Leumi sells credit card unit to Warburg Pincus in $685 million deal

Leumi sells credit card unit to Warburg Pincus in $685 million deal

Israel’s second-largest lender expects after-tax profit of $64 million from sale; Leumi had to sell unit as part of government push to increase competition in financial sector

A Bank Leumi in Jerusalem, November 16, 2014. (Yonatan Sindel/Flash90)
A Bank Leumi in Jerusalem, November 16, 2014. (Yonatan Sindel/Flash90)

Israel’s Bank Leumi Le-Israel Ltd., the nation’s second-largest lender by market capital, said it has sold its credit card subsidiary to US private equity fund Warburg Pincus LLC for NIS 2.5 billion ($685 million).

Subject to the transaction’s completion, Bank Leumi is expected to record an after-tax profit of NIS 234 million, the lender said in an emailed statement late Saturday.

The deal was signed between Bank Leumi and real estate developer Azrieli Group Ltd., which holds a 20% stake in Leumi Card Ltd., to sell the credit card firm to funds affiliated with Warburg Pincus, the statement said. Bank Leumi owns an 80% stake in Leumi Card, one of the country’s largest credit card firms.

The NIS 2.5 billion will be paid in three instalments, the first on the transaction’s
completion date, the second a year after the completion date, and the third two years after the completion date. The deal is subject to regulatory approvals.

Bank Leumi Le-Israel’s president & CEO, Rakefet Russak-Aminoach (Ron Kedmiy)

The agreement also stipulates that Leumi may be eligible for up to NIS 273 million beyond the sale price, subject to meeting several terms and conditions.

Because Warburg Pincus is keen to collaborate with Bank Leumi to expand the credit card unit’s activities, it has given Leumi Partners, another subsidiary of Bank Leumi, an option to buy up to 20% of the credit card unit under the same terms of sale to Warburg.

The exercise of the option is subject to obtaining the required regulatory approvals, the statement said.

“Warburg Pincus’s experience will assist Leumi Card in realizing its business strategy and ensure innovative, high-quality and professional service to its customers,” Leumi’s president & CEO, Rakefet Russak-Aminoach said in the statement.  “This is a great vote of confidence in the Israeli economy by one of the world’s largest private equity funds.”

The sale of Leumi Card is part of a push by the Israeli government to increase competition in the nation’s financial and banking sector. Bank Leumi and its rival Bank Hapoalim Ltd. have been forced to sell their credit card units in accordance with the Law for Increasing Competition and Reducing Concentration in Israel’s Banking Market. Bank Hapoalim, which owns Isracard Ltd., the  nation’s largest credit card business, has until next year to sell the company.

Bank Leumi and the Azrieli Group evaluated “several alternatives” for buyers before choosing Warburg, the statement said. The sale process, which lasted several months, involved 17 entities from Israel and abroad that expressed interest in acquiring Leumi Card.

Warburg Pincus has some $45 billion in assets under management. Its portfolio includes more than 165 companies, including in financial entities, banks, and insurance companies. The firm currently employs over 500 people in 10 branches around the globe.

“We are excited to partner with Leumi Card in the next phase of the company’s growth,” said Daniel Zilberman, managing director and head of Europe, Warburg Pincus. “The Israeli payments, consumer finance and SME lending markets present considerable opportunity.”

Warburg Pincus has already made several investments in Israel, including stakes in Cyren (2017), Ness Technologies (1999-2008) and Alliance Tire Company (2007-2013).

Hedva Ber, the supervisor of banks at the Bank of Israel, said the sale is expected to increase competition in Israel’s financial sector and benefit Israeli consumers, according to an interview with Israel’s Army Radio on Sunday.

The sale of the credit card company is a “big step toward a more competitive world,” Finance Ministry director-general Shai Babad said in a statement on Sunday. “This is a big event for the Israeli economy, for small businesses and the consumers.”

The ministry said it believed Warburg Pincus would introduce advanced technologies into Israel that will transform Leumi Card into a more competitive and efficient company. The ministry also said that it hoped the sale would pave the way for Warburg Pincus to become a full-fledged bank in Israel, if it meets the central bank criteria, attaining a license from the Bank of Israel within three months.

Bank Leumi shares were trading little changed at 1:29 p.m. on the Tel Aviv Stock Exchange.

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