Ellern Deal Is Off, Announce Dankners

After 22 months, the Dankner family announced yesterday that the "Ellern deal" - one of the past two years' most talked about deals - has been canceled.

After 22 months, the Dankner family announced yesterday that the "Ellern deal" - one of the past two years' most talked about deals - has been canceled.

The restructuring of the family's holdings is dead, but it did its job for the Dankners. During the toughest two years the Israeli economy has seen in a long time, the "waiting period" allowed the banks to give the family breathing space, not demanding immediate repayment of loans.

As part of the deal, the six Dankner households were slated to sell to the Ellern group - two publicly traded companies controlled by two Dankner households - the controlling shares in Dor Chemicals, Dankner Investments and Israel Salt Industries for about NIS 1 billion.

The deal was slated to resolve the Dankner family members' personal liquidity problems, which stemmed from $100 million in loans, most from the family's primary financier, Bank Leumi.

But the deal, based on high premiums over market value, was widely criticized on financial markets for the risk it loaded onto minority shareholders and Ellern bondholders, as well as for Bank Leumi's involvement.

The deal's progress was rife with obstacles and Israel's financial crisis since 2002 threatened to wipe out the Dankner holdings. Even during 2003, when economic upturn was evident on the horizon, investors didn't stand in line to partner with the Dankners in a new holding company they hoped to establish.

The nail in the deal's coffin was a "going concern" warning tacked onto Dor Chemicals' international operations in its 2003 financial report, and Freddy Robinson's subsequent revocation of a commitment to buy Dor shares.

The deal's immense complexity, the obstacles it still faced and its already drawn out nature, led to its eventual collapse.

Nonetheless, the Dankners are in much better financial shape now, without the deal, than their situation at any time in the past two years when the deal still had a chance to close. Although they still have huge debt to service, the value of their assets has skyrocketed. Noteworthy is Bank Hapoalim, which celebrated the end of the recession by reporting huge profits and the return of its dividend distribution policy. The country's largest bank trades now at 5 percent above shareholders' equity, not far from the price Salt Industries paid for the share and better than any value the market has given it in the past two years.

Despite the improved value of their assets, the family still suffers from trouble withdrawing dividends, critical to repayment of its bank debt. The Dankners are therefore likely to refinance their tremendous debt to Bank Leumi for their purchase of Bank Hapoalim.