Discount Bank Seeks to Keep Credit Card Firm Cal, Deal Faces Regulatory Hurdles

Discount Bank is lobbying Israeli regulators, including the Bank of Israel, Ministry of Finance, and Ministry of Justice, to repeal a law forcing it to divest its controlling stake in the credit card company Cal. The move comes as the Competition Authority is imposing conditions on the proposed sale to Union Group and Harel Insurance that the buyers find difficult to accept. Discount Bank faces a deadline of May 2027 to sell its controlling interest, and finding a new buyer, securing approvals, financing, and finalizing a new agreement could be a lengthy process.

The current deal values Cal at approximately 3.75 billion shekels, potentially rising to 4 billion shekels with performance-based payments. Discount Bank, holding about 72% of Cal, would receive around 2.7 billion shekels. The International Company, holding the remaining 28%, is set to receive just over 1 billion shekels. Despite losing its contract with El Al's frequent flyer program, Cal has shown strong growth, with second-quarter revenues up 7% to 843 million shekels and transaction volume increasing 11% to 55 billion shekels. The company reported a net profit of 104 million shekels in the second quarter, though the representative profit, excluding a one-time gain from the El Al contract termination, is estimated between 85-88 million shekels.

The Competition Authority's concerns stem from potential conflicts of interest, particularly regarding Union Group's significant stake in Super-Pharm, a major retail pharmacy chain. Cal holds extensive data on consumer purchasing habits, and regulators fear this information could be leveraged to give Union Group an unfair advantage over competitors like Shufersal's Be chain. To address this, the authority is demanding restrictions on board appointments and mechanisms to prevent data sharing between Cal and Union.

These stringent conditions make the acquisition less attractive for buyers, who seek control and influence over management and strategy. Ironically, Discount Bank previously received a higher offer from businessman Moti Ben-Moshe, valuing Cal at approximately 4.18 billion shekels. Discount Bank had initially favored the Union-Harel deal, believing it would face fewer regulatory obstacles, a notion now appearing less certain.

If the current deal collapses, Discount Bank has several alternatives, including returning to previous bidders, seeking new buyers, or listing Cal on the stock exchange, which could grant an extension until May 2028, though International Company's rights complicate this. Other potential investors, including Moti Ben-Moshe and Centerbridge Partners, are reportedly monitoring the situation. The longer the delay, the more leverage potential buyers gain, knowing Discount Bank is under pressure to find a solution.

The broader context involves a national reform aimed at separating credit card companies from banks to foster competition. Bank Leumi and Bank Hapoalim have already divested their credit card operations. Cal remains the last major credit card company under a large bank's control, and its potential future as a limited banking license holder makes its divestiture a significant aspect of the ongoing financial market reform.