IDB Partners Still at Odds Over Plan to Recapitalize Holding Company

Moti Ben-Moshe is signaling that he opposes Eduardo Elsztain’s proposed 800-million-shekel rights offering.

Moti Milrod

The struggle for control of IDB Development is still raging, even though Moti Ben-Moshe recently signed on to his partner Eduardo Elsztain’s plan to recapitalize the holding group.

IDB’s board of directors, led by outside and independent directors, has been working to ensure that the 800-million-shekel ($202 million) rights offering moves forward. As board chairman, Ben-Moshe – who controls IDB along with Elsztain – voted in favor of the plan nearly two weeks ago. However, as a shareholder he has not signaled that he will put up his portion of the cash infusion, which amounts to 400 million shekels now and another 150 million shekels six months after the offering is completed.

Sources say Ben-Moshe will have to decide in the next few days whether to join the offering, end the partnership with Elsztain or act on the “buy me, buy you” clause in the two men’s agreement sharing control of the holding company, whose assets include Supersol and Cellcom Israel. Whatever option he chooses, Ben-Moshe is still required to inject 200 million shekels into IDB this year, under the terms in which he and Elsztain acquired control of the group.

The stock market may, in fact, be concerned about the continued infighting. IDB Development shares soared after the plan was first unveiled by Elsztain, but since January 4 they have dropped 18.5% – 3.2% alone on Monday, when they closed at 1.62 shekels. IDB bonds are trading at a yield of as high as 20%.

Sources close to IDB say Elsztain’s recapitalization plan has pushed Ben-Moshe into a corner. While keeping his strategy a secret, Ben-Moshe has been asking tough questions about the plan – such as why Elsztain isn’t going to finance his share of the rights offering through Dolphin, the holding company that controls his IDB shares.

Meanwhile, Ben-Moshe has added a litigation expert to his legal team – attorney Giora Erdinast – and has yet to present a letter from his overseas bank attesting to the fact that he has the capital to join the offering. Elsztain has submitted a letter, although it is unofficial.

Minority retort

IDB has enough cash to repay debt through May and badly needs the injection of capital. Therefore, the board is unlikely to delay the rights offering even without the letter, on the assumption that the two controlling shareholders have come through with their capital commitments until now. These have totaled 1.4 billion shekels since the two men took over IDB in a bailout from Nochi Dankner.

Meantime, IDB is preparing for a possible legal challenge to the rights offering. While IDB bondholders are pressing the board to move ahead with the capital injections as proposed by Elsztain, minority shareholders are fighting it.

The minority shareholders got their IDB Development stock in a debt-for-equity swap of their IDB Holding Corporation bonds. The deal entitles them to payments of 512 million shekels over this year and next, which would be facilitated by the new capital raised in the rights issue. At the same time, however, the minority shareholders are concerned about how much the holding in IDB Development will be diluted.