A new electricity giant takes shape as Generation acquires Shikun & Binui Energy for NIS 4.45 billion
The deal will bring major power generation assets and renewable energy projects under Generation’s control. The fund must now secure regulatory approval while addressing concerns over market concentration.
Shikun & Binui, managed by Amit Birman, and the Generation fund have signed an agreement under which Generation will acquire Shikun & Binui Energy. The deal was signed after lengthy negotiations and approximately two months after the signing of the memorandum of understanding.
The discussions between the parties focused mainly on the final price, the completion of due diligence, and the breakup fees to be paid if regulators do not approve the transaction or if Shikun & Binui chooses a competing offer. The deal will be executed through a reverse triangular merger involving PowerGen, Generation’s energy subsidiary managed by Dan Kleinberger.
The final consideration will amount to NIS 4.45 billion. This includes a payment of NIS 4.3 billion, a figure first disclosed by Calcalist, as well as an additional NIS 150 million reflecting the time that has passed since the signing of the memorandum of understanding. The memorandum stipulated a consideration of NIS 4.2 billion, alongside a conditional payment of up to NIS 300 million.
The final price is NIS 50 million lower than the maximum potential consideration outlined in the memorandum of understanding, but unlike that agreement, it does not include a contingent payment component, similar to the competing offer submitted by the Keystone Fund.
Generation intends to finance the acquisition using its own resources, most of which have already been raised. These include a capital raising of approximately NIS 1 billion completed about two months ago with the participation of leading institutional investors, approximately NIS 800 million currently held by the fund, and additional investors expected to join the merged company.
The breakup fee agreed to by Generation, which was also first revealed by Calcalist, will amount to approximately NIS 300 million if the deal cannot be completed due to conditions imposed by regulators. Shikun & Binui agreed to a similar penalty if it chooses to accept a competing offer. Generation has expressed confidence in recent weeks that it will be able to take steps to satisfy regulators, with some measures already underway, including an asset-swap agreement with Rapac Energy involving the Reindeer power station, as well as a deal with Nofar Energy.
Over the past two months, market attention has focused on whether Shikun & Binui would proceed with Generation’s offer, led by Erez Balasha and Yossi Singer, or turn to a competing proposal from Keystone, managed by Dr. Navot Bar.
Keystone offered NIS 4.35 billion, below the original maximum consideration of NIS 4.5 billion included in Generation’s offer. However, Keystone’s proposal did not include a contingent payment component. Keystone argued that it would be able to meet regulatory requirements in a way that would facilitate completion of the transaction.
Now, if Keystone chooses to submit another offer, it would need to offer at least NIS 4.75 billion. This amount reflects Generation’s NIS 4.45 billion offer and the NIS 300 million breakup fee that Shikun & Binui would have to pay if it chooses a competing bid, even before considering the company’s economic incentive to remain with Generation.
For Birman, who has managed the process professionally, to agree to switch to Keystone, the rival fund would likely need to submit an offer approaching NIS 5 billion.
A possible transaction with Keystone would also have been subject to regulatory review. Keystone has a larger presence in Israel’s electricity market than Generation, and a merger with Shikun & Binui Energy would have expanded its generation portfolio to approximately 3,200 megawatts, alongside an additional 1,800 megawatts of projects in development.
Combined with control of the Ramat Hovav and Hagit power stations, such a transaction would likely have required careful examination by both the Electricity Authority and the Competition Authority. However, the calculation of market concentration in the electricity sector is based on ownership stakes in specific power stations, and Keystone’s holdings are concentrated primarily in large facilities owned by Shikun & Binui.
In addition, unlike Generation’s proposal, Keystone’s offer relied largely on debt financing. The fund has already taken on significant liabilities through its acquisitions of Egged and Hot Mobile, and another leveraged acquisition would have further increased its debt burden. At the same time, Shikun & Binui Energy is not expected to generate significant cash flows in the coming years and requires additional investment to advance its project pipeline.
The fact that Keystone proposed completing the transaction without a full due diligence process also raised concerns among some institutional investors involved in the deal, particularly given that Keystone, like Generation, is backed by pension funds.
For now, the main remaining obstacle for Generation is obtaining regulatory approvals. According to statements by Generation executives in recent weeks, the fund is prepared to take additional steps to secure approval and has already begun implementing several measures.
PowerGen, Generation’s energy arm, is in advanced talks with Rapac Energy over an asset-swap transaction. Under the proposed deal, PowerGen is expected to increase its stake in the Reindeer power station from 27.5% to 52.5% by acquiring Rapac’s full 25% stake in the facility. In exchange, PowerGen is expected to transfer its holdings in the Alon Tavor power station to Rapac. Completion of the transaction would result in PowerGen exiting Alon Tavor entirely and becoming the controlling shareholder in Reindeer.
The asset swap between PowerGen and Rapac is intended, among other things, to improve Generation Capital’s chances of receiving approval from the Competition Authority and the Electricity Authority.
The regulators are examining the impact of the Shikun & Binui Energy acquisition on competition in the electricity market, given the concentration of generation assets that Generation would control following completion of the transaction. Industry estimates suggest that the exchange of holdings would reduce cross-ownership among electricity producers and could therefore help facilitate regulatory approval.
The move is also expected to sever the connection between PowerGen and Mivtach Shamir and strengthen competition between the Reindeer and Kesem power plants in central Israel. Mivtach Shamir, which controls the Kesem power plant project, is currently Generation’s partner in the MRC Alon Tavor power station.
Generation believes the acquisition also provides additional strategic advantages, including the fact that Shikun & Binui’s renewable energy portfolio could improve Bezeq-Gen’s ability to achieve profitability more quickly, strengthen its ability to comply with the electricity supply reform, and ultimately reduce costs for consumers.
Generation’s legal advisers in the transaction were Doni Toledano, Shay Dayan, and Yonatan Achiron of Erdinast, Ben Nathan, Toledano. Shikun & Binui Energy was represented by Amir Schweitzky of Ben Tzur, Korev, as well as Dr. Eyal Raz and Sharon Werker-Sagy of Gornitzky & Co.
