In a few days history will be made in Israel’s capital market. Two people who until about a month ago didn’t know each other will receive court approval for the most complex debt restructuring in Israeli history. They will take control of the sprawling IDB group.
The two people are Eduardo Elsztain, the Jewish-Argentine businessman who made his fortune in real estate and agriculture, and Motti Ben-Moshe, an Israeli who made his money in telecommunication and energy deals in Europe.
After they finish sipping the champagne and celebrating their victory, the two men will notice that the bar of expectations has been raised immediately. Every action after taking over from Israeli tycoon Nochi Dankner will be examined carefully.
Elsztain and Ben-Moshe will learn that in Israel things work differently. They’ll learn that such a large conglomerate with such a large debt to the Israeli public – some 10 billion shekels ($2.9 billion) just at subsidiaries IDB Development and Discount Investment – has to act with complete transparency and fairness with all its stakeholders. And all its stakeholders means bondholders, shareholders, employees, suppliers, clients and of course the society and country where it operates.
The first task for Elsztain and Ben-Moshe will be shaking up management. Most executives at IDB group are connected to Dankner. The most prominent are IDB Holding CEO Haim Gavrieli, Super-Sol and Property & Building Chairman Rafi Bisker (also a partner in Dankner’s privately owned Ganden Holdings), Clal Insurance Chairman Danny Naveh, Koor Industries Chairman Lior Hannes and Cellcom Israel Chairman Ami Erel.
Some of these executives will have to leave their positions, but it appears not all at once. Naveh, for example, was recently appointed, so his contract has just begun. Elsztain and Ben-Moshe have said their preferred choice for the IDB group chairman is Aharon Fogel, who resigned as chairman of Migdal Insurance earlier this year. They still haven’t proposed someone to become CEO.
No who’s who here
If Elsztain and Ben-Moshe are not well known, the people who work for them are even less so. The 53-year-old Elsztain has the people working for him at his publicly traded companies in the United States, namely IRSA (malls, office buildings and hotels), Cresud (agricultural produce in South America) and Alto Palermo (shopping centers, housing and trade).
Two of these people, Saul Zang and Matias Gaivironsky, hold senior positions at Elsztain’s three publicly traded companies. Zang serves as vice chairman of IRSA, which has a market value of $700 million. Zang also accompanied Elsztain on some of his trips to Israel in the past year.
Two other high-profile figures in Elsztain’s group are his brothers: Alejandro, the CEO of Cresud, and Daniel, the chief operating officer at Alto Palermo.
Elsztain has made clear he does not plan to move to Israel and get his hands dirty at IDB. The person doing that job will be Shaul Lapidot, an Argentine currently living in Buenos Aires. Lapidot is married to an Israeli with family in Jerusalem. Lapidot had said he planned to move to Israel if Elsztain won his bid for IDB; it’s likely he’ll be named chairman of the board.
Elsztain, as court expert Eyal Gabbai pointed out in a report, has lots of experience reviving companies. Several of his Argentine firms hit the skids when they raised money in dollars and the peso sharply depreciated during the country’s 2002 financial crisis.
The companies entered a cash-flow crisis that was solved by spreading out the debt repayments and raising fresh capital. Elsztain is proud of the recovery and investors’ faith in his companies.
Despite his experience, Elsztain’s relationship with IDB got off on the wrong foot. His first investment of 100 million shekels was done without due diligence in Ganden Holdings, which held a controlling stake in IDB Holding. That investment failed and hurt Elsztain’s image.
The fact that Elsztain continued to provide credit to Dankner and stuck by him as a partner also didn’t win him any points. Still, he pulled himself together and refused to inject more funds into IDB without receiving control. His meticulousness in showing up to court hearings and creditors’ meeting showed his commitment.
Who is Motti Ben-Moshe?
A large question mark hangs over Ben-Moshe. Again, even though he was born in Israel and has family here, he’s not a household name. It also isn’t clear who works with him abroad. The source of the money he put up for IDB is a mystery and will probably remain so.
Based on Ben-Moshe’s comments in media interviews, he made his money buying telecommunication networks in Europe at very low prices after the 2000 stock plunge. He began operating a telecommunication network in Germany in partnership with Spain’s Telefonica and after several years operated the network alone.
Later he acquired energy companies in Europe. Since all of Ben-Moshe’s activities are done through privately owned companies, it’s not clear if his businesses are as successful as he claims. Court experts Gabbai and Hagai Ullman tried to find the sources of Ben-Moshe’s capital. All they received were confirmations of the cash balances held by Ben-Moshe’s Xtra Holdings in foreign banks.
Besides the riddle about his money, it’s hard to know what Ben-Moshe’s managerial style will be like at IDB, how successful he’ll cooperate with Elsztain, who he’ll appoint to the board and executive positions, and what his own role will be.
To Ben-Moshe’s credit, he has kept his word and injected hundreds of millions of shekels in cash for the IDB deal. He has also revealed himself as knowledgeable about IDB’s finances and the urgent needs of IDB Development.
“You haven’t heard about me because I wasn’t interested in publicity,” Ben-Moshe told us several months ago. Since then he has been interviewed by the business press several times and received a taste of the criticism he's likely to encounter in the future. There’s no lack of questions about the source of his money.
Elsztain and Ben-Moshe have enjoyed the support of IDB’s creditors mainly because they aren’t Dankner, who led the company to its crisis. Next week they’ll have to start proving they can manage IDB’s businesses and increase its value over the long term while preserving the principles of clean and transparent corporate governance.
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