Credit Suisse windfall hides Koor's losses on overseas investments

Investors in Koor Industries recently acquired some variety in their portfolio without even knowing it. Koor, an IDB Holdings subsidiary, invested $100 million in the French pharmaceuticals giant Sanofi Aventis, which is currently trading on the Paris and New York stock exchanges at a valuation of 58 billion euros.

Other major Sanofi shareholders include L'Oreal, Total and investment guru Warren Buffett, who bought 2% of the company in 2009.

This is Nochi Dankner's latest conquest in his three-year buying spree abroad. Dankner spends a good deal of time meeting with fund managers, entrepreneurs and politicians in his drive to make IDB Holdings a global concern and reduce the concentration of his holdings in the Israeli market.

The percentage of IDB's foreign holdings increased from 7% of total assets in May 2003, when Dankner bought the company with the Manor and Livnat families, to 43% today. Examining those holdings reveals that the billions of shekels yielded by Koor's investment in Credit Suisse has obscured the losses by other foreign investments. Over the long term, however, Koor, the subsidiary making most of the overseas investments, is still losing.

In July 2006 IDB Holdings bought Koor from the Bronfman family for 2 billion euros, principally for its holding in Makhteshim Agan. While other Israeli entrepreneurs were at the height of their foreign real-estate buying spree, IDB was considered a company involved only in the Israeli market. Makhteshim Agan, the world's leading provider of generic agrochemicals, was a passport to the international playing field.

Early in 2008 foreign investors took an interest in a 51% controlling share of Makhteshim Agan. At the time, its stock was trading at a share price of NIS 32, reflecting a market valuation of NIS 5.7 million. IDB turned them away.

Since then, much water has flowed under the bridge. Makhteshim Agan's share price has plummeted 60% since May 2008, and is now NIS 13.8 - close to the value in Koor's books. Dankner missed his exit.

Makhteshim also was involved in a huge foreign investment recently. It paid $1 billion for control of its rival Albaugh Inc., the biggest herbicide company in North America. Analysts did not think the purchase price was cheap, as Albaugh is vulnerable since it has only one leading product. It remains to be seen if the deal will turn out to be profitable.

After buying Koor, IDB Development and its real estate subsidiary Property and Building Corporation joined Yitzhak Tshuva's privately held Elad Group in the summer of 2007 to buy a site in a central hotel strip in Las Vegas. They planned to build a massive project at the site, including hotels, residences and commercial real estate, at an investment of $6 billion to $8 billion.

The deal was miserably timed. IDB Development and Property and Building Corp have so far written off NIS 920 million of their NIS 1.6 billion investment; this may explain why despite its financial robustness and the NIS 2 billion in its coffers, Property and Building's share price has dropped 46% since July 2007. It remains uncertain as to when the partners will secure funding for construction. Meanwhile, they continue shouldering annual interest costs of tens of millions of dollars.

Another ill-timed foreign investment was Clal Finance's purchase of Titanium Asset Management for $63 million two and a half years ago. About half of that investment has been written off.

In July 2008, at the height of the credit crunch, Dankner launched his biggest investment abroad - buying shares in Credit Suisse. His massive NIS 7 billion gamble appears to have worked. Koor Industries has so far posted NIS 3.5 billion in profits from that investment and currently holds 3.24% of the Swiss bank's shares.

Koor also planned and secured NIS 3.5 billion in credit from foreign banks to buy shares in the French retail giant Carrefour, but ultimately, it only spent a few million dollars on shares and sold them a few months later, at a NIS 44 million profit.

Koor's massive profits from its investment in Credit Suisse have not impressed investors. Since starting to invest in Credit Suisse in July 2008, Koor shares have had a negative yield of 31%, including dividends, while the benchmark Tel Aviv-100 has had positive yields of 10% in that period. Credit Suisse shares are trading at a price similar to their July 2008 price. Nevertheless, when Dankner reviews his investments abroad, only the Credit Suisse gamble has yielded Koor a clear profit.

IDB down 30% on Koor

To sum up - IDB bought a controlling interest in Koor for $450 million in 2006, reflecting a market cap of $1.3 billion. Since then IDB Development has increased its holding by a rights issue of more than NIS 1 billion and buyback offers for 60% at an additional investment of $250 million. Koor Industries has paid dividends of NIS 1.6 billion since July 2006, of which IDB's share is about $250 million. Koor's equity has increased from NIS 2 billion to approximately NIS 2.5 billion today and its valuation is around $1.2 billion. The bottom line is that IDB is 10% down in dollar terms and as much as 30% down in shekel terms on its investment in Koor.