Israel Corp. Threatens to Stop Cash Infusion Into Better Place

Idan Ofer's holding company conditioning money on a viable business plan from the financially troubled electric-vehicle firm.

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Better Place has been issued an ultimatum by The Israel Corporation: If the electric car start-up doesn't present a viable business plan by the end of the year, Israel Corp. will stop injecting cash into it.

The board of directors laid down the gauntlet when it convened Monday to approve Israel Corp.'s third-quarter financial statements.

Better Place has been struggling to keep afloat due to a higher than anticipated cash-burn rate and difficulty attracting customers. Early last month the start-up was thrown into turmoil when visionary founder Shai Agassi was shown the door, setting the stage for a wave of departures that included the CEO of Israeli operations Moshe Kaplinsky, Agassi siblings Tal (vice president for deployment ) and Dafna (vice president for marketing ), chief financial officer Tamir Poliker, and vice president for infrastructure Pini Lieberman.

Shai Agassi was replaced as CEO by the head of Better Place operations in Australia, Evan Thornley, who has been working on a new business plan with the help of the McKinsey consulting firm.

The board of Israel Corp. apparently still believes in Better Place and its prospects for continuing as a going concern: Just last week it gave Better Place a $33 million cash infusion from the $67 million it committed to invest last month. Putting the balance into the company, however, remains conditional.

Israel Corp. owns the largest share of Better Place - 28%. Idan Ofer, controlling shareholder of Israel Corp., directly holds another 8% of the shares and serves as its chairman. Better Place shareholders decided last month to keep it running with a $100 million infusion, but only two are actually doling out the cash, with Israel Corp. providing 67% and HSBC Bank the rest.

Israel Corp.'s share in the losses generated by Better Place since the first quarter of 2009 have amounted to $159 million, leaving a $70 million balance for the investment on its books. If the new business plan is accepted, Better Place will continue being treated as a going concern and Israel Corp. can refrain from writing off the balance of its investment.

This could also mean good news for Bank Leumi, which is expected to release its quarterly results tomorrow. The bank holds a 19% stake in Israel Corp., and analysts are concerned that writing off the Better Place investment would have a harmful effect on Leumi's results.

ICL to the rescue

Israel Corp. reported $159 million net earnings in the third quarter yesterday, up 5.3% from the equivalent figure last year, thanks almost entirely to its $207 million share of the $395 million quarterly net profit chalked up by Israel Chemicals Ltd. This offset losses from Better Place, Oil Refineries Ltd. (Bazan ) and Tower Semiconductor, while Zim Integrated Shipping Services kicked in another $16 million in profits. Israel Corp. shares reacted by climbing close to 6% in Tel Aviv Stock Exchange trading Monday and Tuesday to NIS 2,600.

Better Place concluded the quarter with a $54 million loss net of interest paid to preferred shareholders - about the same loss it sustained in the third quarter of last year.

The business plan that emerges for Better Place will be subjected to the scrutiny of the body of Israel Corp. shareholders at the end of December in the presence of Thornley.

In the past few weeks Better Place found itself in the embarrassing position of lacking any readily available means to pay its suppliers. The company's salaries, however, were all paid on time. Orders for new cars from Better Place have come to an almost complete standstill in recent weeks due to concerns expressed by potential customers, particularly leasing companies, over possible difficulties obtaining servicing for the vehicles in the future.

In a note to employees last week, Thornley hinted at one of the directions the firm is considering: the possible abandonment of car sales in favor of focusing on battery refill and exchange services, similar to the role of a chain of filling stations. "We are the only company that can service every electric car in the market and provide it with full service," he wrote.

Better Place is maintaining its optimistic demeanor, at least outwardly. On Monday the company opened another battery exchange station, this one in Mitzpeh Ramon - albeit several months behind schedule.

By next June the company had planned on selling 4,000 of its cars, but as of last month only 490 had been purchased. Senior industry sources claimed leasing companies have been reluctant to accept electric vehicles imported by Better Place into their fleets due to uncertainty over their future resale values.

Better Place and The Israel Corporation declined to comment.

Better Place’s sales office in Glilot.Credit: Tomer Appelbaum

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