Keystone Bid Puts Shikun & Binui Energy Sale Into a Price War

The battle for Shikun & Binui Energy is shaping up as one of the most closely watched and expensive control contests in Israel’s capital market in years. What began as an orderly sale process has turned into a showdown between two of the country’s largest infrastructure funds, Keystone and Generation, with a possible third bidder also in the picture.

On Tuesday, Keystone submitted an offer to buy all of Shikun & Binui Energy for 4.35 billion shekels. Keystone said it would pay the full amount within 14 days of closing, with no closing conditions and no contingent earn-out mechanism. The offer was sent to the company’s board about a week and a half before the end of Generation’s 30-day exclusivity period, after Generation signed a memorandum of understanding last month to buy the company for 4.2 billion shekels, a price that could rise by another 300 million shekels over five years, depending on performance. That means Generation’s offer could reach 4.5 billion shekels.

Shikun & Binui Energy shares rose 2.5% on Tuesday, valuing the company at 4 billion shekels, below both bids. The company told Keystone it could not discuss the offer while Generation’s exclusivity remains in force. That period is expected to end on July 4 or 5, after which Shikun & Binui is expected to sign a binding agreement with Generation. Even then, the deal would not necessarily be final, and Keystone appears to have timed its bid to delay or block a binding signing. From Shikun & Binui’s perspective, however, a binding agreement could be helpful, because any rival would then need to bid much higher and move quickly, using due diligence already done by Generation.

Shikun & Binui, controlled by Nati Saidoff, would prefer that outcome, as it could trigger a bidding war and raise proceeds for shareholders. Market participants said the price could eventually approach 5 billion shekels. The rivalry between Generation, run by Yossi Zinger and Erez Balsha, and Keystone, led by Gil Deutsch, Roni Biram and Navot Bar, is longstanding and includes personal and emotional elements as well as business strategy.

Generation has some advantages, including being first to the deal and already raising about 1 billion shekels in equity at a roughly 10% discount. Keystone, however, says it has about 450 million shekels in cash, a relatively low leverage ratio of about 24%, and could bring in institutional partners. It also argues that it has a regulatory advantage because it already owns power plants at Hagit and Neot Hovav with Shikun & Binui, limiting any major increase in market share.

Regulatory approval would still be required, and the Electricity Authority has already said Generation’s purchase would force asset sales and would not be approved as a full merger. Meanwhile, a third bidder is being considered, and if one emerges it is expected to offer at least 4.5 billion shekels, likely in cash. Because both funds are public vehicles, the battle is effectively being financed by long-term savings money managed for the public, raising the stakes for investors and for the eventual sale price.