'IDB Can Conquer the World'

He's happy to work for Dankner, say Jonathan's friends

The rain soaking Jerusalem in February 2006 did not stop the senior management of Koor Industries (NYSE: KOR) from convening at the offices of Canadian investor Charles Bronfman to discuss the conglomerate's strategy.

Beside Bronfman sat Jonathan Kolber, the billionaire's business partner in Israel and good friend of his son, who lives in Toronto. Bronfman is in fact Kolber's godfather, and the two have another connection as well: they own 35.4% of Koor's shares via Claridge, a Canada-registered company founded 20 years ago.

On the agenda was a suggestion that Koor enter a massive investment, costing hundreds of millions of dollars, that would double the conglomerate's value inside five years, with the help of core holdings Makhteshim Agan Industries (TASE: MAIN) and ECI Telecom (Nasdaq: ECIL). The less glamorous part of the plan was that adopting the idea would send Koor back into heavy borrowing and debt.

But then Bronfman sprung a surprise.

"Charles said he was too far from Israel, that he was almost 75, and that he had good investments in the U.S. and Canada. That if somebody showed an interest in Koor and was willing to pay a premium, he'd sell," recalls one of the Koor managers who had been at the meeting.

In short, Kolber left the meeting with Bronfman's instructions on how to sell Koor.

That was how the sale of Koor to Nochi Dankner's IDB (TASE: IDBH) began to roll. Three months ago the parties agreed: Claridge is to get $446 million from Dankner for that 35.4% stake. The deal values Koor at $1.26 billion, which was 26% above its value on the stock exchange at the time.

Tshuva is hurt

"The sale involved great drama," says the manager, but in the same breath refutes accusations of unfairness on the part of the negotiators on Koor's behalf, namely Kolber and Danny Biran. Insofar as is known, the two had agreed on a deal with another party entirely, Yitzhak Tshuva, and then they all flew off to New York to sign with Bronfman. But at that very same time, Dankner was at home in Herzliya Pituach unraveling Tshuva's deal thread by thread.

Dankner had already owned 10% of Koor, and under a "no surprises" agreement with the management, believed he would receive an opportunity to buy it himself. That did not happen. So he simply outbid Tshuva, apparently by 10%, and won the day. Tshuva was hurt.

"Nobody has any reason to be hurt," said a crony near the talks on Koor's behalf, blaming it all on poor communications between Tshuva and the sellers. "When they said it was the final price, he thought the negotiations were just beginning. Jonathan (Kolber) actually liked him."

Kolber refused to talk with TheMarker for this article but his associates say he claims to be feeling great. He probably does: he's reportedly excited as a kid to take over as chairman of Koor, which will be serving as the foreign investments arm of the gigantic IDB group. The only foreign investment area not under its sway will be real estate.

The foreign minister of IDB

"Kolber has no problem becoming Dankner's employee. Why, wasn't he an employee at Koor?" says a friend. "He has enough money. He doesn't need to work at all. But when he talks about IDB, he says he's going to work with the most interesting company in Israel, and that if the work is done right, its value could double, mainly through acquisitions abroad, in which Nochi means to invest a great deal of money. He, Jonathan, will essentially become the foreign minister of IDB."

So Kolber feels good chemistry and evidently IDB does too. Last week Kolber told some good friends that he is convinced IDB could conquer the world. It relies heavily at present on the domestic market, though adding Makhteshim Agan and ECI to its portfolio increases its global exposure. His ego is not injured at joining IDB as a hiree, in short.

Case study

Kolber, 44, has good reason to be one of the happiest men in town. Fortune has smiled on him in recent years, after the tough days when Koor stock dived from $24 (at the end of 1997) to $2 (after the hi-tech crash).

Koor stock

Five years after the crash, at the Tel Aviv Business Administration School, Kolber describes the rehabilitation of the two companies, a story that has become a case study of turning companies around.

Looking back four years, he says, Claridge did beautifully. Looking at nine years, it did not. But looking back over 20 years - its results were purely astonishing, Kolber recently told a fellow businessman manager. Even after selling Koor, he explained, Claridge made $400 million on its investments in Israel.

Claridge and Renaissance (the investment fund that Kolber established) earned $700 million. They invested $500 million in Koor, which was sold for $450 million. Kolber himself, who owned 10%  to 20% in Claridge (at different times), invested $75 million in Koor and is getting back $60 million, of which $52 million are direct and the rest after exercise of options given to Dankner.

From Kolber's point of view, the deal closed another circle. The Bronfmans' first investments in Israel had been carried out by patriarch Sam, with Rafael Recanati and Eli Cohen of IDB. The three invested in Super-Sol, First International Bank, and Property & Construction. Now Kolber is joining IDB, which meanwhile changed owners, but who's there? Eli Cohen, whose son Raanan is taking over as Koor's CEO.

Shunning the press

Things began well. Kolber and Biran began their careers at Koor in November 1997 with praise for the CEO, Benny Gaon, who had transformed it from a smoking wreck into a money-making machine. But they replaced him with Kolber quickly enough, and Gaon did not go quietly. The impression was he was kicked out because of bad chemistry with the new owners.

Kolber and Biran rolled up their sleeves and started selling assets, to narrow Koor to three main areas: defense technology (Elisra), communications (ECI Telecom), and agrochemicals (Makhteshim Agan).

The hi-tech boom whetted Kolber's appetite for ECI stock. He chose it over the Nesher cement works. Koor invested NIS 2.5 billion in ECI shares, which then collapsed by 93%.

Before the crash, Kolber also set up a hi-tech investment fund in which Koor (forgetting that three-pillar policy) invested $100 million. Kolber even considered exiting Makhteshim Agan and investing the money in hi-tech, but happily, he didn't go through with it. Meanwhile the Koor management moved to Platinum Tower in Tel Aviv, into what may be the plushest offices in town.

In 2000, as startups were selling for billions, Kolber decided to demerge ECI, splitting it into five small niche companies. The thought that Chromatis, a startup launched by ex-ECIniks, had been sold for $4.8 billion gave him no peace.

But then the hi-tech bubble burst, telecom stocks collapsed and Kolber was forced to remerge the ECI divisions into one company.

Meanwhile, Koor stock fell and fell. Kolber was slammed for inconsistent management and discovered that wheels turn: you don't stay on top for ever. At that point he severed his contacts with the media.

Finally Koor decided on a restructuring plan, including cutbacks and rehab measures for ECI. Kolber recruited Shlomo Dovrat, who agreed to lead a group that would invest in ECI and work at turning it around.

Kolber has his own version of events, says a friend: for one thing, Gaon wasn't thrown out, it was an agreed-on divorce.  Also, he doesn't accept the bad management version of events: no major decisions were taken without consulting the main partners, Bronfman and Bank Hapoalim, as well as strategic analysts. Kolber had great influence but he worked in a highly organized structure, a board member explains.

The market doubted, but Koor regained lost glory. It had to fire 8,000 workers en route: half from ECI, 1,000 from the Sheraton Moriah chain, 400 at Makhteshim Agan, 500 at Tadiran and Elisra, and 300 at a closed steel works. Banks chipped in, rescheduling $700 million in loans.

Charles Bronfman has said that Kolber and Biran made mistakes, but they learned and turned into some of the best managers in Israel. But Bronfman admits that from his selfish perspective, buying Koor had been a mistake. Kolber doesn't agree, says one Koor director, but he can understand the Canadian billionaire. At least the sale to IDB returned 80% of his investment.