Tnuva CEO Arik Schor, who shepherded Israel’s biggest good maker through the 2011 social justice protests and the company’s sale to China’s Bright Food, has been forced to abruptly step down after disappointing profits and a crisis of confidence with the company’s new owners.
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Shor, 59, said late Thursday he was leaving the company after close to seven years as CEO. Only a day earlier, Shor had been awarded a prize from the Manufacturers Association as Israel’s top industrialist for 2015.
“I have announced my decision a day after I received the Industry Prize, which was an honor not only for me but for all the employees and managers of Tnuva,” Shor said in a statement hinting that he regarded Bright Food’s decision to force him out as unfair.
However, Tnuva has gone through a rough patch since it was acquired by the Chinese food maker from the British buyout fund Apax Partners and the Israeli holding company Mivtach Shamir in April. While Tnuva’s problems were due mainly to external development, sources said Schor had gradually lost the confidence of his Chinese bosses.
Moreover, they said, Schor’s abrupt departure indicated that Bright Food is determined to solve Tnuva’s profitability problems quickly. Etal Milas, who had presided over Tnuva’s dairy business, was named interim CEO, but sources said it was unlikely he would be named to the post permanently and that an outsider with little loyalty to Tnuva’s traditions would likely get the job.
As CEO, Schor was one of the most powerful figures in Israeli industry, running a company with 6,500 employees and revenues of about 7 billion shekels (about $1.8 billion) in recent years. Tnuva’s product line covers a wide range of food but its cottage cheese is its most popular product and a staple of the Israeli diet.
In fact, Tnuva cottage cheese is so popular that a price hike in 2011 set off a Facebook campaign that soon mushroomed into a summer of massive street protests over the high cost of living, and eventually a government committee that led to a series of reforms.
Schor steered Tnuva through those difficult days – although Tnuva’s profits collapsed in 2011, they reached a record 997 million shekels in 2012 – and then helped Apax with the sale of the company to Bright Food in 2014-15.
Origin of problem
Sources said Schor’s first problem with Bright Food dates back to the sale process. Bright Food accused him, after the fact, of presenting an unfairly rosy picture of Tnuva’s prospects that convinced them to value the company at 8.6 billion shekels, or 12 times earnings before interest, taxes, depreciation and amortization – which analysts said was too high.
The valuation was so high that when Chinese authorities began investigating Guo Benheng, a former chairman of Bright Dairy, a unit of Bright Food, the Chinese press speculated that he and others had skimmed off some of the money the company had overpaid for Tnuva.
In any case, Tnuva’s business was running into trouble even as Bright Food had agreed to buy it. Net profit slumped to 518 million in 2013, then to 410 million shekels in 2014, while sales declined 5%, from 7.1 billion to 6.8 billion.
This 2015 figures have not yet been released, but data from retailers suggest that Tnuva’s market share fell in its core dairy business from 54.9% in 2014 to 53.8% last year.
Tnuva has been hit by a tougher regulatory environment and by increasingly price-conscious shoppers. Other food makers have been hurt, too, but Tnuva was especially vulnerable to changing market conditions.
Fresh milk, which accounts for 22% of its sales, had to contend with a private label brand launched by Supersol, Israel’s biggest supermarket chain, last May. Before that, other key products like white cheese and sweet cream were put under price controls.
Schor planned to revive profits by cutting costs. The focus of his plan was to flatten management, whose costs amounted to 273 million shekels in 2014, by, among other things, merging the company’s dairy operations with its branded products unit.
Bright Food was unimpressed. Sources said that at a stormy meeting three weeks ago, the Chinese rejected the plan and told Schor to come back with a revised version. Inside Tnuva, many looked at the plan mainly as a way to undercut Milas.
Last Thursday, Schor came back with his revised plan, but Bright Food executives turned it down a second time. Shortly afterward, Schor announced he was leaving.