Is anyone interested in buying Cellcom? Who would like to acquire Super-Sol? Does anyone itch to gain control of Property and Building Corp.? Following Judge Eitan Orenstin's decision early this week concerning IDB group's bankruptcy and debt restructuring, anyone interested in buying these companies can submit an offer to the court by November 25.
That is the implication of Monday’s ruling by Tel Avivi District Court Judge Eitan Orenstin, in which he fully adhered to economic logic. To ensure the company's creditors the highest possible value, an open auction must be held in which anyone can participate – the more bids the better – with the best offer determined by no-one but the creditors themselves. This is made explicitly clear in the judge's ruling: The postponement of a final decision in the case "opens competition for driving up the bidding."
This is a refreshing innovation which proves that Judge Orenstin is applying value-based economic discretion and not merely sticking to legal constructs, poison pills and intimidation, or to the intricate smokescreens with which the case is infused. It also proves that the judge has read, and perhaps even internalized, the opinion of economics professor Lucian Bebchuk that was appended to the report on IDB written by former Government Companies Athority head Eyal Gabbai.
The opinion underlines a rule known to everyone selling a home or used car: Never accept the highest offer when you only have one buyer.
Going by the headlines it seems the judge is sticking with Nochi Dankner and Alexander Granovsky and the peculiar formula they have proposed. He has granted them a considerable extension to complete the process, including the obtaining of all necessary permits and depositing the proposed sums.
He has left the company in the hands of Dankner and his partners until the end of November, a decision that means, among other things, the payment of millions of shekels in salaries to managers and consultants. How much to be exact? If the company's legal costs in the first half of the year totaled more than NIS 20 million, then a three-month extension is worth over NIS 10 million – and closer to NIS 20 million if we add executive pay.
There were plenty of smiling lawyers, accountants, economists, and media consultants Monday when Judge Orenstin's decision was read: Their ski vacations for this winter have already been booked. The judge didn't do what he was widely expected to do and what many had already begun preparing for: He didn't transfer control of the company to its creditors, which many view as being the proper, simple, right and necessary thing to do. Therefore, over the next two months, there won't any need for the resignation of managers or directors; there won’t be threats or the immediate calling in of loans and there won’t be managerial turmoil or wars of succession.
Many eyebrows were raised at the decision. Old hands at complicated deals claim the outline set out by Dankner and Granovsky is flawed, that it will never be carried out and that it's predicated on conditions that can't be met. Others insisted that it was not valid from the outset: The proposal includes the purchase of control of IDB by two companies, creating a pyramid with four or five tiers of holding companies – a structure in direct violation of the Concentration Law's intended outcome.
Others have said there are too many open questions concerning Granovsky's identity, his source of funding and his actual liquidity, in light of his recent acquisition of a communications company and perhaps an insurance company, too. There are also those who contend that the general message conveyed by Judge Orenstin to the capital market is problematic.
The IDB saga has been dragging on for over a year now, Dankner's "white knights" have come and gone, and it has long been high time the company was taken from Dankner and handed to the creditors. But despite all this, the judge granted Dankner another extension. From now on, every deadbeat will follow his lead, using delaying tactics, asking for extensions, presenting formulas, bringing in investors with or without money but with loads of conditions – and mainly playing for time. Who knows, perhaps people like Herzel Habas – who transferred control of the investment company bearing his name to bondholders without delaying and without proposing fantastic formulas – now feel like chumps.
But if Judge Orenstin really means what he wrote, if he has truly put IDB on the auction block, and if he really lets the company's creditors choose between the various offers (there are already two on the table - the joint offer by Dankner and Granovsky and the offer from Eduardo Elsztain; there will likely be more) then this constitutes a new, appropriate stage in IDB's recovery process. If all this is true, there will probably be quite a few businessmen working overtime over the upcoming holidays in trying to determine how worthwhile it would be to buy, in one go, Israel's largest retail concern, its largest mobile phone operator and one of the country's most profitable real estate companies.
This all depends on one thing that Judge Orensten didn't mention directly but is implied in what he wrote: That he won't give the Dankner-Granovsky offer priority over other offers that are better. From a legal standpoint, that isn't clear cut, and attorney Ram Caspi and Dankner's other lawyers will, beyond a smidgeon of doubt, scream and shriek for priority if and when Dankner and his partners complete the deal.
Judge Orenstein once ruled that a company has priority in another case, but he also made it clear that the ruling only applied to that specific set of circumstances. His decision this week wasn’t explicit, but what is the good of inviting the public to make offers at higher prices – a bidding war – if creditors don’t have the right to choose the highest offer or the one they find the most favorable?
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