Generation Fund Ready to Pay NIS 120 Million to Block Keystone in Shikun Energy Deal

Shikun & Binui has set a penalty clause in its agreement to sell Shikun Energy shares to the Generation Infrastructure Fund, operated by Generation Capital, to deter withdrawal if a competing offer emerges. If Shikun & Binui receives a higher bid from a major energy player such as Keystone or another large energy company, it must pay Generation a NIS 300 million penalty for backing out. However, if the competing offer comes from a smaller or non-energy sector player, the penalty drops to NIS 180 million, creating a NIS 120 million gap designed to discourage sales to significant energy competitors. Generation retains the right to match any rival offer.

Additionally, if Generation fails to complete the deal due to regulatory issues, it must compensate Shikun & Binui with NIS 300 million. Should Generation withdraw for reasons within its control, it faces a NIS 600 million penalty. Last week, Shikun & Binui signed the sale of Shikun Energy to Generation for NIS 4.45 billion. The agreement includes compensation to Generation if Shikun & Binui breaches the contract by accepting a higher offer during the regulatory approval period.

Sources involved in the deal noted Generation insisted on a higher penalty for sales to major energy companies to block Keystone, which Generation views as a rival attempting to undermine the deal through improper means. Legal counsel for Shikun & Binui avoided naming specific companies, instead referring to "significant players in the energy sector." The penalty applies if Shikun & Binui's board cancels the transaction.

The rivalry between Generation and Keystone is intense, with no professional communication between fund managers. If approved, both funds will co-own two large power plants: Hagit Mizrach and Neot Hovav. Generation, managed by Yossi Zinger and Erez Belshe, has prepared several solutions to address regulatory concerns from the Electricity Authority, which currently opposes the deal.

To facilitate approval, Generation recently swapped shares with Rafeq Energy, transferring its stake in the Alon Tavor power plant in exchange for Rafeq's shares in the Reindeer plant in Sharon. Generation holds 52% of the Reindeer plant, which has an 865 MW capacity, and arranged a sale agreement to Nofar Energy, the majority shareholder, if required by the Electricity Authority.

This acquisition will position Generation as one of Israel's largest electricity producers alongside Adletech. Generation is particularly interested in Shikun Energy's renewable energy assets. The original deal included NIS 4.2 billion in cash and NIS 300 million deferred payment over five years, but negotiations raised the cash component to NIS 4.45 billion. Generation also holds a stake in Bezeqgen, Israel's largest private electricity supplier, which will support its growth amid limited availability of cheap electricity.