Will Eduardo Elsztain be able to regain control of the Israeli business empire he lost to creditors after sinking 3 billion shekels ($890 million at current exchange rates) into it?
That will be decided this week as the Argentine property magnate competes with an investor group led by real estate company Mega Or to buy Discount Investment Corp. Mega Or’s partners in the contest with Elsztain are investment bank Value Base, Clal Insurance and a group of investors.
The winner will get a holding company whose assets include Cellcom Israel, the country’s biggest cellular service provider, real estate company Property & Building, tech investment company Elron and citrus products concern Mehadrin.
The sale is being conducted by attorneys Alon Binyamini and Raanan Kalir, who in September were named receivers for a 70% stake in Discount pledged as collateral to holders of Yud-Dalet bonds issued by IDB Development Corp., Discount’s sister company. Another attorney, Ophir Naor, who was named trustee for IDB Development, is managing the sale of another 12% stake in Discount.
Elsztain, who struggled for years to get under control the massive debt he inherited when he acquired the IDB group, last week improved his offer for Discount to about match that of Mega Or.
He is now offering to buy 82% of Discount for 1.08 billion shekels. This calls for an immediate payment of 70 million shekels in exchange for executives’ or directors’ immunity from future lawsuits. Elsztain’s bid also contains an option for IDB’s receiver to sell him IDB’s Israir airline unit for 90 million shekels.
Mega Or, which is led by Zahi Nahmias, is offering just over 1.11 billion shekels for the 82% stake, with no extra payment for immunity or to buy Israir later.
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The court-appointed receivers prefer Mega Or’s bid because they believe it stands a better chance of actually being completed. Over the weekend, Binyamini and Kalir asked both bidders to improve their terms and for Elsztain to add another 300 million shekels in collateral.
Mega Or, however, isn’t expected to make a better offer, sources said. The reason is that since the real estate company made its original bid, investor Aaron Frenkel has raised his stake in Gav Yam, an affiliate of Property & Building, to 33%, making him Gav Yam’s largest shareholder.
Tel Aviv District Court Judge Hagai Brenner, who is managing the Discount sale, has determined that Elsztain’s offer is the higher of the two. But sources said over the weekend that unless Elsztain improves his bid, IDB Development bondholders are likely to support the Mega Or bid when they vote this week.
Brosh Capital Partners, a hedge fund manager led by Roni Biram and Gil Deutsch, is the key player in the fray. It holds 10% of IDB’s Series Tet and Yud-Dalet bonds, which it bought at prices well below par. Elsztain recently accused it of trying to turn a quick profit on its bonds without considering the long-term good of IDB.
A Brosh source said over the weekend that “all the IBD Development bondholders will support, by a majority topping 99%, the immediate repayment of debt and the end of the receivership, and will be against Elsztain’s proposal. Elsztain’s attempts to paint Brosh and its court representatives [the receivers] as having a personal agenda are unfounded.”
The Brosh source noted that Brosh had supported Elsztain six years ago when he was competing with Nochi Dankner, the Israeli tycoon who previously controlled IDB, for control of the group. The Brosh source said that the billions of shekels Elsztain had pumped into IDB over the years wasn’t for the sake of its creditors but to retain control of the group.
As evidence, the Brosh source noted Elsztain's attempt to force a 650-million-shekel haircut on Series Tet holders, and his failure two months ago to inject 70 million shekels into IDB Development as promised.
The Brosh source said the fund prefers the Mega Or bid because it is more feasible. Elsztain set up the company making his Discount bid less than two weeks ago and hasn’t revealed how he is financing his bid.
“Considering his performance at IDB and the conditions of his publicly traded companies, who knows whether he has the resources, and it’s not clear he’ll be able to fund partners,” the source said, referring to Elsztain’s problems with his core real estate businesses in Argentina.
Shares in his main investment vehicle, ISRA, Argentina’s biggest real estate investment company, have fallen 40% this year. Its bonds are trading at yields of more than 1,000%, signaling that investors believe the company has a very poor chance of being able to repay debt.