Bino Cancels Burger Ranch Sale, Dumps Protege

Three months after Zadik Bino announced his intentions to sell 40 percent of Burger Ranch to his protege Yossi Lubaton, Bino canceled the deal Tuesday and ousted Lubaton from his position as CEO of the failing hamburger chain that is owned by the Paz group. Lubaton was supposed to be purchasing the Burger Ranch shares for NIS 10.6 million, partly with financing promised by Bino, who owns the controlling stake in Paz.

The intensity of the mixed emotions in the dispute between the two is evident from the letter Lubaton sent to Bino on Tuesday. "Today I was told of Paz's pretensions to discontinue my employment as CEO of Burger Ranch. This tactic is a clear attempt to weaken me and tire me out so that I will have no strength to exercise my rights. Furthermore, this is an additional blatant violation of the agreement between us, and is a vengeful step driven by personal motives that will seriously harm Burger Ranch.

"It pains me that after eight years during which I served you faithfully in a series of managerial positions in the Paz group, to your full satisfaction, you have chosen to treat me in such a shameful and unfair manner, even though when you offered me the deal, you said that you treat me like your son."

Lubaton wrote that Bino canceled the deal "all of a sudden," one day before the date that had been set for the signing of the agreement, and even called it a "stupid deal." Lubaton claims that all his attempts to change Bino's mind were futile, and notes that he discovered Bino is conducting negotiations with several entities for the sale of his Burger Ranch stake, including Dudi Ezra, the controlling shareholder of the Netto group, which owns Tibon Veal. Sources at Netto denied any such contacts.

Lubaton, 37, was a close associate of Bino's for years, and some people even dubbed him "Zadik Bino's unofficial spokesman." His friendship with Bino made him a party to many strategic decisions at Paz.

Bino and the management of Paz declined to respond to Lubaton's ouster, or the contents of the letter. Sources close to Bino say that his relationship with Lubaton used to be a very close one, and that the loan Bino offered Lubaton to purchase the shares attests to this.

The deal that was canceled is similar in format to the one offered by millionaire Jack Lieberman to Bino when he was brought into Paz - Bino became Lieberman's representative in Israel in 1988, after Bino retired as CEO of Bank Leumi. Later on, Lieberman acquired Paz from the state and eventually elevated Bino to the position of partner in the company. In 1999, Bino bought out Lieberman's holdings in Paz.

The announcement issued by the management of Burger Ranch on Tuesday stated, "On the backdrop of the differences of opinion that have developed between the directorate and the shareholders of Burger Ranch and CEO Lubaton, the board of directors today decided to cancel the appointment of Yossi Lubaton as company CEO. Board chair Avi Hefetz will now serve as CEO of the company."

Sources at Burger Ranch insisted that this was not in response to Lubaton's letter, but rather a press release that was going to be sent to the media on Tuesday anyway.

Powerful businessman

Bino has a reputation as a tough and powerful businessman. Sources close to Paz and Burger Ranch say that they find it hard to understand why Lubaton decided to oppose one of the best-connected businessmen in the Israeli economy, and say that Lubaton's move is liable to cost him in the future of his business career.

Lubaton was supposed to buy 40 percent of Burger Ranch based on a value of about NIS 26.5 million, and to become a managing partner in the company. The plan was for 60 percent of the shares to remain in Bino's hands, via Paz. The negotiations between Bino and Lubaton dragged on for over three months, but the sides did not manage to reach an understanding over the details of the agreement.

The sources close to Paz say that about two weeks ago, the negotiations ran aground due to a disagreement over the commercial conditions.

Bino purchased Burger Ranch in September 1997, based on a company value of $10 million. The chain, which began turning a profit in 2001, recorded losses of some NIS 8 million in 2002 and will apparently end 2003 with losses. Business Data Israel estimates that Burger Ranch will end 2003 with a sales turnover of NIS 144 million, compared to sales of NIS 192 million in 2002.

In September, after Burger Ranch's unsuccessful bid to acquire the assets of Rikmor, the franchise-holder for Burger King Israel, Lubaton embarked on a streamlining process that included the dismissal of senior managers, among them the vice-president for operations, in an attempt to reduce the chain's expenditures. As part of this recovery program, Burger Ranch closed 6 non-profitable branches out of the 86 branches the company operates, and additional branches are due to be closed soon.

Burger Ranch had hoped that the acquisition of the Burger King branches would help its bottom line; but after Antitrust Commissioner Dror Strum withheld his approval of the deal, Bino said that he was interested in selling the chain.

Strategic mistake

Sources close to Bino Holdings told Haaretz that the purchase of Burger Ranch was a strategic mistake, since it does not suit Paz and Bino. The sources commented that a company like Burger Ranch can only be profitable when its set-up is very slim, and that this type of management was different to that practiced by Paz.

Bino's decision to stop investing in Burger Ranch led to a drop in the chain's advertising budgets. According to Ifat Advertising Monitoring, in 2003, Burger Ranch invested just $873,000 in advertising (at list prices), compared to over $3 million in 2001 and 2002. Actual prices are 60-70 percent lower than list prices.

Sources in the meat-processing industry say that Tibon Veal requested that Burger Ranch be prevented from signing a contract that would make Tnuva the chain's strategic supplier, and therefore initiated negotiations to purchase Burger Ranch. These sources say that Tibon Veal sent Bino a purchase offer at a value higher than the NIS 26.5 million at which Lubaton was to have purchased 40 percent of Burger Ranch, but that Bino was in favor of bringing in a partner who would pay for the shares in full, rather than extending a loan to Lubaton.

As part of its streamlining program, Burger Ranch conducted negotiations with Tnuva, Zoglobek and the Netto group (formerly Meir Ezra), in an attempt to sign a contract with just one supplier and improve the chain's trade terms. One of the contract conditions that the supplier was asked to meet was the provision of a supplier's guarantee, as is the accepted practice for infrastructure projects.

Burger Ranch needs a supplier guarantee, which is provided for the entire duration of the contractual relationship between the parties, because Bino is not interested in additional resources due to the losses already suffered.

Tibon Veal responds: "Tibon Veal did not conduct negotiations for the purchase of Burger Ranch. Tibon Veal and Burger Ranch maintain a supplier-client relationship."