IDB Development Sets Rights Issue, but Ben-Moshe May Not Participate

Controlling shareholder remains at odds with partner Eduardo Elsztain over financing plan and other issues.

Moti Milrod

IDB Development Corporation, the holding company at the top of the sprawling IDB group, on Monday published the prospectus for an 805-million-shekel ($205.5 million) fundraising aimed at tiding it over financially through this year and part of 2016.

But IDB’s controlling shareholders, Eduardo Elsztain and Moti Ben-Moshe, are apparently still at odds over the planned rights offering and over how to reverse the holding group’s declining fortunes.

IDB Development Corp. shares fell 4.1% on Monday to 1.45 shekels, as shares in many off its biggest subsidiaries tumbled (see The Ticker on this page). Prices for IDB bonds fell as much as 7.5%, raising their yields at as much as 25%.

IDB’s board, including both Elsztain and Ben-Moshe in their role as cochairmen, approved the prospectus, but it is not clear whether Ben-Moshe will subscribe fully, if at all, to his share of the offering even though the first day of trading is scheduled for next Monday.

Ben-Moshe’s attorneys have questioned the timing and terms of the right ofeing, which was proposed unilaterally by Elsztain, and may go to court over it.

The war between the two comes as IDB struggles in a deteriorating environment for most of its business, including the mobile operator Cellcom Israel and supermarket chain Supersol. IDB has hundreds of millions of shekels in debt repayments due this year, which the funds raised in the rights offering would help cover.

Under the terms of the offering, Elsztain and Ben-Moshe, each with a 31.3% stake in IDB, would be by far the biggest subscribers to the offering, taking up as much as 550 million shekels of the total. However, if Ben-Moshe fails to put up his part of the money in the offering his stake in IDB will drop to 15%, leaving Elsztain with a controlling 60%. IDB would have less cash to meet its debt repayments.

In any event, under the agreement they reached as part of the takeover of IDB from Nochi Dankner more than a year ago, Ben-Moshe is still committed to putting half of more than 393 million shekels into the company.

But in a series of letters addressed to IDB’s board, Ben-Moshe’s Extra Holdings accused Elsztain, through his Dolphin Netherlands investment vehicle, of springing the rights offering on him and IDB with no advance notice, with the goal of taking over the company.

“The lack of good faith is seen, among other ways, by the fact that Dolphin Netherlands created an impossible time frame for [weighing] the proposal and refused to agree to splitting it into several stages,” one letter to the board said. Extra contended the offering could have been delayed till as late as the end of 2015.

Extra also accused Elsztain of violating their agreement on joint control of IDB by subscribing to the rights offering directly or through companies other than Dolphin, suggesting the other investors would be taking the shares.

Under the terms of the rights offering, IDB is offering shareholders between 1.8 million units and 15.4 million units comprising 45 shares at a price of 1.50 shekels each as well as 20 Series 4 warrants, 19 Series 5 warrants and 17 Series 6 warrants for free. The warrants can be converted to shares between February 2016 and February 2018 at prices ranging from 1.66 shekels to 1.96 shekels a share.