Trojan Horse Threat for Israeli Stocks as Mylan Stalks Perrigoby
It’s the biggest share listing in Israel’s history, and it may be bad news for Tel Aviv’s struggling bourse.
As the exchange heads for its worst year for new offerings since 2012 and amid plunging trading volumes, Mylan NV is committed to list in Israel for at least a year even if its more than $25 billion bid for Perrigo Ltd. fails.
The catch for the bourse is, the U.S.-listed pharmaceutical giant is not promising to stick around. If its bid succeeds, the company will trade in the country for a minimum of three years, but after that it has made no guarantees. Meanwhile Perrigo, which makes up about 9 percent of the TA-25 Index, would leave the exchange.
“Mylan’s potential listing on TASE is a double-edged sword,” Bruce Schoenfeld, research director at New York-based BlueStar Global Investors LLC, said in an e-mailed response to questions. “It would temporarily raise the profile of TASE and the local indexes would likely be obliged to include Mylan. However, it would only be temporary. It’s hard to imagine why it would maintain a listing beyond” the time-frame proposed, he said.
The number of companies listed in Tel Aviv has declined every year since 2007. There were 461 trading on the bourse at the end of September, down 30 percent from eight years ago. Mellanox Technologies Ltd., which left in September 2013 citing added regulation, is now planning to remove its latest acquisition, EZchip Semiconductor Ltd., the third-largest information technology company on the exchange.
“A most-likely scenario is that Mylan will not stay listed in Israel after three years,” said Yaniv Pagot, the head of strategy at Ayalon Group Ltd., an institutional investor in Ramat Gan, Israel, with 20 billion shekels ($5.2 billion) under management. “Companies have de-listed from Tel Aviv due to burdensome regulation. I won’t fall off my chair if Mylan also won’t be here after three years.”
As of the end of September, trading volumes have plunged by 31 percent since Israel’s 2010 MSCI Inc. upgrade to developed-market status. Two companies had initial public offerings in Tel Aviv this year, with another three dual-listing their shares. That compares with a record 62 joining in 2007 and three in 2012, according to bourse data.
Mylan declined to comment on its Tel Aviv listing plans. Yossi Beinart, the chief executive officer of the TASE, said there was no reason for Mylan to leave the exchange once it lists.
“Life is unpredictable, but right now they’re saying if they buy Perrigo they’ll be here,” Beinart said in an interview at the exchange on Wednesday. “I think Mylan is sincere.”
Tel Aviv’s average daily trading volume would pick up after a Mylan listing by about 50 million shekels a day, or about 5 percent, based on average volumes for a stock that size, according Bank of Jerusalem Ltd. The added focus on the market would be positive for all companies, according to Jacob de Tusch-Lec, a fund manager at Artemis Investment Management LLP in London, which has 20 billion pounds ($31 billion) under management.
Even if the listing will be good for volumes, the inclusion of Mylan in the indexes will skew the TA-25 Index too far toward pharma companies, Pagot said.
“Investors wanting a chunk of Israel’s economy won’t find it in the TA-25, which after the Mylan listing would be dominated by four health-care companies, three of which are not even Israel-based,” Pagot said.
The TA-25 Index rose 0.5 percent at the close of trading on Thursday.