Paz will acquire Freshmarket for NIS 2.1 billion in cash and reflects a 14% premium on it's value

Paz will acquire Freshmarket, controlled by Shlomi and Yossi Amir, for NIS 2.1 billion in cash (80%) and shares (20%). The transaction reflects a 14% premium on the value of a fresh market on the stock exchange. Simultaneously with the decision to acquire Freshmarket, the Paz Board of Directors decided to reject the two proposals it received for the acquisition of control of the company by Leumi Partners and by Shikun VeBinui.
Leumi Partners offered to inject NIS 1.055 billion, in exchange for an allotment of 20% of Paz's shares at a company value of NIS 3.85 billion - and an option to purchase another 5% of Paz's shares at a company value of NIS 4.1 billion.
Shikun VeBinui proposed to transfer ownership of the subsidiary Shikun VeBinui Energy to Paz, in exchange for an allotment of 48% of Paz's shares in Shikun VeBinui. Both proposals were received with little enthusiasm by institutional investors because they did not reflect a premium on Paz's value on the stock exchange. Upon completion of the transaction, Freshmarket will be deleted from trading on the stock exchange.
The transaction will not be required for the approval of Paz's shareholders, because according to the Companies Law, the approval of the shareholders is only required for a private allotment of more than 20% of a company's capital. In contrast, Freshmarket shareholders will be required to give their approval to the transaction. Upon completion of the transaction, the risk of the acquisition of control of Paz by another public company decreased, both because it is a company with a market value of NIS 6 billion and because the cash balances in the company will be reset. This means that the only way to acquire control of the company will be through the purchase of institutional shares in Paz.
Brothers Shlomi and Yossi Amir founded Freshmarket in 1995, after shortly after their release from military service, they purchased a neighborhood supermarket in Kiryat Bialik. They each hold 32.4% of Freshmarket's shares, and they will each benefit from an exit of NIS 665 million. The two undertook to remain in office for one year from the moment the transaction is completed. Completion of the transaction is expected to take place within six months.
With the acquisition of Freshmarket, Paz is implementing the strategy of aggressively entering the retail sector, as part of its efforts to reduce its dependence on the refining and marketing of fuel - which faces the threat of stopping the marketing of fuel-powered cars starting in 2030. This sector also suffers from high volatility and dependence on world refining margins. In recent years, the field has suffered heavy losses.
Freshmarket operates 41 supermarkets, most of them neighborhood. The supermarkets are mainly concentrated in Gush Dan, with a total sales area of ​​35,610 square meters. The company, which was issued on the stock exchange in May 2019, showed high profitability due to a relatively high price level, and due to the concentration of sales in neighborhood branches.
Freshmarket earned NIS 30 million on a turnover of NIS 401 million in the first quarter of 2021, and a profit of NIS 116 million on a turnover of NIS 1.6 billion in 2020. The acquisition of Freshmarket follows a smaller move, which included Paz's entry into the neighborhood stores and convenience stores market in Tel Aviv. Paz's entry into this market is reflected in the fact that in May it acquired the Super Yoda chain, which has 16 branches in Tel Aviv, for NIS 170 million.
The two acquisitions join Paz's main retail asset: the Yellow chain, which has 239 convenience stores and generates a turnover of NIS 1 billion a year. The completion of the acquisition of Freshmarket will bring Paz closer to a situation where it is a customer-focused retail company, including the customers of the subsidiary Pazgaz and the customers of the company's 270 gas stations in the Paz chain.
At the same time, the company will continue in the process of splitting its subsidiary Paz Ashdod Refinery into a separate company, whose shares will be transferred as a dividend to shareholders. Paz also plans to develop the company's income-producing real estate, through a subsidiary that will focus on income-producing real estate and through a partnership with one of the income-producing real estate companies in Israel. The Valio Base investment house is leading the move.
Contacts between Paz and Freshmarket began in April 2021, against the background of the assessment of Chairman Harel Locker and CEO Nir Stern that the company needs to make a big deal that will make it a significant player in the retail market. During the talks, the Amir brothers tried to become Paz's controlling shareholders, by transferring full ownership of Freshmarket in exchange for allocating 36% of Paz's shares to Freshmarket's shareholders.
The Amir brothers gave up on the deal a week later, and it seems that they tried to put pressure on the Paz board to make the decision to buy Freshmarket. It was reported in the press that Shlomi Amir, CEO of Freshmarket, met earlier this week at Landover in Savyon with Tamir Cohen, chairman and CEO of Shikun VeBinui.