Bronicki Investments sells 11.8% of stock to FIMI fund.
By Yoram Gabison

Bronicki Investments, owner of the controlling block of shares in Ormat Industries, finalized the sale of 11.8% of the alternative energy company’s capital stock to FIMI Opportunity Fund on Friday. The price: NIS 297 million at NIS 21.67 per share. The price is 28% over the end-of-week trading price, but the premium doesn’t reflect all the ins and outs involved in the transaction.

Under the agreement, Bronicki Investments undertook to sell another 1.75 million shares – 1.5% of Ormat’s stock – on the stock market to equalize its holdings with those of FIMI, at 22.5% each. The reason for the market sale is that the Companies Law mandates that a controlling block of more than 45% arising from a stock purchase requires the issuance of a public purchase offer. The two sides intend to sign a joint control agreement.
Bronickis – Raivitz – 19.3.12

Yehuda and Dita Bronicki
Photo by: Guy Raivitz

FIMI, headed by Ishay Davidi, will also cancel an agreement with The Phoenix Holdings from November 2011 that gave it the insurance company’s voting rights on its Ormat stock holdings.

Bronicki Investments could also be required to transfer another 2 million shares to FIMI at no cost if Ormat Industries fails to meet minimal thresholds of operating income in 2012 and 2013. In this case FIMI’s stake in Ormat would rise to 24.2% and the Bronicki family’s private investment firm would be left with just 20.8% of the company’s stock.

The Bronicki family is paying the piper for not hedging Ormat’s exposure to declining natural gas prices in the electricity supply contracts of its California geothermal power plants. Those plants, with a total capacity of 175 megawatts, reflect 40% of the company’s production capacity in the United States, and 32% of its global production capacity. The contract price for the electricity it supplies from the plants will be linked, beginning this May, to the price of natural gas, which has fallen lately to a 10-year low.

Thwarting the threat

The agreement includes a put option given to Bronicki Investments by FIMI for selling it 9 million shares at NIS 20.33 per share within two years of the deal’s completion. Under the option, the Bronickis can assign FIMI the balance of their debt to Bank Hapoalim, up to NIS 183 million, within the same two-year time frame. So if the loan is transferred in full, FIMI will receive another 9 million shares and raise its stake in Ormat to 30.2%, with the Bronicki family retaining 14.8%, but this won’t entail any changes to their joint control agreement. The option ends any threat to the Bronickis of losing all their Ormat shares and influence on the company’s management should Hapoalim have foreclosed on their holdings.

Bronicki Investments also granted FIMI a call option for acquiring 9.3 million Ormat shares, 7.8% of the company’s capital, at NIS 29.17 per share – 73% higher than its current trading price. Exercising the option is conditional on the Bronickis not having sold the shares to service the debt to Hapoalim, or having already transferred the shares to FIMI in exchange for assigning it the loan under the put option.

The joint control agreement will be in force for five years and give each side the right to appoint five directors to the company’s 10-member board. Dita Bronicki will continue serving as CEO of Ormat Industries while Yoram Bronicki will continue in his role as president and vice-president of operations for U.S.-based subsidiary Ormat Technologies. Davidi will be appointed chairman of Ormat Industries and Gillon Beck, a managing partner at FIMI, will be appointed chairman of Ormat Technologies. Equal representation and staffing of key positions will be maintained as long as the holdings of each of the two sides don’t fall below a certain minimum, which wasn’t specified.

The employment contracts of Yehuda, Dita and Yoram Bronicki approved in September 2009 grants them golden parachutes of $1.3 million, $1.5 million and $1.0 million, respectively, if control of Ormat Technologies changes hands. They would also be entitled to double the amount of bonuses they received over the two years prior to the change in control. In addition, Yoram Bronicki would get double the maximum annual amount that Ormat Technologies set aside in provisions for his retirement fund. The golden parachutes, however, won’t be released by the agreement with FIMI.

Closing a chapter

The deal with FIMI closes the chapter on one of the Tel Aviv Stock Exchange’s worst corporate-culture wars ever: between the Bronickis and Norstar Holdings. The two sides paid a high price: The Bronickis are losing their exclusive control over Ormat and Norstar, controlled by Chaim Katzman and Dori Segal, are losing over NIS 500 million to date.

The episode began in June 2007 when Norstar announced it held 12.1% of Ormat Industries’ shares. Continuing to raise its stake to 18.4% in December that year, Norstar consistently declared it had no intention of seizing control over Ormat and expressed confidence in its management. The stunned Bronicki family, however, was buying none of it and decided to put everything on the table in an attempt to avoid losing control of the company.

The family took a shekel-denominated loan from Bank Hapoalim, which turned out to be an expensive mistake as the shekel has since appreciated 4.5% against the dollar, and a good part of their company’s income is in dollars. Using the borrowed NIS 556 million, they bought 9 million shares at NIS 61.70 per share from institutional investors – 7.6% of the company. The purchase raised the Bronickis’ stake in Ormat Industries to 35.2% and ensured their continued control. Selling the shares was also one the best moves made by the institutionals over the last few years.

But at that point the company’s stock began falling, before hitting a low of NIS 16 per share last September. One reason was losses brought on by a $390-million investment gone sour at Ormat’s North Brawley California power plant, leading to a loss of investor confidence in company management.

The stock’s collapse forced the Bronickis to pledge their entire NIS 700 million worth of Ormat Holdings to Hapoalim in January 2009 to ensure repayment of their loan, which would become due in December 2011. Last spring, under pressure to find the means of repaying the loan, the family began talks with FIMI that led to the current agreement. Negotiations were also held with Shikun & Binui of the Arison group, but went nowhere.

The current remaining balance of the loan to Bank Hapoalim, NIS 183 million, is understood to be spread over five years with the principal due in one balloon payment; 17 million of the family’s remaining 26.2 million shares were pledged as collateral.

“I think the partnership is good since it will provide the company with a large controlling block while both sides share an outlook for the company’s future development in an area where it’s a global leader, and not necessarily in fashionable fields,” commented Yoram Bronicki. “FIMI has an excellent investment record in Israel and around the world.”