Expert Suggests Public Tender for Troubled IDB Group

Justice Ministry opposes merger of Koor Industries with Discount Investment.

The seemingly never-ending drama over Nochi Dankner's troubled IDB group took an unexpected turn Thursday when court-appointed expert Eyal Gabbai made the surprise recommendation that a public tender be opened for the sale of IDB Holding Corporation, in light of new interest by potential buyers overseas.

The IDB group includes Super-Sol, Israel's largest supermarket chain, and mobile operator Cellcom.

IDB Holding Corp. is the public company at the top of the group's corporate pyramid. IDB Development Corporation is further down the chain. It in turn owns Discount Investment Corporation.

In an opinion submitted to Tel Aviv District Court Judge Varda Alshech, Gabbai explained that the potential bidders for IDB would be from overseas and absent a public tender process, may be unaware that the company was even available for the taking.

Last week it transpired that Neil Bush, a brother of President George W. Bush, had come to Israel at the head of a group of investors from the United States and the Far East who are considering a bid for IDB.

"The assumption that the international investor public is aware of [a potential] IDB deal must be tested," Gabbai wrote. He also claimed that interest on the part of Israeli investors is limited in part due to proposed legislation that would curb pyramidal corporate business groups like IDB. "The number of Israeli parties that have the resources to carry out the investment and meet the limitations of the legislation are few," he wrote, adding that in light of the size of Dankner's corporate empire, any acquisition of the group would require approval by the local antitrust authority, and the Israeli players in the market would have difficulty securing antitrust approval.

The main contender to take over IDB Holding is Argentine businessman Eduardo Elsztain, who struck an agreement with the company's bondholders to invest NIS 770 million in the firm and has posted $75 million in earnest money. His next scheduled payment is for $25 million.

"The question of carrying out a broad and open process of identifying an investor has hovered in the air to the best of my knowledge over the last eight months," Gabbai added. "Controlling shareholder Nochi Dankner has chosen to conduct negotiations with investors of his preference." In order to provide potential investors with access to relevant information on IDB's financial situation, Gabbai is recommending that the schedule arrived at with Elsztain be deferred by two weeks.

In a related development, on Thursday the Justice Ministry’s Official Receiver's Department ("kones nehasim" in Hebrew) filed a court brief opposing a merger between the IDB group's Koor Industries and Discount Investment Corp. The filing came in connection with a proposed Koor dividend distribution. The receiver argued that IDB sought to make an end run around the merger’s opponents. Koor says the receiver's position is being misrepresented and the receiver does not oppose the dividend distribution.

The receiver's opposition to the merger came as a surprise because the merger was approved at a meeting of Discount Investment shareholders with a vote of 99.82% in favor and even of 98.37% of disinterested parties. And a merger vote among Koor shareholders passed by a vote of 99.88% including the support of 99.01% of disinterested parties. Nonetheless, the receiver cautioned about the need to determine whether a fair price is being paid for Koor's shares. Koor requested court approval for the dividend distribution to acquire 32.37% of its shares as part of the merger plan.

Discount Investment's parent, IDB Development, has been the target of its bondholders who have sought to take over the company due to its huge NIS 6.4 billion debt. The merger of Discount Investment Corporation and Koor was meant to generate about NIS 460 million in funds to IDB Development and in turn head off the bondholders' attempts to take over the company and leave it under Dankner's control.

Olivier Fitoussi