Ben-Moshe, Elsztain Tensions Surface Over Discount Post, Lawsuit

IDB group's new controllers clash over both style and substance.

Moti Ben-Moshe and Eduardo Elsztain reached an agreement Thursday to appoint two co-chairmen for the board of directors of Discount Investment Corporation amid reports of growing tensions between the two entrepreneurs since they gained control of the IDB group last month.

The decision to name two co-chairman to Discount came after Aharon Fogel, the chairman of Discount’s parent company, IDB Development Corporation, sought to have himself appointed to the chairman’s job at Discount, too, with the aim of circumventing the cap on his compensation in his position as IDB chairman.

To move his plan forward, Fogel held a hastily convened board meeting whose agenda included his being named Discount chairman, even though he had earlier backed an agreement with the court-appointed trustees monitoring the conglomerate for its creditors to have the position filled on a rotating basis. Fogel’s efforts sparked an angry reaction by Elsztain, who unlike Ben-Moshe does not want to see Fogel chair Discount.

Sources say that Elsztain, an Argentine-Jewish businessman, has clashed with Ben-Moshe, an Israeli who has business interests in Germany, since the two took control of the financially troubled IDB group from Nochi Dankner in January, over differences of style and strategy issues.

A reorganization of the group, which includes such prominent Israeli businesses as the cellular service provider Cellcom and the country’s largest supermarket chain Super-Sol, is expected to place IDB Development at the top of the group’s corporate pyramid and turn it into a publicly traded company.

In a related development, the court-appointed trustees for IDB Holding Corporation, the holding company now at the top of the IDB pyramid, have scheduled an urgent meeting for Sunday over a new demand by Ben-Moshe to have IDB Development file a suit that asserts that the dividends the company paid IDB Holding between 2008 and 2010 were unlawful.

“Ben-Moshe wants some of the money he invested [in IDB] back already,” said a source close to the matter, who asked not to be identified.

The IDB suit would join others filed by shareholders seeking the return of 442 million shekels ($125.6 million) in dividends that IDB Development paid its parent company, IDB Holding, when Dankner was in control of the conglomerate.

Hagai Ullman and Eyal Gabay, the trustees for IDB Holding, have set a Monday deadline for all debt claims against the company.

Ben-Moshe’s lawyer has already appeared before IDB Development’s control committee to present the case for the company's filing a claim. But the move by the lawyer, Raanan Kalir, was contrary to a recommendation by Ullman and Gabay, who had asked that Ben-Moshe attempt to settle the issue with IDB Holding first.

In response, however, Kalir claims that his appearance was an effort to consult with the committee.

“Ben-Moshe isn’t demanding anything,” said Klir. “As part of the control committee's deliberations it is required to consult with external advisers. IDB Development has to decide if it will sue or not, so the committee has to discuss it. But there won’t be any change in the arrangement.”

If Ben-Moshe succeeds, it would saddle IDB Holding’s bondholders with additional losses. Instead of sustaining a 30% haircut, they would have to write down some 45% to 50% of the debt IDB Holding still owes them, as total debt would increase by 500 million shekels to 2.6 billion shekels.

“This was part of the agreement we reached with Elsztain and Ben-Moshe, so he has no right to ask for it,” said an IDB bondholder who asked not to be named. “If he pursues this, we will be forced to present our position to the Supreme Court that we would prefer the billion-shekel deposit that Ben-Moshe and Elsztain gave the trustees.”

The two shareholder suits together seek a refund of about 600 million shekels that IDB Development paid IDB Holding as dividends. Complicating matters further, however, Ben-Moshe’s interests are not identical to those of IDB Development’s bondholders.

In another instant of differing stands vis a vis IDB, Elsztain, who is in Israel this week, has indicated to creditors that he does not support Ben-Moshe’s planned lawsuit.

Ofer Vaknin
Daniel Bar On