Tycoon Opts Out of Share Issue, Jeopardizing Stake in IDB

The fundraising goes ahead anyhow amid Moti Ben-Moshe's dispute with partner Eduardo Elsztain over ownership rights.

Moti Milrod

Moti Ben-Moshe stands to lose joint control of the giant IDB group after he announced late Wednesday he would not take part in a rights offering aimed at raising badly needed capital.

Ben-Moshe, who from the start opposed the fundraising initiated by co-controlling shareholder Eduardo Elsztain, could see his IDB stake halved to just 16% as a result. But in an exchange of letters between his attorney and Elsztain’s, Ben-Moshe made clear he retained the right to buy enough stock to keep his 31% holding, a percentage equal to Elsztain’s.

The 800-million-shekel ($207.5 million) rights offering – which entitles existing shareholders to subscribe to a new issue of stock being sold by the company – went forward in very heavy trading Thursday. IDB needs the cash to meet debt repayments this year and next.

But by refusing to buy shares, Ben-Moshe’s stake would be diluted versus shareholders who take part in the issue.

The dispute over the rights offering is the latest battle in a long war between Elsztain and Ben-Moshe, who wrested control of IDB from Nochi Dankner a year ago as part of a bailout plan. Since then the partners have injected hundreds of millions of shekels into the conglomerate, which is saddled with massive debt, but have failed to agree on a management strategy.

In the meantime, IDB shares have plummeted, falling nearly 30% this year alone and leaving Ben-Moshe paper losses of some 500 million shekels. On Thursday, IDB shares ended down 4.6% at 1.25 shekels.

Ben-Moshe, an Israeli who made his fortune in Germany, wants to solve IDB’s problems before injecting more cash into the group. A big trouble spot is Cellcom Israel, whose stock has plunged 50% this year during a price war among mobile phone operators. Supermarket chain Super-Sol has also seen its share price tumble amid stiff competition and declining sales.

The rights issue went ahead after the Tel Aviv District Court gave the go-ahead. Trustees representing IDB’s minority shareholders, mainly bondholders who swapped their debt for equity as part of the bailout, had sought to delay the offering, saying it was against their interests.

The fighting between Ben-Moshe and Elsztain, an Argentine property magnate, continued into Thursday as the rights issue got underway.

Ben-Moshe’s attorney contended that under the partners’ agreement, Ben-Moshe retained the option to buy half the shares Elsztain acquired in the company, even if Ben-Moshe refused to take part in the rights issue. This would let Ben-Moshe retain a stake equal to Elsztain’s.

But Elsztain’s attorneys rejected this, saying the agreement gave Ben-Moshe no such right. Still, Elsztain’s lawyers apparently concede that Ben-Moshe, if no longer a controlling shareholder, may not be obligated to inject another 197 million shekels he is required to provide this year.