Discount Bank Faces Deal Collapse for Credit Card Unit Cal
Discount Bank is likely to lose the deal it has pursued for over a year to acquire Cal, a major credit card company. The deal's collapse hinges on Union Group's potential refusal to sell its Super-Pharm holdings, a prerequisite for the acquisition. This leaves Discount Bank with few viable alternatives.
Seeking an extension from regulators is an option, but finding another buyer in Israel may prove difficult due to potential antitrust hurdles. Even if a large retail company were interested, regulatory scrutiny could deter them. Financial groups have also faced challenges; Harel Insurance, after learning from the failed Isracard deal, limited its stake to 20% in a potential acquisition, which was still insufficient.
Selling to a foreign investment fund also appears unlikely. Similar to how Deka Group struggled for years to sell The Phoenix, foreign investors are hesitant to enter a region facing security threats and shipping disruptions. This makes a foreign fund's entry less probable than a domestic group stepping in.
An initial public offering (IPO) is another possibility, mirroring Bank Hapoalim's 2019 IPO of Isracard to comply with the "Strum Law." However, Discount Bank only owns 72% of Cal, with Bank Leumi holding the remaining 28% under Zadik Bino, who is expected to prioritize a sale for maximum return. An IPO under regulatory timelines would likely result in a lower valuation for Cal, especially as it would operate with a minority bank shareholder and struggle to obtain a "lean bank" license.
Cal has also faced internal challenges, including losing its "Flycard" club, which impacted revenue, and a year of uncertainty under CEO Yafit Gariani. Consequently, Discount Bank's stock has fallen over 1% on the stock exchange, though it has seen a 16% rise in the past year, with the bank valued at approximately NIS 44 billion.
Despite the setbacks, investors believe a "Yihyeh Beseder" (it will be okay) scenario is possible, where Discount Bank might receive an extension or a permanent exemption to continue holding Cal. Credit card companies are attractive assets, with several insurance firms having acquired or attempted to acquire them. If no other buyers emerge, Discount Bank may continue operating Cal for an extended period.
