The rearguard battle Tami Mozes Borovitz fought to keep Eli Rozenberg from wresting control of El Al Airlines came to an end on Friday after the government awarded the 26-year-old yeshiva student a permit to control the airline.
In granting the permit, the government rejected claims by El Al that Eli Rozenberg was acting as a strawman for his father, Kenny Rozenberg. The airline asserted that the father, the founder and owner of a nursing home business based in New York, is the real owner of Kanfei Nesharim, the investment vehicle framed to buy El Al.
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El Al asserted that Eli Rozenberg has neither the financial resources nor business experience to take on such a role. Kanfei Nesharim shares were registered in the name of Eli Rozenberg because Kenny Rozenberg, unlike his son, is not an Israeli citizen, a condition for owning Israel’s flagship carrier.
Through Kanfei Nesharim, Rozenberg controls 42.9% of El Al, which he acquired for 360 million shekels ($105 million) through a public offering last month. The government, which also bought into the offering, now has a 14.4% stake. Mozes Borovitz was diluted to a 15.2% holding.
Although the government rejected the claims against Rozenberg, the permit awarded to him includes rules that theoretically address El Al’s claims that Kanfei Nesharim is a fiction designed to circumvent foreign-ownership rules.
Kanfei Nesharim raised the capital to buy the El Al shares through a 25-year loan, 2% of it provided by Kenny Rozenberg. The terms call for repayment in a lump sum at the end of the 25 years. The loan is unsecured. Although the loan agreement conforms with U.S. law qualifying it as a loan, El Al asserted that from a business perspective it is tantamount to a gift.
Under the terms of the permit, Eli Rozenberg pledged that his father had not gotten El Al shares as any kind of collateral for the loan or the right to call in the loan early. Kenny Rozenberg is barred from controlling either El Al or Kanfei Nesharim. Eli Rozenberg is barred from naming anyone to the El Al board or top management on behalf of his father or his associates or businesses he controls.
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Kanfei Nesharim must be registered in Israel and it commits itself to engage in no other business than controlling El Al stock. The company is also committed to taking on no further debt beyond the loan.
The latter condition could complicate Eli Rozenberg’s ability to finance additional capital injections into El Al, which it may well need going forward given the coronavirus and paralysis of the global airline industry. It might force the Israeli government to step in as a shareholder to provide additional financing.
Eli Rozenberg’s agreement to the strict conditions is aimed at ensuring that he can act to replace El Al’s board and top management.
Kanfei Nesharim executives had expressed concern before the formal transfer that Mozes Borovitz’s company Knafayim would use the proceeds of the share offering in ways it regarded as inappropriate, for example, paying consultants and others that had helped the board fight off Rozenberg’s taking control.
The 505 million shekels raised in the offering ensure that El Al is no longer regarded as insolvent and therefore able to pay suppliers freely without the fear of creditors objecting.
That said, Eli Rozenberg does have the right to sell El Al shares, so long as the buyer acquires no more than a 5% share or receives permission from the government to hold more. He can not use his Kanfei Nesharim shares as collateral for a loan, without the government’s permission – another condition that could limit his ability to raise capital later.
The question now remains how Eli Rozenberg will contend with the airline’s many problems that have so far eluded managers with much more experience. His problems will also be the Israeli government’s problems because the state is not only a major shareholder but has agreed to guarantee 75% of a $250 million bank loan El Al plans to take.
On Friday, Kanfei Nesharim said in a statement that it would be in “contact with El Al immediately with the aim of replacing the company’s board of directors and allowing it to begin managing the company while setting priorities for recovery.”
The permit requires Eli Rozenberg to name directors and a CEO with at least five years of relevant experience in business, public service or aviation. That should remove concerns that he may have tried to appoint associates of Rabbi Pinchas Abouhatzeira who, the family regards as a spiritual mentor.