Like a death scene played out by a ham actor, the demise of Israel’s tycoon class has been a drawn-out and painful affair. Even when the phenomenon seemed about to breathe its last, another spark of life emerged from a wannabe tycoon or a veteran one not quite ready to accept the inevitable.
Amid all this agony, the news that Africa Israel Investments was delisted from the Tel Aviv Stock Exchange this week, after 47 years, was a relatively subdued groan. But it does in many ways signal the end of an era no one should regret.
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Just as America had its Gilded Age at the end of the 19th century and today Russian has its oligarchs, Israel had its tycoon class in the first decade of the 21st century. Not quite on the scale of John D. Rockefeller or Andrew Carnegie, or even Mikhail Friedman or Viktor Vekselberg, Israel’s tycoons nevertheless had their fingers in almost every sector of the economy, invested abroad, and were household names. They seemed all-powerful and unstoppable.
Lev Leviev, who had acquired Africa Israel in 1997, was one of them. He used the company to build a property empire in the United States, Russia and Eastern Europe and even bought Gottex, whose skimpy swimsuits would seem to have been at variance with his ultra-Orthodoxy. Leviev spent generously, including marquee assets like the old New York Times building. He also bought the most expensive home in Britain, at the time.
With hindsight, Leviev spent generously, but not wisely. Both of those purchases – the NYT headquarters and the house - were made just as the real estate market was about to hit smash, bang into a brick wall amid the global financial crisis of 2008.
Two years later, Africa Israel sought and won a debt bailout in 2010. Six years later, it had to be rescued from debt again – and this time Leviev bailed out, too. These days, he is believed to be living in Moscow.
After protracted negotiations and a few false starts what was left of Africa Israel was sold to Lapidoth Capital at the end of last year.
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Once one of the TASE’s biggest conglomerates, Africa Israel is now a subsidiary of a company that aspires to join the TA-125 index of the exchange’s top companies but hasn’t yet made it.
The Leviev / Africa Israel story follows, more or less, the same trajectory as nearly all of the tycoons and their empires. Nochi Dankner was forced to cede control of IDB group in 2013 and is now serving time for securities violations. Eliezer Fishman likewise lost control of his empire and was declared bankrupt. Shaul Elovitch had to hand over his telecoms empire centered on Bezeq to creditors. He faces securities violations and an indictment for his role in Case 4000.
Slaves to their own hype
There is a second generation of tycoons, but they don’t ride high over the economy as their predecessors do. Some, like Lapidoth’s Jacob Luxenburg, are mini-tycoons; others, like Eduardo Elsztain who got control of IDB, are struggling to keep their empires afloat. The Business Concentration Law, which was passed by the Knesset in 2013 in response to tycoon abuses, makes it almost impossible to build business empires on the scale that last-generation tycoons could.
What brought the tycoons down was sheer hubris. They arrived on the scene when raising money was easy and the Israeli capital markets were not quite sophisticated enough to see past the tycoons’ image of business genius. The tycoons were dangerously convinced that they indeed were masters of the universe.
I recall meeting one of them just as the global financial storm was gathering storm at the end of 2007. Sitting in a giant conference room high above Tel Aviv, he informed us that Israel was too small a playing field for him and that he would be investing more abroad. He boasted of his powerful allies overseas, his philanthropy at home and his ability to navigate the increasingly choppy waters of the financial markets.
His self-confidence was so deep that it seemed to be less arrogance and more sheer nature.
But that confidence was a fatal flaw. Within Israel, the tycoon class demonstrated was less genius than an ability to pull strings with bankers and regulators, and leverage insider information and compliant boards. Abroad, however, the tycoons didn’t have that kind of clout. Nor did they have, it turns out, entrepreneurial abilities. It was no coincidence that these tycoons almost never invested in technology, much less start up a company. For that, you needed acumen, not just friends in the right places.
Now that the dust has settled, it has to be said that the tycoons didn’t cause as much damage to the Israeli economy as the hysterical media reporting at the time made out. They left tens of billions of shekels in bad debt in their wake, but the government never had to bail out either them or the banks that lent them money.
On the other hand, their contribution to the economy was almost nil. The tycoons were rentiers, not entrepreneurs.
Our new tycoon class goes by another name: “high-tech entrepreneur.” Without a doubt, it’s an improvement over the old one. The tech tycoons start and build businesses. They make their millions by dint of hard work and innovation. They have created a globally competitive industry. The tycoon is dead, long live the tycoon.