Israel Matzav

Our new dairy producer: Where's the outrage?

A Chinese government company is buying a 56% (and maybe more) stake in Tnuva, the formerly Kibbutz-owned monopoly on dairy products and fruit and vegetable sales in Israel.

The Chinese government's Bright Food Group signed an agreement this morning to buy control of Tnuva Food Industries Ltd. from Apax Partners. The sale is being made at a company value of NIS 8.6 billion while will bring a profit of NIS 4 billion to Apax, which has a 56 percent stake in the company, on which it will not be required to pay any tax.

As it stands neither the kibbutz movement, which has a 23% stake, nor Mivtach-Shamir Food Industries Ltd., a 21% stakeholder, will be part of the deal, although there are ongoing talks on the matter. Any side that pulls out of the agreement before completion will be required to pay NIS 140 million compensation to the other party.

As part of the agreement, Bright Food has to keep Tnuva's center of operations in Israel, including management, production and development. Furthermore, most members of the board of directors and management, and the CEO will remain Israeli, while a representative of Bright Food will serve as chairman.

These clauses will undoubtedly assist in easing the receipt of regulatory approvals for the deal and will perhaps prevent protests against the sale. It is unclear as to whether the Israeli government will have the ability to enforce anything if Bright Food decides to act differently in the future, bearing in mind that the government was not a party to the agreement between Bright Food and Apax.

How is this outrageous? Let me count the ways....

1. Why is the Israeli taxpayer - via the government - not getting a stake in the NIS 4 billion (about $1.33 billion) that Apax is making on the deal? Why is this transaction tax free?

2.. I could care less if Bright Food moves Tnuva's center of operations out of Israel if it means that there will be true competition in the dairy and produce industries. But there's no indication that will happen. Our food prices remain significantly higher than just about anyplace else in the world - our dairy prices are 25% above the OECD average. This is the only country I know where the first thing they tell you to do if you're having budget problems is to cut soft drinks and milk out of  your diet.

3. When is the former Kibbutz monopoly (in which the Kibbutzim still have a 23% stake) to be brought to an end? What justification is there for such a monopoly in 2014?

4. Will we continue to get sour milk for the company outing?

At the very least, approval of this deal should be conditioned on an end to Tnuva's monopoly on much of our food bill and a normal tax rate on the profits from this deal. It's simply outrageous.

Labels: Antitrust Authority, Apax Partners, Israeli economy, Tnuva

posted by Carl in Jerusalem @ 4:34 PM