The serial value-destroyer
Many companies ran into trouble in the first months of 2009, as the economic crisis raged. Among them was Magal Security Systems, which is dual-listed on Nasdaq and the Tel Aviv Stock Exchange. Magal, which makes perimeter security systems, had to cut pay and costs and lay off dozens of workers to stay afloat. But its chairman, Jacob Perry, seems to have been above all that.
Perry, former head of the Shin Ben security service, was asked by Magal's brand-new chief financial officer Zeev Morgenstern to accept a 10% pay cut - amounting to NIS 5,000 a month - which shouldn't have been a strain for a man earning millions of shekels a year.
But Perry refused. He explained why to Morgenstern, who then wrote to one of Magal's managers: "Perry... received a letter (together with the rest of the employees) about a 10% cut and claimed he had a problem because it would reopen his divorce agreement."
The fledgling veep had no idea what to do. He consulted with another Magal manager, and as a result Perry was spared the pay cut.
But for some reason, Perry's March salary was reduced together with that all company employees with the exception of three new hires. He asked to be reimbursed. The CFO apologized and promised to return the money in Perry's April paycheck.
While chairing Magal, which meanwhile suspended payments to suppliers and cut its costs on cars, travel and the reimbursement of expenses, Perry commenced a NIS 6 million renovation of company headquarters in Yehud, including his office. Managers had tried in vain to stop the project.
That's just one example of the style of Perry, who serves as chairman, director or adviser at no less than 12 companies and organizations. He is also a sought-after radio and television commentator on security affairs, he is an adviser to the government on the case of abducted soldier Gilad Shalit and grants interviews far and wide. Some of the companies he's in charge of, however, are looking rather ratty.
Magal's condition is terrible, and then there's Leadcom, where Perry has been on the board since late 2008. Leadcom, which makes mobile communications systems, was already in bad shape when he came on board. Now it's bankrupt. Last week it told investors that it can't go on, after its CEO quit.
Another story is that of wee company Bee Contact, which Perry chaired. He led the company to its initial public offering in June 2006 and stood at its helm for two years, during which its share price crashed and its money ran out. Bee Contact floated at a company valuation of NIS 30 million and ended its days as a stock market shell.
Then there's the private equity fund Markstone, where Perry serves on the advisory board. He is believed to receive $3,000 to $5,000 a month. Membership on the advisory board does not involve actually coming to meetings regularly, but rather providing advice when demanded.
Perry is also on the boards of directors of Shlomo Holdings and Elul Tamarind, each of which pays him thousands of shekels per board meeting, plus tens of thousands of shekels in base pay a year.
At Magal, Perry is paid NIS 50,000 a month for a part-time job (50% to 60% of a full-time position). His contract includes an annual pay raise as well as options for 300,000 shares. The company never reported it officially, but there's also a secret agreement between Perry and a major shareholder promising him options on an additional 100,000 shares at the same terms.
Perry's job chairing Bank Mizrahi-Tefahot as chairman is also part-time - 60% - for which he receives NIS 1.5 million to NIS 2.5 million a year. The other companies at which he serves also pay him.
The strain must be terrific. He's a member of the board of directors at the privately held company Yaftel Holdings, chairman of Pinpoint, chairman of MID, director at Tamarind Elul, director at Shlomo Holdings, advisory board member at Markstone, chairman of Beth Hatefutsoth, the Museum of the Jewish People; Friends of Sheba Medical Center at Tel Hashomer and of the real estate investment fund Mor.
Maybe Perry wanted more. Recently Ilan Ben-Dov named Perry to the board of directors of Partner Communications, which Ben-Dov had just acquired. But Perry was forced to step down within days because Bank Mizrahi-Tefahot, which he chairs, had lent Ben-Dov money to buy Partner in the first place.
A few days after Perry quit Partner's board, Industry and Trade Minister Benjamin Ben-Eliezer appointed Perry to lead an advisory council at the Industrial Cooperation Authority. This too raises questions about conflicts of interest because of Perry's positions with defense-related companies Magal, which makes security systems, and Tamarind Elul, which represents foreign suppliers to Israel's defense establishment.
Magal was founded in 1970 by Israel Aircraft Aerospace Industries (now known as Israel Aerospace Industries). It was sold in 1984 to private businessmen Nathan Kirsh and Jacob (Kobi) Even-Ezra and was floated in the 1990s on Nasdaq, at $8 per share, later dual-listing in Tel Aviv. Twenty years later its share price is $4.
Perry has been involved with Magal for 14 years, joining it straight from the Shin Bet. Sources at Magal say he had met the management beforehand, when Magal sought permits from the Shin Bet for its systems. Perry denies it.
He resigned from Magal's board to take over as CEO of Cellcom in 2002 and rejoined Magal when he left Cellcom. In 2006 he was vice-chairman under Even-Ezra as chairman.
Things did not go well. As chairman, Even-Ezra was good to his own family. His son-in-law Izhar Dekel was appointed CFO and president, and later CEO. His son Asaf Even-Ezra was named vice-president. Kirsh objected and demanded the resignation of Kobi Even-Ezra and his relatives. In 2008 Kirsh and Perry ousted them, and Perry took over as chairman.
The board approved a pretty package for Even-Ezra: An "adjustment allowance" of NIS 360,000 plus an annual salary of $45,000 and lifetime use of a luxury car. Izhar Dekel received NIS 7.2 million in compensation.
Similar things happened at Bee Contact, which was founded and controlled by Adi Maaravi, Eran Pepper and Yitzhak Yisrael, all well-known party animals. They developed SMS packages and sold them to PR managers of clubs, who used them to invite clients to parties. Later Bee Contact bought the entertainment portal Layla.
Flush with cash from its flotation, Bee Contact hired Perry as chairman. He'd already been at Bank Mizrahi-Tefahot for four years. He undertook to work once a week but didn't always make it: He was already committed to working three days a week at Mizrahi and 2.5 to 3 days a week at Magal.
Bee Contact paid him $1,500 a month plus 260,000 stock options worth NIS 300,000 at the date of grant. Perry exercised two thirds of them within one year. He left Bee Contact after it was forced to sell its operations and turned into an empty stock market shell. During his stint at the company its stock fell 70%.
With Perry at the board, despite the company's deterioration its founders partied on, taking huge salaries relative to the company's size and state. Pepper took NIS 40,000 a month plus a car and bonuses, for instance.
Magal is not in the same final condition as Bee Contact and Leadcom, but it's deteriorating. It wrote off huge sums on equipment bought a year earlier and lost $32.6 million in 2008. Its accrued net profit from 2004 to 2007 was $533,000.
In July its CEO Yoav Stern, who's since quit, wrote to the board saying, "Magal is in critical shape. Its cash burn is likely to be $7 million in the second quarter. We have to be prepared with a new arrangement for marketing and sales, to focus effort on R&D, to be more efficient in project management and production, or we'll see the competition eat us for lunch."
The company cut expenses. It closed its California offices and fired 20 employees there, 10 in Canada and 15 in Israel, reducing its total workforce by 10% and cutting costs and pay. The banks got antsy. Hapoalim and Leumi called and asked to meet with management, and Union Bank reduced Magal's credit line by 20%. Mizrahi did no such thing.
Magal's shareholders include several investment funds and private investors, each holding 5.3% to 10% of the company's stock. They are concerned. Eric Green of Prescott Group Capital Management, which owns 5.3%, penned an angry letter to Perry in June, saying the company didn't seem to be functioning and was being run like a family firm, making decisions based not on the company's good, but rather on that of its founding family.
Even Kirsh complained about the company's condition, in another letter, saying he felt Magal had lost his way. Bee Contact shareholders also wrote letters of complaint.
At Magal, acquisitions and deals went sour and questions arise about transparency. In February 2007 the company entered supply agreements with Rontal Systems, without anybody advising the board that Rontal belonged to the nephew of founder Kobi Even-Ezra. Nor was the board told when Rontal defaulted on payments to Magal. Finally, in February 2009, Magal sued to liquidate Rontal.
Rontal's people sought help from Perry. It was agreed that Rontal would pay half the debt up front and the rest by year-end 2009.
Perry said in response that he completed the renovations at Magal's headquarters as part of his responsibilities as chairman, adding that there was nothing wrong with trying to forge cooperative relations between Leadcom and Magal. As for discussions with Rontal's people over Magal's lawsuit, that was natural, he said. "I regret that the newspaper is fed by half-rumors and partial information and biased gossip, intended solely to smirch my performance as chairman of Bank Mizrahi-Tefahot and Magal," Perry stated. "As chairman of the bank with a 60% position, I may serve as director at other companies. In all my positions I act with integrity, transparency and full responsibility toward the company and its shareholders."
Magal stated that it rejects "with disgust" any attempt to present it as acting or having acted in contravention of the rules or of proper business practice. The renovation was designed to improve the working environment for all, the company added.
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