Don't Buy Gaydamak Shares

Crazy as it may sound: Don't buy shares in companies that Arcadi Gaydamak buys.

The only issue at stake is how the share prices of these companies will perform when the dust stirred up by the Russian-Israeli billionaire's lightning dealmaking settles.

Yesterday shares in Tiv Taam shot up 47.5% on the Tel Aviv Stock Exchange after Gaydamak announced he's buying the company. Turnover was humongous, second only to that in Bank Leumi (TASE: LUMI)  shares.

Suddenly - just before Gaydamak reduces it to rubble - investors seem to have discovered hidden value in the cute little chain, value that economists who appraised it mere weeks ago evidently missed.

In fact, not only shares in companies that Gaydamak bought or said he might buy leaped like hares. So did shares in companies that he may have mentioned in passing.

The public of speculators is scooping up these shares like the kebabs at the giant barbecue for the public that Gaydamak held on Independence Day. Ocif Investment & Development (TASE:  OCIF) has doubled in value, Petro Group climbed 62% and Gilon Investments (TASE:  GILN) has jumped 80%. Fireworks, celebrities, headlines - these are some of Gaydamak's favorite things.

Gaydamak began his campaign to win the hearts of the Israeli public by anointing the heads of the Beitar Jerusalem soccer team with streams of gold. That made the fans happy and conquered the sports pages. 

Then he did much the same with the refugees from Kiryat Shmona during the Second Lebanon War, which won him praise from politicians and serious pundits, too.

Now he's gilding the walls of the Tel Aviv Stock Exchange.

Yet we still advise investors not to touch Gaydamak's jumping-jack shares. Why not? Because we don't know what's driving his moves, because his manner of management is weird, because he's erratic and impulsive and because he pays too much and doesn't do his homework first.

The bottom line is that his sudden spree doesn't seem to be guided by business principles.

Moustache on Mona Lisa?

To buy a chain whose advantages are that it's open on Shabbat, and that it raised marketing non-kosher foods to an art form, and declare that it will stop doing what it does best - flouts the fundamentals of business principles.

It breaks from the path of Tiv Taam's founders (who are keeping a minority stake). It is to ruin a brand on which millions have been spent. It is to betray hundreds of thousands of its customers, many of whom originated from Russia, like Gaydamak himself. It is to betray the workers and suppliers.

It is obvious that you can't take the pig out of Israel, which is what Gaydamak purports to do. You could hear the corks popping at all the smaller chains that Tiv Taam had muscled onto the sidelines - Manya, Rubinstein, Karl Berg and others. Unlike Gaydamak, the owners of these chains think of business and know that they're about to win a chunk of Tiv Taam's billion-shekel a year turnover.

Shares in Ocif were also lifted sky-high by all sorts of bizarre statements, such as the one where Gaydamak said the company would be taking over his Russian real estate business. Ocif later advised investors that it had no idea what he meant: no official negotiations were being pursued.

Anyway, to move on, why did shares in Petro Group soar? Because he commented that he'd be adding refining to its portfolio. How what at what price never mind, it's clearly a reason to buy the stock.

The only thing that could justify the risk of buying shares in Gaydamak's companies, is the assumption that he will be generous, at his own expense, with investors as well. Meaning, he will sell these companies his assets at a low price, to inflate their shares.

Our complaints about the sellers are weaker. It is hard to refuse offers like the ones Gaydamak made. Amit Berger had taken a big risk when he invested in Kobi Tribitch's Tiv Taam chain, while the bad press raged. Berger reduced his risks through a series of financial moves and finally cashed out with a big profit. Tribitch, who had been on the verge of losing all a year and a half ago, is also sitting pretty, thanks to the white knight Gaydamak.

One has to wonder whether Berger and Tribitch spared a thought for the Tiv Taam workers, clients, suppliers, the members of the Mizra kibbutz, when they signed the agreement and surrendered to populism. They may have assumed that if any of the above squealed, Gaydamak would whip out his checkbook.

He is generous, Gaydamak. He will build apartments for the poor through Ocif and hand out food to the needy through Tiv Taam, say his cronies. From the perspective of shareholders, that doesn't sound very businesslike either.