Delek Group’s Dividend in Kind Sparks 735% Surge in Subsidiary Shares, Testing Valuation Methods
This month, Delek Group distributed shares of its wholly owned subsidiary, Delek Initiatives, as a dividend in kind to its shareholders. Delek Initiatives’ sole asset is the right to receive overriding royalties from NewMed Energy’s revenues from the Leviathan gas field. This corporate move offers a unique case to examine valuation challenges for companies whose entire operations depend on royalties, including comparisons to similar companies and discounted cash flow (DCF) models.
Leviathan, Israel’s largest natural gas reservoir discovered in 2010, began commercial production in late 2019. It is jointly owned by Chevron (40%, operator), NewMed Energy (43%, Delek’s subsidiary), and Ratio (15%). In 2025, Leviathan produced about 10.9 billion cubic meters (BCM) of gas, with 57% exported to Egypt, 26% to Jordan, and 17% sold domestically. Revenues reached approximately $2.23 billion, mostly from natural gas sales. Production capacity is expected to rise to 14 BCM in 2026 and potentially 21 BCM by decade’s end, with revenues possibly reaching $4.5 billion annually.
The overriding royalty rights held by Delek Initiatives entitle it to a percentage of Leviathan’s revenues after certain costs, without bearing most development and operational expenses. This makes the economic value of a 1% royalty higher than a 1% direct ownership stake. Delek Group took a $250 million bank loan to facilitate the dividend in kind, leaving Delek Initiatives with net financial liabilities of about $233 million.
Valuation approaches include benchmarking against Ratio, which holds 15% of Leviathan but pays royalties, effectively reducing its economic stake to 13.4%. Ratio’s market capitalization of $1.6 billion plus net debt implies a total Leviathan value of about $15.35 billion. Applying this to Delek Initiatives’ 2.95% royalty (equivalent to 3.93% economic stake) yields an equity value near $370 million, or roughly 62 shekels per share, close to the current market price.
A DCF model based on projected cash flows and a 7.5% discount rate estimates a slightly higher equity value of $387 million (65 shekels per share), reflecting optimistic assumptions about gas prices and production. Both methods converge on a valuation range of approximately 1.1 to 1.2 billion shekels for Delek Initiatives.
The dividend in kind posed challenges for the Tel Aviv Stock Exchange and index funds, which temporarily included Delek Initiatives shares in relevant indices to avoid tracking errors. However, the shares were removed after one trading day, prompting index funds to sell about 40 million shekels worth. The stock price surged 735% on its first day, the largest daily gain ever for a TA-35 constituent, primarily due to the difference between the accounting-based initial price and market valuation rather than a fundamental change in value. This episode highlights the limitations of technical pricing mechanisms in such corporate actions.
