Rights Issue Leaves Elsztain as IDB’s Sole Master

Partner Moti Ben-Moshe failed to put up money, leaving him with just a 15% stake.

Daniel Bar On

Eduardo Elsztain emerged on Tuesday from a rights offering as the sole controlling shareholder of IDB Development Corporation, the holding company at the apex of the IDB conglomerate, after his partner Moti Ben-Moshe declined to buy into the offering.

Final results from the rights offering – an equity issue that offers existing shareholders the right to buy extra stock in the company – showed that Elsztain accounted for 392 million shekels ($101.2 million) of the 418 million IDB Development raised in the offering.

The remaining 26 million shekels came from other shareholders, but not Ben-Moshe, with whom Elsztain had wrested control of the conglomerate about a year ago from Nochi Dankner as part of a debt bailout. Ben-Moshe’s stake was diluted to just 15%.

Elsztain and Ben-Moshe, who had been feuding almost from the time they took control of IDB, injected about 1.4 billion shekels into the holding group to enable it to repay its heavy debt load. But they have yet to turn around the conglomerate and have combined losses on paper of 1.1 billion shekels to date.

Shares of IDB Development rallied on Tuesday, climbing 9.5% by close on the Tel Aviv Stock Exchange at 1.39 shekels. Its Discount Investment Corporation unit, which controls the conglomerate’s biggest operating companies such as Cellcom Israel and Supersol, ended the day up 5.2% at 7.33.

As sole controlling shareholder, Elsztain, an Argentinian property magnate, may now be able to appoint a majority of the IDB board and pursue a strategy for restoring the fortunes of the group’s key companies.

Ben-Moshe, an Israeli who made his fortune in Germany, opposed the rights offering and had sought unsuccessfully to block it. He may now resume his struggle with Elsztain through the courts. His attorneys, Giora Erdinast and the law firm Kalir Binyamini, contend that he retains the right under the partnership agreement with Elsztain to buy half of the shares Elsztain acquired in the rights offering. Indeed, they claim that Elsztain must offer to sell the shares to him within three business days after he has acquired them.

Elsztain’s lawyers, David Hodek and Eytan Epstein, dismiss the claim.

However any legal dispute plays out, the two men are required to put an additional 393 million shekels into IDB during 2015. Of that, Ben-Moshe is required to inject 195.5 million shekels, although Ben-Moshe’s attorneys insist that their agreement states that if Elsztain puts in the 400 million shekels he is promising now, Ben-Moshe has no further obligations.

IDB itself is examining the terms of the agreement and may sue Ben-Moshe to get the cash infusion from him.

In all events, under the terms of the rights offering, Elsztain can exercise an option to buy another 150 million shekels into the company within the year. If he does, however, that will still leave IDB Development 130 million shekels short of the approximately the 1 billion it needs to meet its debt- repayment schedule in 2015. IDB will also be short 652 million shekels for what it owes in January-September 2016.