Warburg Pincus to Buy Israel's Leumi Card for $684 Million

(Bloomberg) -- Warburg Pincus LLC agreed to buy credit-card operator Leumi Card Ltd. in a deal that the Israeli government hopes will boost competition in the country’s financial sector.

The New York-based private equity firm will pay 2.5 billion shekels ($684 million) in three installments for one of the country’s largest credit card businesses, according to an emailed statement late Saturday. Israel’s second-biggest lender Bank Leumi Le-Israel Ltd. owns 80 percent of the credit card company’s equity, while real estate developer Azrieli Group Ltd. holds the rest.

Leumi shares were little changed at 22.94 shekels at 10:55 a.m. in Tel Aviv.

Finance Minister Moshe Kahlon led reforms for Israel’s financial industry, including the forced sale of the country’s biggest credit card companies, to loosen the grip of the top two banks within the sector. Leumi and Bank Hapoalim Ltd. account for 55 percent of banking credit in Israel, according to Bank of Israel data.

In recent months, the central bank relaxed rules to help the new owners obtain capital, a move that should help the spun-off companies compete with their former owners over retail loans. The Bank of Israel is also opening a centralized credit bureau at the beginning of next year, which will allow the rival credit card companies access to consumer data presently fragmented in the hands of the banks.

New Business

“The Israeli payments, consumer finance and small and medium-sized enterprises lending markets present considerable opportunity,” Warburg’s Europe head Daniel Zilberman said in the statement.

As part of its growth plan, Leumi Card will expand into new areas such as insurance that was previously off-limits due to laws barring banks from the business, Chairman Yaron Bloch said in a phone interview.

Bank Leumi expects to post 234 million shekels in after-tax profit from the sale, with a potential to add 273 million shekels more if Leumi Card reaches certain milestones, according to the statement. Warburg also gave the Israeli lender an option to buy back as much as 20 percent of the business.

Under Warburg, Leumi Card will be able to “contribute to advancing competition in the payments market and in retail credit,” given the buyout firm’s investment experience, the central bank said on its website. The deal is subject to approval by the Bank of Israel.

Warburg has about $45 billion in assets under management, spread over more than 165 companies. It’s invested about $11 billion in the financial sector, according to the statement.

Harel Insurance Investments & Financial Services Ltd., one of Israel’s largest insurers, provided Warburg a loan of 850 million shekels for the deal. Goldman Sachs Group Inc. advised Leumi on the sale.

Hapoalim, which owns Isracard Ltd., the country’s largest credit card business, has until next year to sell the company.

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