G City Deal Collapse: Katzman and Abu Clash Over Reasons

The planned acquisition of Israeli income-generating real estate firm G City has dramatically unraveled, just one month after an agreement was struck. The deal, which would have seen Ari Real Estate and Yeshpro take a controlling stake, has imploded, leaving both parties presenting starkly different accounts of the breakdown. Despite the acrimony, both sides have publicly stated the separation was amicable.

Chaim Katzman, the driving force behind Nostar and a significant shareholder in G City, indicated that his primary objective was to reduce leverage within Nostar while retaining a substantial interest in G City. He asserted that the initial agreement with Ari Real Estate was contingent on their financial robustness. However, Katzman claims a subsequent development, where Ari Real Estate brought in Yeshpro as a partner, fundamentally altered the deal's complexion. He characterized Yeshpro's financial profile as significantly weaker than anticipated, leading to a divergence from the original understandings, particularly concerning potential control shifts and exit clauses.

Conversely, Tzachi Abu, representing Ari Real Estate, offered a contrasting perspective. Abu suggested that Katzman became apprehensive upon realizing Abu's intention to assume majority control and implement strategic changes. Abu pointed to the substantial salaries drawn by Katzman's executive team as a potential source of concern for Katzman, implying a fear of disruption to the existing high-cost operational structure. Abu stated that he presented a 'take it or leave it' proposition to Katzman, emphasizing that without the option for majority control, the deal would likely have proceeded differently, potentially to Katzman's disadvantage.

The real estate sector in Eastern Europe, where G City primarily operates, has seen fluctuating investor sentiment. While the region offers potential for high yields, geopolitical uncertainties and interest rate hikes have pressured highly leveraged companies. G City itself has been under pressure to deleverage, with Nostar initiating a significant asset divestment program exceeding 7 billion shekels to address its debt levels. The company's market capitalization, around 1.9 billion shekels, has seen volatility, and it recently lost its position in major Tel Aviv Stock Exchange indices.

Abu further elaborated that the first indication of trouble emerged indirectly through media reports about tensions, approximately a week after the deal's announcement, while he was on vacation. He claimed that a late-night conversation with Katzman shortly after the deal's signing revealed no such concerns. Ari Real Estate had recently secured approximately 255 million shekels from institutional investors to finance its acquisition components, underscoring the significant capital commitment involved.

Looking ahead, Katzman revealed that G City has already received interest from two additional potential buyers and has reopened the sale process. The company remains focused on its European asset sales to achieve a target leverage ratio of 50% and is implementing cost-reduction measures. Katzman expressed well wishes for Abu, Ari Real Estate, and Yeshpro, acknowledging that such business dealings can be complex. Similarly, Abu conveyed no ill will, stating his intention to pursue other profitable ventures with the capital raised by Ari Real Estate.