Dispute Over $50 Million Payout Looms After Cal Deal Collapse

A potential dispute over NIS 187 million (approximately $50 million) in compensation is emerging following the likely collapse of the deal for the sale of Cal, an Israeli credit card company. The original NIS 3.75 billion deal, which could have reached NIS 4 billion, involved buyers Union and Harel exiting the agreement. Discount Bank and International Bank, the sellers, may seek to enforce a compensation clause stipulated in the original contract.

Under the proposed compensation, Union would be responsible for NIS 150 million and Harel for NIS 37 million. If paid in full, Discount Bank would receive approximately NIS 135 million and International Bank NIS 52 million. However, this is not a guaranteed debt for the buyers, nor a certain income for the banks, as the deal's failure stems from a condition set by the Israel Competition Authority.

The Authority approved the merger but mandated that Union, controlled by George Horesh, sell its entire stake in Super-Pharm. This condition fundamentally alters the deal for Union, forcing a choice between its Super-Pharm holding and acquiring Cal. The banks, however, argue that since the regulatory approval came with a condition preventing the deal from closing as originally agreed, the compensation mechanism should be activated.

Union and Harel may counter that regulatory approval was granted, albeit with a condition significantly impacting another of Union's assets. The dispute could hinge on the contract's precise wording regarding the buyers' obligations to secure approvals, and whether it includes clauses for reasonable efforts, broader acceptance of regulatory demands, or exceptions for divesting significant non-deal-related assets.

Given that the full purchase agreement is not public, it is difficult to determine the outcome. The NIS 187 million is currently a starting point for a potential dispute, not a confirmed payment. If the deal is indeed canceled, the parties might negotiate a settlement for a lower amount rather than pursue legal resolution. Discount Bank and International Bank have an interest in receiving compensation and closing the matter quickly, while Union and Harel would seek to avoid full payment for a deal that did not materialize.