the question whether Rozansky and Ahouvi made the right decision in cancelling the Jelmoli deal on purely economic grounds, there is still the question of prestige about the cancellation of the deal, which had been billed as “the biggest ever”.
Rozansky concluded, “I spent the best part of the last three months in Switzerland and I barely slept. I really wanted to close this deal, and it’s a pity that it didn’t work out in the end, but we had to leave under these conditions.”
Rozansky said that despite differences of opinion, the mood in the conference rooms was warm, and that the Swiss understood the problematic situation.
Jelmoli will foreclose on the CHF 10 million deposit made by Delek Real Estate and Blenheim Properties Group, and also hinted that it might seek legal remedies. Delek Real Estate also faces millions of shekels in costs to lawyers, assessors, and others who worked on the deal.
The market was divided about the Jelmoli deal even before the global credit crisis, as was seen in Delek Real Estate’s share, which rose 3.6% today after losing 15% since the acquisition was announced in late July. Analysts have also had mixed feelings.
Prisma Investment House Ltd. said today, “Cancelling the deal was a healthy development for Delek Real Estate’s shareholders, since the viability of the deal even under the original terms was borderline at best.” Prisma added that the foreclosure on the deposit was a secondary matter and “is definitely better than swallowing a NIS 12 billion herring.”
Leader Capital Markets analyst Alon Glazer said, “This is excellent news for Delek Real Estate. Market conditions have dramatically changed, as seen in the falling values for European real estate and rising financing costs, which turned the original deal into something far less worthwhile. The foreclosure on the deposit is insignificant. Delek Real Estate’s management made a decision that serves the shareholders, even at the cost of completing a ‘sparkling’ transaction and worries about bad press. We believe that the cancellation of the deal was the right thing for the company to do.”
Published by Globes [online], Israel business news - www.globes.co.il - on October 25, 2007
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