Still a Chance to Break Up Israel’s Corporate Giant

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A friend of mine who owns a small travel agency just explained to me why doing business in Israel is so hard. He said that until recently he provided his services to a law firm, not one of the larger ones.

“One day they stopped working with me. When I asked what happened they squirmed, replying that despite my excellent service, they had no choice but to leave. IDB had hinted that it was unseemly for them to use my services when IDB had its own travel agencies. Since the law firm couldn’t afford to alienate such a big client, it had no choice but to drop me.”

Such is the impact of a business pyramid. Yes, the IDB group can easily obtain billions of shekels in credit from banks, insurance companies and investment houses, and it uses the biggest or highest-profile law firms, accountants, economists and managers. But it also can damage businesses that try to compete with it. It make us pay higher prices for inferior service, as in the story of my friend’s travel agency.

It’s true that other Israeli pyramids and conglomerates hold both financial and nonfinancial companies, and it’s true that the new law decentralizing Israel’s economy calls for smaller pyramids with less power, but the IDB pyramid is unique. It’s Israel’s biggest pyramid and the one that harms the economy the most. Dismantling it would mean a structural change for the whole economy. There would be more growth, more jobs and a lower cost of living.

The real value of IDB is exactly zero. Its debts are larger than its assets and it is defaulting on its loans. Why would anyone, whether Nochi Dankner or new man Moti Ben-Moshe, be willing to inject hundreds of millions of shekels into it? They fully understand the enormous advantage of controlling such a large entity. They will receive huge payouts from controlling it, at our expense.

It’s a pity that Judge Eitan Orenstein didn’t order its dismantling a long time ago. He should have realized that if IDB’s Super-Sol supermarket chain, Cellcom, Clal Insurance, Nechasim Ubinyan Group, Koor group and Discount Investment were sold separately, more and better buyers would be found. We wouldn’t be in the embarrassing situation of having to send a special delegation to Germany to find out who Ben-Moshe is and where his money came from.

A breakup of IDB has another advantage. It reduces the risks associated with the Ben-Moshe deal. When the delegation returns from Germany and writes its report, it probably won’t be able to establish unequivocally that the sources of Ben-Moshe’s money are pure. It will be hard to know if Ben-Moshe and his partner Eduardo Elsztain will stick to their commitments. But if the conglomerate were broken up there would be six separate owners, dramatically reducing the risks involved. Even if one were to fail, there would be five others.

There is no value in maintaining a conglomerate that holds so many companies in so many different areas. Someone who knows insurance doesn’t necessarily know retail or high-tech. Dankner proved this well. The holding company atop the pyramid is also redundant. It only incurs huge outlays in salaries to managers and boards of directors.

In a few days the regulators will bring their conclusions to court. If the conclusions are ambiguous, we’ll have a golden opportunity for Judge Orenstein to switch direction and do the right thing: break up IDB.

Nochi Dankner. He proved the fruitlessness of large conglomerates. Credit: Daniel Bar-On

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