Ari Real Estate Loses 25% Value After Announcing G City Control Deal with Haim Katzman
At the start of the week, businessman Tzachi Abu surprised the local capital market when his company, Ari Real Estate, announced plans to acquire control of the commercial real estate firm G City from Norstar, owned by veteran businessman Haim Katzman. Ari Real Estate intends to purchase 26% of G City’s shares from Norstar for 661 million shekels, valuing G City at 2.55 billion shekels, a premium of over 30% compared to its pre-deal market value. Additionally, Ari Real Estate has an option to buy another 7% of G City shares for 192-204 million shekels, which would raise its stake to 33%, while Norstar’s holding would decrease to 21%. The deal also includes a joint commitment to lead a capital raise of about 1 billion shekels for G City, with Ari Real Estate and Norstar expected to contribute approximately 540 million shekels.
Despite the strategic move, investors have reacted negatively, sending Ari Real Estate’s stock down by roughly 25% within a week, reducing its market value to about 1.7 billion shekels. This decline has impacted Abu’s holdings, now valued at approximately 893 million shekels. Conversely, G City’s shares have risen about 9% since the ownership changes were announced, currently valued at around 2.1 billion shekels, surpassing Ari Real Estate’s market cap.
Abu remains committed to executing the plan to unlock value in G City. In a conference call, he stated that Ari Real Estate will finance the acquisition through its own resources initially, with potential future capital raising involving his participation. Abu also plans to focus the company’s operations on the domestic market, aiming to reduce leverage by divesting overseas assets that cannot be actively managed. He described G City’s Israeli and Polish assets as excellent, while indicating that other properties will be evaluated for optimal sale prices to lower debt.
Furthermore, G City intends to cut its high management expenses, currently about 300 million shekels annually, by approximately 50%. This cost reduction will also affect Katzman, who will initially serve as co-chair alongside Abu. The deal marks a significant restructuring in the Israeli commercial real estate sector, with Ari Real Estate consolidating its position despite short-term investor concerns.
