One of Israel’s most powerful business leaders lost a battle with bondholders and minority shareholders Tuesday when Eduardo Elsztain, IDB group’s controlling shareholder, abandoned plans to name Gil Sharon CEO of a key company.
- Don’t Sell Israel's Clal Insurance to the Chinese, or Anyone Else
- The Bloated Pay Packages of Israeli Executives
Elsztain and Sharon issued a joint statement saying Sharon would not be appointed CEO of Discount Investment Corporation, the IDB subsidiary that controls Israel’s biggest cellular operator and supermarket chain.
“The parties reached a mutual agreement that it was time to end the appointment process because of the length and difficulties involved, including a difference between the parties on how to manage the group,” Elsztain and Sharon said.
Shalom Lapidot will serve as interim CEO of Discount, whose shares ended 2.6% higher at 6.79 shekels ($1.73) on the Tel Aviv Stock Exchange.
The decision marks the end of a months-long battle between Elsztain and minority shareholders over the size of Sharon’s proposed compensation package.
The original package approved by Elsztain, an Argentine tycoon who acquired control of IDB two years ago, had offered Sharon 71 million shekels in pay and stock options over five years. That included a base salary of 200,000 shekels a month, bonuses, a 1.8% stake in Discount and stakes of 0.6% in the Super-Sol supermarket chain and the Cellcom cellular operator.
But Elsztain, who controls more than 76% of Discount through his IDB Development Corporation, was forced to back down on the offer even before it came to a shareholder vote in November.
Bondholders, who with banks are owed more than 4 billion shekels by Discount, protested.
Sharon, who successfully led Bezeq’s mobile phone unit Pelephone for a decade, agreed to a 12-million-shekel cut in the package by taking stakes of just 0.36% in Super-Sol and Cellcom. But on December 21, minority shareholders rejected the plan, and after two weeks of further talks, Elsztain and Sharon decided not to try again.
Sharon had little competition for the Discount job, which a number of Israeli executives had turned down. The holding company not only is heavily leveraged but Super-Sol and Cellcom face major business challenges.
Sharon will get 1.6 million shekels as compensation for giving up the appointment – and may seek even more – but his reputation in Israel business has been delivered a severe blow.
Elsztain has had a rough ride with IDB. He won control of the group together Moti Ben-Moshe, with whom he quickly had a falling out and eventually gained sole control. To date he has invested some 2 billion shekels in IDB, sustaining a paper loss of about 1 billion.
Despite the big sums he has put into the group, it still holds debt of 3 billion shekels, its cash holdings are close to nil and its auditors have attached “going concern” warnings on its financial statements.
Meanwhile, a plan to raise cash by selling control of another IDB unit, Clal Insurance, has gone slowly. Only one potential buyer, China’s Microlink, remains in the bidding and the two sides failed to meet a government-imposed December 31 deadline to reach a final agreement.