UK: Delek to Reorganise Roadchef Operations

Delek Real Estate and Delek Petroleum (a Delek Group company) jointly acquired MSA at the end of March 2007 for sterling£158 million. Delek Real Estate's 75% stake is valued at £118.5 million. MSA has corporate bond debt totaling £175 million, debt that Delek Group would take over if the purchase goes through.

Delek Group's management, headed by CEO Asaf Bartfeld, is currently discussing the deal with Delek Real Estate's management, headed by Eran Meital. The main obstacle is the complexity inherent in an insider transaction, since both companies are controlled by Tshuva. The value at which the deal would be transacted is still unclear, although it would likely be between £100 million and £140 million.

If the deal does go ahead, Delek Real Estate could use some of the money it receives to repay the NIS 310 million shareholder loan it took from Delek Group last year. That loan was used to refinance the remainder of the 150-million-pound loan it received from Merrill Lynch in order to buy MSA. The rest of the purchase price could go toward repaying hundreds of millions of shekels in other debts.

Delek Real Estate is apparently also in talks with some foreign investors about the sale of RoadChef, but negotiations are on hold just now for the Christmas holidays.

Apart from enabling Delek Real Estate to repay its debts, the purchase of MSA would increase Delek Group's presence in the service station sector in Western Europe and open the way for the future transfer of RoadChef to Delek Europe, which operates a service station network on mainland Europe. This transfer would be part of Delek Group's preparations to float Delek Europe on a European stock exchange.

RoadChef has 25 service stations and 15 hotels, plus restaurants, convenience stores and coffee kiosks. The land on which these enterprises were built includes seven properties that MSA owns outright and five properties leased for over 70 years. The remaining properties were leased for less than 70 years.

RoadChef is a quality asset that was purchased at a high price a few months before the global economic crisis erupted. The company's pre-tax operating profits are estiamted to be  about £30 million a year.

Delek Real Estate has been trying to sell RoadChef for a year already, as part of an aggressive effort to realize assets in order to meet its financial obligations. But so far, none of its talks with potential investors has led to a deal. Company executives have also examined alternatives to selling MSA, such as floating the company or splitting its operations and floating either its retail or its real estate activities, but these ideas were shelved due to the global economic crisis.

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