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The hardships of the local real-estate sector have not passed over veteran construction company Ben Yakar Gat, whose name has surfaced in recent months in several not especially flattering references. Nevertheless, the corporate maneuver that was made public Sunday reveals serious divisions within the company's management and ownership.

In an announcement to the stock exchange that is atypical for publicly traded companies in Israel, the company reported that David Gat, a member of the majority shareholder group who himself owns a 25 percent share, has issued a BMBY (Buy Me Buy You) offer, in an effort to break up his partnership with the other major shareholders, brothers Benjamin and Israel Ben Yakar, who together hold about 50 percent of the shares.

Gat referred to the Ben Yakar brothers as a single entity, and gave them 30 days to respond to the two proposed options, either of which would bring about the breakup of the partnership. The first possibility is that they buy him out; the other is that they sell him their shares. Both options would be realized at a company value of $2 million. In other words, Gat is willing to sell his shares in the company for about $500,000, and even give up his salary of more than NIS 1,000,000. Alternatively, Gat would be willing to acquire his partners' shares (50 percent) for $1,000,000.

Ben Yakar Gat, which has been building locally for the past 25 years, was being traded yesterday at a market value of about $4.3 million, meaning that Gat's proposal is based on a company value that is about 54 percent lower. This translates into a substantial negative premium for the company, which cannot be readily explained by either side.

Majority owners of companies traded on the Tel Aviv Stock Exchange have been saying that in these dark times, stock market prices are lower than the true company values, and that the market is not setting accurate prices. Yet in this case, when the theory is taking on practical meaning, the opposite is the case.

BMBY moves are most common among partners who are not getting along, and are initiated when one partner reaches the conclusion that he wants to disengage from the others. That partner is therefore willing to either relinquish the shares in his possession, or buy his partners' shares, even at prices that mean he will sustain a loss - so long as the partnership is dissolved.

For instance, a well-known BMBY offer was made between the majority shareholders in Elite, when David Federman made his partner Michael Strauss such an offer (which resulted in Strauss' purchase of Federman's shares) following a difference of opinion about management of the company. Another case is the dispute between Medinol, the Israeli producer of medical stents, and its American marketing company, Boston Scientific. The latter firm recently asked a court to intervene, and order a BMBY arrangement.

Two months ago, the Maalot credit-rating firm reduced Ben Yakar Gat's ranking from B to CCC, explaining that the change was a result of the general condition of Israel's real-estate sector since the outbreak of the Intifada. But Maalot also offered explanations that directly related to Ben Yakar Gat, the company's poor financial state and the deficit in shareholders equity. Ben Yakar Gat's recent financial statements, which show a NIS 19 million loss in 2000 and another NIS 15 million of red ink in the first quarter of 2001, have not helped its credit rating or, it seems, relations within company management.

Last week, Ben Yakar Gat asked its bondholders to attend a special general meeting, at the request of Bank Investec Clali Trust Company. Investec chairman Zvi Streigold said that he asked to convene the meeting because his company was interested in learning about the condition of Ben Yakar Gat in light of the reduction of its credit rating by Maalot and the deficit in shareholders equity.

Ben Yakar Gat's attorney, Yael Rosenberg Deutsch, reports that relations between the partners are as good as ever, and that the procedure is being received in good spirits. She says the BMBY proposal does not necessitate any response, and that the possibility exists that the Ben Yakar brothers will choose not to respond to the proposal, neither in the affirmative nor the negative. If that happens, the company's management team will continue to work together, as it has until now.