“Nochi Dankner made almost every mistake possible,” we were told by someone who worked closely with him over the past year. “He didn’t come to creditor meetings, wasn't willing to deal with bondholders, and when he did speak to them it was in a condescending manner. He forgot that ultimately these are people he owes money to."
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“He could have kept IDB if not for his mistakes and was very close to succeeding,” according to the same person. “IDB has excellent assets. Moti Ben-Moshe and Eduardo Elsztain can make a great deal of money here if the subsidiaries perform well. I don’t see any point in appealing the judge’s decision if the additional probe on Ben-Moshe clears the way for him.”
It’s hard to argue with these statements. Dankner did make many mistakes – both in running the company and in his personal tactical behavior.
To the many creditor meetings over the past year-and-a-quarter he dispatched his faithful troops – CFO Eyal Solganik, CEO Haim Gavrieli, and vice-president Shoni Albeck. He himself hunkered down in the 44th floor war room in one of the Azrieli towers, preferring to keep an eye on things from a distance.
To lead the battle at the decisive creditors meeting two weeks ago, Dankner assigned Yariv Philosoph, CEO of consulting firm Giza Singer Even. Philosoph, who is paid good money by IDB for his services, tried to convince the creditors to vote for Dankner’s settlement proposal. He failed in his mission. Perhaps Dankner didn’t pay him enough.
Dankner himself didn’t see fit to show up at the meeting and display leadership. His new nemesis, the rising star Moti Ben-Moshe, an Israeli businessman who made his fortune in Germany, appeared at the last two creditor meetings and spoke with people like he belonged.
Elsztain, Ben-Moshe’s new partner, was also at one of the last meetings. They weren’t intimidated by Dankner and weren’t afraid to express their views even when he and his battery of lawyers and media consultants sullied their names publicly. They stood firm, took the blows, and returned fire.
Ben-Moshe trudged between the offices of financial institutions in Tel Aviv’s business district over the last few months and met with all the major creditors. He wanted them to give them the chance to see him, hear him, and feel him. He wanted everyone to know that he doesn’t have horns, that’s he’s a legitimate businessman who made money overseas and has now come to buy an asset in Israel. What’s wrong with that?
Dankner thought it was wrong. “I’ve never met such a supposedly successful businessman who nobody knows – not in Israel, not in Germany, not at the banks, not at the financial institutions, not at the regulatory bodies,” Dankner reported in a monologue he sent to newspapers on Monday. I feel like he is shrouded in secrecy.”
This is actually the last card Dankner has left and is playing. He is trying to undermine Ben-Moshe’s credibility and the loyalty of Eduardo (“he’s not a friend”) Elsztain, his partner in Ganden Holdings.
“I opened the doors to IDB for Elsztain and the doors to my home,” says Dankner. "That’s how I am. I gave him my trust.” He seems to forget that in return for his “trust” he received a lifeline from Elsztain in the form of 100 million shekels ($28.5 million at the current exchange rate). Dankner is grasping at threads and still hasn’t despaired. Tuesday he said: “We don’t intend to lose this campaign.”
Israel’s capital market grows up
Digressing for a moment from the drama involving colorful and emotional characters, the changing of the guard at IDB is primarily a story about Israel’s capital market having grown up. The large Israeli investment houses managing the public’s savings led the campaign against Dankner. The banks, in contrast, were dragged against their will into court and usually stood by his side. They were reluctant to seize control of the bankrupt Ganden (or of the insolvent Tomahawk Investments a rung above it in the chain of holdings). They hadn’t exerted any pressure to collect their problematic loans to IDB Holding. When IDB Development was also dragged into court by its bondholders on the assertion that the company was quickly approaching insolvency, the banks showed up claiming the company is capable of paying its debts.
Investment houses operate in an open capital market which also poses risks and can’t be expected to succeed in all they do. Companies in which they invest can’t be expected not to fail now and then or backslide into insolvency. That’s how the business world works and this is the fate of investments made under conditions of uncertainty.
But investment houses are expected to act professionally. They are expected to assess risks properly and charge each company the appropriate rate of interest. The bonds they buy are traded in the stock market and their prices are known to everyone. When the financial positions of issuing companies deteriorate and their bond prices take a dive, investment houses are expected to respond quickly to minimize the damage. If they don’t they’ll be subject to public criticism.
In the IDB affair (and not just there) that’s precisely what they did. The bond trustees halted the frenzy taking place at IDB in September 2012 and demanded the launch of a debt restructuring process. The banks, that also manage the public’s money, hardly did anything. Their foot dragging in the IDB case needs to serve as a warning. Ultimately it was the bank which were left with nearly 1 billion shekels in uncollectible debts in Tomahawk and Ganden. Bondholders who invested 1.8 billion shekels in IDB Holdings should receive back nearly 70% of what they’re owed. Even better, IDB Development bondholders will likely be repaid in full.
The test for the banks begins now. And we’ll soon see just how far they’re willing to go to collect on Dankner’s private debts.