Oil Refineries and Israel Petrochemicals Enterprises to resume talks on Carmel Olefins

24-Mar-09
Negotiations between Oil Refineries and Israel Petrochemicals Enterprises came to a standstill about three months ago. Recently the two will resume talks for Oil Refineries to buy Carmel Olefins from Israel Petrochemicals Enterprises. Oil Refineries holds 50% stake in Carmel Olefins, and originally had wanted to buy the other 50% in exchange for shares. Israel Petrochemicals, which owns 15.6% of Oil Refineries, would thus be increasing its stake to 33%. But the state put the merger on hold, refusing to allow a merger till Leonid Nevzlin owned part of Modgal Industries, Petrochemicals' controlling shareholder. The Government Companies Authority made anmerger contingent on Nevzlin's company Alder selling its shares in Modgal. Modgal has now signed an agreement with Nevzlin to buy back its own shares from him, thereby paving the way for the Government Companies Authority to approve Petrochemicals' participation in the controlling stake of Oil Refineries. Nevzlin owns (71%) Menatep, which owns 26.8% of Modgal via Menatep's holding in Alder. The deal for the purchase of Nevzlin's Modgal shares includes Petrochemicals' purchase of Alder Finance, another Nevzlin asset. Alder Finance's main asset is a $115-million loan extended to Modgal for the purchase of the controlling stake in Petrochemicals. If the whole transaction pans out, Modgal will be held jointly by David Federman (50%) and Gima Investments (50%), which is an equal partnership between Jacob Gottenstein and Alex Passal. Modgal gave Menatep an option to buy out Alder by 2015, and an option to buy Modgal's 10.7% stake in Petrochemicals. Menatep will only be able to exercise these options if doing so will not affect the legal status of Petrochemicals' controlling stake in Oil Refineries. The Israel Corporation and PCH, a wholly owned subsidiary of Petrochemicals, jointly purchased 46% of Haifa Oil Refineries in January 2007 from the state, for NIS 795 million. Despite that acquisition, the Government Companies Authority would not approve PCH's inclusion into Oil Refineries' group of controlling shareholders - both due to the partial ownership of PCH by Glencore, the largest commodities trading company in the world, and Nevzlin's indirect ownership, via Petrochemicals. Nevzlin's exit from the controlling group at Modgal and Petrochemicals will pave the way for renewed negotiations between Oil Refineries and Petrochemicals for the purchase of the remaining 50% of Carmel Olefins from Petrochemicals. Once the deal with Nevzlin is finalized, Oil Refineries and Petrochemicals will likely seek a reevaluation of their current worth.
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