The Lawyer Who Brought a Poor Kibbutz to a $300-million Exit

When Yoav Caspi first met with members of Sdot Yam, they barely knew what an IPO was. Now they're considering how to spend the proceeds of last month’s partial sell-off.

Ofer Vaknin

How did Kibbutz Sdot Yam’s 400 members celebrate the sale in May of part of their stake in Caesarstone for 900 million shekels ($259.8 million)?

“Paradoxically, there was no celebration,” recounts Yoav Caspi, who has been the lawyer of this kibbutz on the Mediterranean coast for four and a half years. “Not only did they not celebrate this time, they also didn’t celebrate the initial public offering on Nasdaq in 2012 or a second offering in 2013.”

The sums involved are life-changing for the kibbutz, making it possible to invest, to make needed improvements and to ensure handsome pensions and a secure financial future for its members for years to come. According to Caspi, “All they wanted to do was go to sleep,” a fact that doesn’t detract from Sdot Yam’s accomplishment in selling off a third of its holdings in the company. Caesarstone is the world’s largest manufacture of engineered quartz stone countertops.

The IPO was two and a half years ago, and until recently, when the share price quadrupled, leading to a purchase offer that would put serious money in kibbutz members’ pockets, the profits were only on paper. Last week, after underwriters exercised their option to purchase additional shares, the proceeds reached the round number — before taxes — of one billion shekels. And the kibbutz still owns 33% of Caesarstone, a stake worth around $540 million.

That’s amazing, considering that 25 years ago Sdot Yam was so poor it couldn’t pay to keep its street lights on. Now it’s the richest kibbutz in Israel. Caesarstone began to thrive after its business model was tweaked to focus on kitchens and its bank lenders erased 400 million shekels in debt. In 2013, a year after the company priced its IPO at $11 a share, Tene Investment Funds sold its stake for $23 a share, and since then the stock price has continued to climb. The recent offering was priced at $45 a share, similar to the market price.

The last laugh

“A year ago, everyone applauded Tene for its successful exit, but the kibbutz still didn’t want to sell. In retrospect, the kibbutzniks, who were laughed at for not understanding a thing, are getting the last laugh,” Caspi says.

He goes on to say the kibbutz originally intended to sell more of its shares in the latest offer. The kibbutz had planned to retain only a 26% stake, in order to retain a controlling block while reducing the risk to members of an undiversified portfolio. “Due to market conditions and underwriters’ recommendations, fewer shares were sold; some of the indecision now is over what to do with the remainder. In any event, there is an agreement in principle at Sdot Yam not to go below a 26% stake,” he said.

In reducing its stake from 51% to 33%, the kibbutz lost its absolute control of the company and its majority on the board of directors. On the other hand, the proceeds will enable members to address the actuarial deficit in the kibbutz pension fund, to carry out needed construction and to develop new businesses that are in the planning stages. As a cooperative kibbutz, Sdot Yam’s shares are not held by individual members. The proceeds from the sale won’t be touched until a committee established for the purpose decides on their disbursement. Caspi says he is sure that some of the funds will be distributed to kibbutz members, as a bonus that could come to hundreds of thousands of shekels per person. One central issue involves the future character of the kibbutz, that is, whether it should remain collective or privatize.

“Privatization was considered several years ago, before Caesarstone’s success. If it remains a classic, collective kibbutz, more revenue streams are necessary to support the community. If it is privatized, more money can be given out to individual members. It may be a bit surprising, but it’s actually the older, more veteran members who want to privatize. It’s odd, because it’s usually young people who seek change, but they seem to see how expensive things are now for young couples who don’t yet earn a lot, and to prefer a collective kibbutz,” Caspi said.

The combination of a windfall and 400 kibbutz members is an explosive one. In the years before the IPO, kibbutz members worried about the possible corrupting effect of the community’s newfound wealth. After the IPO, there was frustration over the fact that the cash didn’t go directly to members and disagreement over how much of Caesarstone to sell off, and when. “It’s no secret that there were and will be wars on the kibbutz,” Caspi says. “It took people time to be convinced that I was the lawyer for the kibbutz and that I acted out of concern for its welfare. They understood that I wouldn’t lend a hand to a war inside the kibbutz, but would instead look out for the general good."

Letting go of the family business

When Tene Investment Funds bought into Caesarstone, Caspi said, it forced the company, which had been run like a family business, to become more businesslike. In the lead-up to the IPO, he said, he had to convince kibbutz members to go beyond thinking of Caesarstone as the business they had built and to think in a more corporate manner.

“We entered into a number of agreements between the kibbutz and the company, in preparation for the day after the public offering — leases, future construction and staffing, since about 80 kibbutz members work at Caesarstone. We organized the relationship between the kibbutz and the company. The factory is on the kibbutz. [Employees] eat in the [kibbutz] dining room and use its facilities. There were also corporate issues, such as the bylaws of a public corporation and how many of the directors would be kibbutz members. We worked on this for two years,” said Caspi.

The IPO failed to meet expectations, coming in as it did at a $300 million valuation for Caesarstone (before the money) and a price of $11 per share. “The market had a hard time digesting Caesarstone, including the fact that it was a kibbutz company. To this day, I get phone calls from Americans asking me what a kibbutz is and who controls it. Up to that point, the only kibbutz to have had a Nasdaq initial public offering was Shamir Optical [from Kibbutz Shamir], and it’s no longer being traded, so Caesarstone is the only kibbutz traded [on the Nasdaq],” Caspi explained.

In light of the disappointing share price, Sdot Yam decided not to sell shares in the IPO. But several months later investment funds such as Apax Partners began to express interest, and a price range of $16 to $18 was mentioned.

Talks advanced, “because the price was in line with the original expectations for the IPO,” Capsi said. “Tene couldn’t sell alone because the buyers wanted control. Tene’s luck was that the share price began to rise and they said they would sell shares on the stock market.”

Itzik Ben Malki
Ofer Vaknin