Taking Stock / Good enough for Detroit, but not for Tel Aviv
Lee Iacocca, the legendary Chrysler CEO, gushed that the fund has an excellent record. Ron Gettelfinger, the president of the United Auto Workers union, threw his support behind the deal in which the fund bought a controlling stake in Chrysler.
BusinessWeek went well beyond these superlatives and headily predicted that the fund's takeover of the troubled carmaker would bring about a true change in the industry's structure, saving the city of Detroit.
If you had predicted a few years ago that a nameless, secretive, privately held fund would buy one of the three biggest carmakers in the United States, with the ardent support of everybody at said carmaker, you would have been carted off in a straitjacket.
Said fund is Cerberus Capital Management, the American investment vehicle that took the entire car industry by shock when it bit down and swallowed up Chrysler, buying it from Germany's Daimler in a gigantic, swift deal.
Two Hollywood blockbusters and one best-selling book etched the collective American mind with a concept of private funds - leveraged, hedge and private equity - as bloodthirsty sharks that eat companies for breakfast, spit out their workers and then gorge on the proceeds of their liquidation for dessert.
In 1987, the fictitious investment banker Gordon Gekko explained in the movie "Wall Street" why greed would save America, and how value can be created from mass layoffs. Three years later, in "Pretty Woman," the audience learned how to liquidate companies.
That same year, "Barbarians at the Gate" described the KKR fund's takeover of RJR Nabisco and exposed the terrific power struggles among leveraged buyers who had locked their sights on a weakened target.
Five years later, the funds' image has changed. They have become a key financing tool in the capital markets and a legitimate investment target for most major pension funds. They have become major players in owning, controlling and managing hundreds of companies, some of them among the biggest in the world.
The acquisition of Chrysler by Cerberus legitimizes the entire investment fund sector. For the first time in the history of the auto industry, one of the giants is passing onto the hands of a financial player, not a company from that sector.
Just as interesting is the dimensions of despair on the side of the seller, Daimler. It paid a stunning $38 billion for Chrysler nine years ago, in 1998. Cerberus did say that it will be investing $17 billion in its new toy, but Daimler will not see a cent of that: All will be flowing into Chrysler to strengthen its equity structure and help it meet its towering pension liabilities to workers.
The really surprising part is how the unions reacted. They should theoretically be manning the barricades to block a company with 83,000 workers from being transferred to the possession of a purely financial player, whose managers are measured by the sole criterion of the returns they achieve.
Evidently, American unions are more sophisticated than they are perceived as being. They seem to have grasped that owners fixated on returns are not necessarily a bad thing for the workers, and that sometimes, they are the only ones who can rescue the workers' jobs.
The Chrysler transaction is infinitely more complex than the acquisition of Israel's Bank Leumi. But where Cerberus has managed to snap up dozens of corporate giants and financial institutions worldwide, it failed in its attempt to buy a controlling interest in Israel's second-biggest bank.
The Finance Ministry and the Bank of Israel blame the fund's management, arguing that it behaved arrogantly and did not deign to comply with the terms of the tender.
But these claims do not fit with Cerberus's record over the years.
This was a giant missed opportunity. Never before had Israel attracted a really huge player into its banking sector. In other sectors, we do have giant foreign investors, and they have made giant contributions. But the banks remained the province of the local oligarchy and a handful of rich foreign Jews.
Now, as the state reopens the tender for Bank Leumi, up pops the tired old list of contenders: Dankner, Tshuva, Eliyahu and Ofer, each dragging a wagon-load of conflicting and interlocking interests.
When refusing to give Cerberus more time to obtain the regulatory permits it needs, the treasury explained that letting the U.S. fund change the rules of the game would have been unfair to the other contestants. Not fair play, you know.
That is a good, worthy reason, especially given the state's bent for bending the rules in favor of certain players.
But now that the tender is being reopened, the Finance Ministry and Bank of Israel should make a real effort to usher Cerberus, or somebody like Cerberus, into Israeli banking.
Our oligarchs have enough power. Let them spend their energies on investment abroad.
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