Tel Aviv Bourse Plans IPO in 4Q After Sale to Manikay Partners

(Bloomberg) -- Israel’s stock exchange, home to cross-listed shares of pharmaceutical giants like Teva and Perrigo Co., is planning an initial public offering this year after selling a stake to New York-based investment fund Manikay Partners LLC.

The bourse plans to sell a 30 percent stake in an IPO in the fourth quarter with a valuation of about $200 million, Chief Executive Officer Ittai Ben-Zeev said in an interview with Bloomberg Television on Tuesday.

Manikay agreed to buy about 20 percent of the exchange in a deal that values it at 551 million shekels ($157 million) as the Middle East’s only developed market seeks to invigorate trading and attract more shares sales. In addition to Manikay’s 19.9 percent stake, 21.8 percent will be sold to unspecified international investors.

“After all the process we went through, it’s crucial to have a deal in which a very substantial amount will go directly to the general public once we are ready to do an IPO,” Ben-Zeev told Bloomberg. Manikay has broad experience in bourse management and is committed to using its expertise and contacts to help the Israeli exchange advance, he said.

Manikay founding partner Shane Finemore described the investment as a “long-term strategic partnership” with TASE management. “We intend to make our experience available to them, both to help progress their IPO and to compete in the global exchange industry,” he said.

In an interview with Bloomberg TV last month, Ben-Zeev said the exchange had drawn more than 10 bids for its sale, including some proposals to buy the entire controlling stake and several to buy minority positions. Israel’s Globes newspaper reported in February that stock exchanges from London, Hong Kong, Toronto, Australia and Singapore were among those interested in investing in the Tel Aviv bourse or cooperating with it.

On Monday, Ben-Zeev said it became clear as the process went on that the bourse could pursue collaboration opportunities without selling shares to a larger exchange, and that doing so might even limit its freedom. The TASE still “intends to pursue strategic collaborations of different sorts with some of the bourses it’s in contact with,” he said.

‘Disappointment’

The lack of interest from foreign exchanges was a “disappointment” for professionals in Israel’s capital markets who were looking forward to the help in raising the TASE’s global profile, according to Steven Schoenfeld, founder and chief investment officer of BlueStar Indexes.

Ben-Zeev has overseen a revival of trading activity and share listings on the bourse, but Israeli technology firms, which account for most of the exchange’s large initial public offerings, “still don’t see the TASE as the first destination” for IPOs, Schoenfeld said. New ownership will likely craft “ambitious plans” to buck that trend, he said.

“Will these new investors accelerate the pace of innovation at the exchange?” Schoenfeld said. “That’s the hope, and we’ll see in the next few months.”

Seeking More Trade

The sale process aimed to boost the Tel Aviv exchange’s connectivity with foreign markets, helping to attract investors from abroad and improving liquidity. Average turnover in bonds and shares on the TASE rose 3 percent and 18 percent respectively in 2017, but activity remains lower than previous years, with equities trading still below levels seen from 2007-2011.

Trading volumes could expand further if more Israeli companies list shares in their home market, instead of opting to head for London or New York. Funds raised through Tel Aviv share sales have grown in the past three years, to $3.4 billion last year, but many local companies still prefer selling stock abroad.

In 2015, when Israeli companies raised the most capital in stock markets since 1992, businesses drummed up $10 billion through deals including dual listings, tender offers and private placements. Just $1.4 billion of that amount was arranged at home, data from the exchange show.

Creating the right conditions for companies to list both locally and abroad is a priority for the bourse, Ben-Zeev said. Major companies that have opted for dual listings in Tel Aviv include Teva Pharmaceutical Industries, Nice Ltd., Tower Semiconductor Ltd. and Magal Security Systems Ltd.

Israel in 2010 became the only market in the Middle East to win developed status from index compiler MSCI Inc., but the upgrade has proven to be a mixed blessing.

The country’s weighting in major benchmarks resulted in a smaller universe for passive investors. Volume dwindled as Israeli companies were forced to compete with those from the U.S., Europe, and Japan for fund managers’ attention and money.

The exchange responded by starting a program in 2016 to increase the amount of information available to investors to encourage trading. Unlike other markets in the Middle East, Israel also has an active derivatives market. With the sale plan, the bourse is aspiring to trigger a new phase of growth.

“The big challenge for the exchange going forward is how to ensure that Israel is on the map,” Schoenfeld said. “On the one hand, it’s been a challenge ever since it was upgraded to developed market status, and on the other hand, Israel’s economy has been doing great. The key is to solve that paradox.”

--With assistance from Manus Cranny Annie Massa and Yousef Gamal El-Din

To contact the reporters on this story: Filipe Pacheco in Dubai at fpacheco4@bloomberg.net, Gwen Ackerman in Jerusalem at gackerman@bloomberg.net, Yaacov Benmeleh in Tel Aviv at ybenmeleh@bloomberg.net.

To contact the editors responsible for this story: Celeste Perri at cperri@bloomberg.net, Stefania Bianchi, Shaji Mathew

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