Analysis

Fateful Court Hearing to Decide on Future of Dankner's Business Empire

Financially besieged IDB group includes such fixtures on the Israeli retail landscape as the Super-Sol supermarket chain - the country's largest - and cellular service provider Cellcom.

At 9 A.M. Sunday, another dramatic chapter will unfold in Nochi Dankner's efforts to hang onto control of his financially besieged IDB group, in the courtroom of Tel Aviv District Court Judge Eitan Orenstein. Two major IDB entities, IDB Holding and IDB Development, collectively owe creditors, including bondholders, about NIS 8 billion. The IDB group includes such fixtures on the Israeli retail landscape as the Super-Sol supermarket chain - the country's largest - and cellular service provider Cellcom.

The corporate drama has included days and days of court deliberations and the prospect at various times that one of two Diaspora Jewish business figures, Eduardo Elsztain of Argentina or Alexander Granovsky of Ukraine, would bail Dankner out.

With creditors trying to wrest control of the group from Dankner, any Sunday decision short of granting Dankner more time to put his companies' finances in order would be particularly dramatic, because it would probably mean the end of Dankner's control of IDB.

In light of Dankner's past capacity to surprise, though, it merits assessing the chances that he will convince the court to give him more time. Such a prospect depends upon two components: a sale by IDB of a stake in Clal Insurance, which the court has required; and the ability of IDB to present creditors with a clear short-term recovery plan.

First, Clal Insurance. The court presented Dankner with the task of selling half of his group's interest in the insurance company on a tight schedule, as a means of generating cash flow to meet IDB's other debt obligations.

IDB Development, through which Clal Insurance is held, recently announced that it has found a buyer for a 32% stake in the insurance firm at a price that would put the company's full market value at NIS 4.6 billion. Since IDB Development owns 55% of Clal, an offer for 32% would meet the judge's requirement and the price IDB would be getting appears to be right.

On the other hand, the prospective buyers are a group of investors from Hong Kong who still need to fully pull their plans together. The deal would be a complex one and could include conditions and reservations that could ultimately lead to the deal falling apart.

On the plus side, if one can draw a parallel with the school year that is about to start, Dankner would get a passing grade on his homework assignment, the sale of the insurance company. His performance would not merit an "A," but he might get a "barely passing" grade if Orenstein gives him credit for extra effort.

When it comes to a recovery plan that would address the NIS 8 billion mountain of debt owed to creditors, the plans Dankner has presented still appear to lack the kind of specificity that the law requires to provide sufficient certainty and clarity. Because IDB's proposal has lacked that clarity, it has not been put to the test before the creditors. Among the proposals that have actually been put to them, creditors have overwhelmingly voted to appropriate Dankner's controlling stake in IDB Development as well as available cash, so it can be split up among the creditors.

Despite the fact that the creditors already cast their vote, Judge Orenstein gave IDB another chance to pull the rabbit out of the hat, even though he had no obligation to do so. He apparently subscribed to the view that if a controlling shareholder could produce a plan that would avoid a loss of corporate control, he should be given the opportunity.

Orenstein agreed that if IDB managed to raise NIS 500 million in funds - of which NIS 70 million would be deposited in court as earnest money - the judge would defer a final decision Sunday and give IDB additional time to put together a more definite plan to present to creditors.

As these lines are being written, there are rumors circulating that Granovsky, the Ukraine-Jewish businessman, might provide the required funds with Dankner. But if Dankner is unable - with or without Granovsky - to at least come close to meeting the judge's requirement, the prospect of his getting any more time before the IDB empire slips out of his hands are slim. And if he does come up with the money, Judge Orenstein would be expected to keep Dankner on a tight schedule in the near future over a more detailed recovery plan.

Any such plan would be subject to the scrutiny of a court-appointed expert as well as the parties involved. The judge could even invite competing, alternative recovery plans that would reopen the entire fight for control. And any plan that meets with his approval would then be subject to a creditor vote.

And if Dankner doesn't get even a "barely passing" grade from Judge Orenstein on Sunday? There is the distinct possibility that the judge might rule that control of IDB will pass from Dankner to a court-appointed trustee, followed by the distribution of funds that the creditors have been seeking. The shares of IDB Development would be divided among them, and they would also get slices of the millions of shekels of cash on hand.

It would not be a simple procedure, however, and the trustee would require proof of creditor claims, which in the process would clarify precisely how much IDB owes each of them.

Ofer Vaknin
Ofer Vaknin