Battle Over for IDB

Israel's Largest Conglomerate Gets New Masters as Dankner Raises White Flag

Dankner, once one of the most powerful figures in Israeli business, says he won't appeal court ruling handing over control of IDB to his rivals.

Nochi Dankner, once one of the most powerful figures in Israeli business, said Sunday that he was giving up a lengthy and often bitter battle to retain a role in the IDB group, after a Tel Aviv court cleared the way for investors Eduardo Elsztain and Moti Ben-Moshe to take control of the conglomerate.

Hours after Tel Aviv District Court Judge Eitan Orenstein gave Ben-Moshe’s finances the all-clear, the last hurdle before winning control of IDB, Dankner said through his lawyer that he was abandoning efforts to appeal the decision to the Supreme Court. Orenstein had given Dankner and his investor group 15 days to file an appeal.

“After a thorough examination of the ruling ... the petitioners have decided to withdraw their application to delay implementation of the ruling,” Dankner’s attorneys said. “They have asked the court to order that the money deposited [in escrow accounts] be released immediately.”

Orenstein ruled on Sunday that Elsztain and Ben-Moshe were entitled to take control of IDB Holding Corporation, the company that sits at the apex of the group. An examination he had ordered into Ben-Moshe’s finances showed that “the source of Ben-Moshe’s money is from the current accounts of [his Extra] group and not from any outside source,” the judge said. “There is no evidence that undermines the foundation of the arrangement.”

IDB’s holdings include many of Israel’s leading businesses, including the Super-Sol supermarket chain, the largest cellphone operator, Cellcom Israel, and Clal Insurance, one of Israel’s leading insurers. But the companies at the top of the pyramid-structured group are enmeshed in heavy debt.

Shares of IDB Holding jumped 18.9% on the Tel Aviv Stock Exchange before trading was suspended ahead of the judge’s ruling. The group’s Series Gimmel bonds, due in June, added 1.76%.

At a news conference in the Tel Aviv Museum, Ben-Moshe both held out the promise of a new era for the IDB group and settled scores with his rival, Dankner. “IDB Holdings is embarking on a new path. As I see it, the name IDB will from now on stand for Integrity, Dedication, Beyond for its customers and for the company,” he said.

“Even though I wasn’t the one to destroy shareholder value or gamble with the money of savers, Nochi Danker ran a contemptible campaign against me. I am talking about a delegitimization campaign that lasted up until the final hours,” he said, accusing the tycoon of trying to influence witnesses and of attempting to blackmail him and Elsztain to let him join their group.

Elsztain himself did not attend the news conference but his representatives were there.

Despite Sunday’s announcement, a source close to Dankner told TheMarker the tycoon may still try to fight the loss of IDB in the Supreme Court on his own, without trying to delay the transfer of control of IDB to his rivals. “Dankner is waiting for the report on Elsztain and Ben-Moshe to be released, as well as additional information from the investigative team,” said the source, who asked not to be identified.

Dankner’s attorneys, meanwhile, issued a statement calling Ben-Moshe’s remarks “downright lies” and denied that Dankner or anyone else had approached the Elsztain-Ben-Moshe group about joining it. “He was never interested in doing that and isn’t interested now either,” the statement said.

The Elsztain-Ben-Moshe proposal offers to bail out IDB with a cash injection of 650 million shekels into IDB Development Corporation, one of the group’s top holding companies. IDB’s creditors would get 300 million shekel in cash, along with 46.7% of IDB Development stock.

Ben-Moshe has said the funds for his share of the bailout will come from units of his German-based Extra Group, primarily from its energy and telecoms companies. Elsztain is chairman and chief executive of IRSA, Argentina’s biggest real estate company. He also chairs Cresud, a major agriculture producer.

Nearly a month ago, Elsztain and Ben-Moshe won support from more than 75% of the bondholders and bank creditors to take over the group - a vote Orenstein needed to approve the takeover. But before he would make a final decision,

Orenstein ordered the probe, conducted by the Securities Authority and others, into the sources of Ben-Moshe’s funds. Dankner and others had asserted that Ben-Moshe did not really control Extra.

In its ruling on Sunday, the court instructed Elsztain and Ben-Moshe to make the first payment on the bailout plan by January 14. The process will be overseen by the court-appointed administrators of IDB, Eyal Gabbai and Hagi Ullman. All of IDB’s directors were instructed to step down; nine new directors and a new CEO will be named to replace them.

The team investigating Ben-Moshe’s finances spent two weeks on the assignment and reported back last Wednesday. An Israeli national, Ben-Moshe made his fortune in Germany and was unknown in Israel business circles until he emerged as Elsztain’s partner in the IDB bid.

After Orenstein announced his decision on Sunday, all the parties involved – the two rival groups and the attorneys representing creditors - sparred over a further delay in transferring control of IDB to the Elsztain-Ben-Moshe group. After considering the issue, Orenstein gave the Dankner-Granovsky group 15 days to appeal to the Supreme Court. Recognizing that further delays could do more damage to the financially ailing conglomerate and cost creditors hundreds of millions of shekels, Orenstein said the Elsztain-Ben-Moshe group could opt to withdraw their bid with 30 days.
 

Daniel Bar-On
Olivier Fitoussi