Ormat's Bronickis walk the plank

Calcalist has also learned that under what will probably be the deal's terms, FIMI will acquire 23%-25% of Ormat's controlling interest form Yehuda and Dita Bronicki and grant then a put option on another 10%-12% of their remaining shares at the same price or at a premium – if the company pulls through its present crisis.

The debate is now centered on the price tag, with the Bronickis demanding NIS 25-27 ($6.7-7.3) per share and FIMI bucking at NIS 24 ($6.5) per share – its trading price Sunday, which reflects a NIS 2.8 billion ($760 million) valuation for Ormat. In the first step, the fund is expected to obtain a 35% stake of Ormat.

As aforesaid, the FIMI fund reported it had increased its holding in Ormat, controlled by Yehuda and Dita Bronicki, to 10% after acquiring a 4.2% stake from Chaim Katzman and Dori Segal's Norstar Holdings at NIS 22 ($6) per share – an overall cost of NIS 110 million ($29.7 million).

The move was made after just before the Jewish New Year. Ishay Davidi delivered on behalf of FIMI a notice to investors in which it called for $60 million for the acquisition for Ormat shares, after FIMI had acquired over the recent exchange days, privately held stock from private investors and the veteran pension fund Amitim.

FIMI had already acquired 6.84 million shares (a 5.76% stake) at an overall NIS 60 million ($16.2 million). Estimates are that FIMI has received an interim loan from a large bank, presumably Discount Bank, until investor funding comes in.

FIMI's announcement marks the beginning of the collaboration between the fund and Katzman and Segal. Katzman is stuck with the Ormat stock he acquired in 2007 at NIS 47-56 ($12.7-15) per share and for several months now he has been desperately looking for a buyer for the shares but to no avail.

Norstar's loss on account of Ormat is the greatest blot on Katzman and Segal's business escutcheon, having invested $250 million in the shares, so it is hardly surprising the two pounced on Davidi's offer.

The deal between FIMI and Norstar might yield additional proceeds for the latter for the stock it unloaded, in the event FIMI is able to sell the stock at threshold prices stipulated in the agreement. The parties also included a mutual tag along provision in the event that Ormat's shares are indeed sold. The parties, however, did not sign a voting agreement. Right now, FIMI holds 10% of the shares, Norstar – 10.8%, Amitim – 5.9% (having sold 2% to FIMI) and the Phoenix holds approximately 5% of Ormat's shares.

With the acquisition, Davidi is practically twisting the Bronickis arm to go back to the negotiations table. As revealed by Calcalist, on June 2011 FIMI negotiated with the Bronickis, who own 35% of Ormat, over a convertible $100 million loan. Negotiations hit an impasse after the Bronickis set a NIS 28 ($7.5) per share conversion rate – 27% higher than value of FIMI and Norstar's deal.

The deal was meant to help he Bronickis repay a NIS 600 million ($162 million) loan (which is currently NIS 665 million) it received from Bank Hapoalim on December 2007 which funded their acquisition of a 7.6% stake in the company in a bid to block what they perceived as a attempt at a hostile takeover on part of Norstar. The loan's principle payments were scheduled to begin on December 2011.

The Bronickis acquired the stake at NIS 61.6 ($16.6) per share; however, the share had since lost 61%. The company put a NIS 915 million ($247 million) lien on its entire stake of Ormat as security for the debt.

Negotiations with Shikun & Binui on thin ice

Following the negotiations with FIMI, the couple and their son Yoram, Ormat's president, director and chief operating officer, made two strategic decisions: to sell their entire stake in the company so as not to leave the company in debt and to prefer a strategic buyer rather than a fund so that their life's enterprise would be upheld by a company from the field.

Which is why Shikun & Binui fits like a glove. At the time Calcalist revealed that following the clash with FIMI, Ormat and Shikun & Binui were engaged in advanced negotiations for the acquisition of the Bronicki's stake of Ormat. The negotiations had their ups and downs; however, last week, the parties came close to a final agreement. Negotiations were held between Shikun & Binui's Ravit Bar-Niv and Dita Bronicki.

This was the state of affairs as of Sunday morning, when word got out about the deal between Katzman and Davidi which will put a spoke in the wheels of Shikun & Binui, the Bronickis and anybody that wishes to acquire Ormat's controlling interest.

With a 20% stake and the right to immediately buy another 6% of Amitim's shares, Davidi and his partners will own over 25% of the company's shares and might thwart any significant decision it may make, overriding the Bronicki's managerial authority.

Negotiations on FIMI's terms

In the event talks with Davidi fall through, the Bronickis will face several choices: they could sell their 35% stake to a buyer that would have to offer a price that would be attractive enough (above NIS 35 per share) to sway FIMI and Katzman to sell. In this case, Davidi will make a swift windfall paper gain and Katzman gets to dump his ill-fated investment and cut his losses.

It is hard to believe that any company would put such a large sum of money at stake without consulting its minority shareholders. A large organization might call a tender offer and delist its share.

As reported, according to the recommendations of the committee on Israel's economic concentration, a company may file a tender offer for shares in a publically traded company at a 10% premium over the market price in which case the owner of the company's controlling stake would have to sell his stake or acquire all outstanding shares.

Neither the Bronickis nor Shikun & Binui are up to the task, and prospective buyers will have to negotiate with FIMI and Katzman as well.

Another course of action would be to sell Ormat Technologies, Ormat's subsidiary that is responsible for Ormat's global geothermal activity; however, such a move is implausible.

It seems that Dita Bronicki is left with little choice but to sit at the negotiations table with Davidi and sell off most of her holdings in Ormat under the terms FIMI wishes to set, which would leave Dita Bronicki with a 10%-12% stake, after having repaid the loan. FIMI will not be willing to pay a high premium on Ormat's market cap and estimates are that the fund will go no higher than NIS 25-27 per share.

Ormat, which deals in green energy production, haד incurred a NIS 163 million ($44 million) loss after a series of malfunctions in its Hawaii geo-thermal plant in 2010.

Having dealt with the malfunctions, the company began recovering its losses in 2011, ending the first half of the year with a NIS 13 million ($3.5 million) profit. A series of new projects, the recent of which is worth $310 million and located in Kenya, signal that the company is pretty much out of the woods.

In addition to geo-thermal energy production, Ormat also deals in solar energy production and PV technology. Additionally, the company designs and develops energy-production related products such as wind turbines, and constructs power plants. Ormat also has operations in the field of crude oil improvement and bio diesel.

Ormat, Shikun & Binui and the FIMI fund declined to comment.

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