Bottom Shekel / We Lose an Insurer and Gain a Dream

Shlomo Eliahu lives and breathes insurance. He has what it takes to manage Migdal, the biggest insurance company in Israel.

Shlomo Eliahu isn't ashamed of his origins. Au contraire, he delights in telling how he began as a lowly messenger boy at the Migdal insurance company, which he bought yesterday for billions of shekels.

He is the manifestation of the American dream in Israel, a self-made man who climbed the ladder from the bottom to the top. In that respect, yesterday's deal is a moving one - for all the social gaps in Israel, social mobility is not dead.

Also, Eliahu lives and breathes insurance. He built an insurance company named after himself with his own two hands, Eliahu. He has what it takes to manage Migdal, the biggest insurance company in Israel. It is in good hands.

Those are the advantages for us, the people: We can have aspirations and dreams thanks to Eliahu's example, and Migdal is safe.

But there are downsides to yesterday's deal. We're losing Generali, one of the biggest foreign investors in Israel, because it's selling Migdal. As a multinational, it brought higher standards to Israel, and now that's over. This is a loss to us all. We can only hope that its reasons really are internal - it needs liquidity, it's heavily exposed to dodgy European debt. And we must also hope it isn't the first harbinger of foreign investors moving on.

Also, Eliahu the man will have to adjust his holdings. and it is possible that Eliahu the company, a nifty little thing, will lose its independent status. The little competition there is in the insurance sector could suffer.

Thirdly, while Eliahu is wealthy, he'll probably be selling his holdings in Bank Leumi, Eliahu and Union Bank to finance the purchase of Migdal, but he still won't have the NIS 4 billion he needs to buy Migdal. Ergo, he will have to borrow, and thus another leveraged buyout was born in Israel.

What will a leveraged buyout do to an insurance giant like Migdal?

Well, what did Delek Group's huge leverage do to its insurance company, Phoenix? Or IDB's huge leverage to Clal Insurance? Nothing, is what. The insurance companies have kept their capital despite the liquidity straits of their parent companies, possibly because there are strict rules about capital adequacy at finance institutions.

While the leveraged conglomerates can squeeze their industrial and service companies like Partner Communications as though they were oranges, they can't do that to insurance companies. The finance industry is one of the more tightly regulated in Israel. But it's still a worrying thought that the controlling shareholder of an insurance behemoth is starved for cash, and could insist on dividends even when business is faltering.

What do we think about Eliahu the man? We think he's a brilliant businessman who built his finance empire from the ground up, creating a stable, solid insurance company out of nothing. He has also been involved in not a few well-publicized spats, including with his partners at Union Bank. He also wanted to buy the controlling interest in Bank Leumi but didn't.

Could it be that Eliahu never did seek permission to buy the bank because he'd heard hints from the supervisor of banks that it wouldn't let him? There were rumors to that effect, based on the fact that he likes to gamble. Eliahu, with a candor quite unique to him, confirmed that he occasionally visits a casino in London, where gambling is legal. It isn't in Israel. "It's legal and it's small sums," he growled at one journalist who asked him.

He deserves credit for that candor, and that the commissioner of insurance appreciates him as a serious, steady controlling shareholder. They know him well there, over decades. In other words, there's no reason to cast any doubt on his professional skills or integrity, which explains why the supervisor smiled on his purchase of Migdal.