Brothers Can't Agree on Takeover at El Al

Izzy Borovich to keep job at aviation group after twin fails to pull off buyout.

Dedi Borovich isn't buying out his twin brother Izzy Borovich's stake in El Al's parent company Knafaim after all, the former told investors yesterday morning.

"There was an agreement that wasn't implemented," Israel "Izzy" Borovich commented yesterday. "I'm not the address to ask why." His announcement to the Tel Aviv Stock Exchange stated, "Dedi Borovich did not meet the terms of the agreement and failed to exercise the agreement. Therefore, I am retaining all my positions at El Al and Knafaim."

It may be a keen disappointment: Izzy Borovich has been talking about leaving his positions at El Al for about half a year.

Knafaim owns 39% of El Al.

Izzy Borovich, a professor of economics, serves as chairman of El Al and vice chairman of the holding company, Knafaim. He owns 16.8% of Knafaim's stock. Izzy Borovich had been expected to relinquish his positions after being bought out by his twin, in a deal that Dedi Borovich had announced to the TASE in May.

The collapse of the deal also means that the power struggle within the Borovich family will continue.

One casualty may prove to be El Al chief executive Haim Romano, who cronies say is thinking of quitting because of the uncertainties caused by the battle between Dedi Borovich and his wife Tami, and Izzy Borovich.

That said, Izzy Borovich yesterday told TheMarker that he would continue to run the airline jointly with Dedi. Asked if he might decide to sell his shares in Knafaim to a third party, Izzy said he would talk with his brother about that as well. He added that he was not aware that Romano was considering throwing in the towel, and said they had met the day before and the subject of resignation had not arisen.

Sources in Israel's aviation sector surmise that Dedi failed to raise the money he needed to buy out his brother, either from banks or from an investment group.

One possibility that had been discussed, and fell by the wayside, was for businessman Nochi Dankner to provide funding. In exchange, El Al would later acquire all or part of Israir, a rival aviation company owned by Dankner's IDB group and Avi Fischer, and the tourism companies Natour and Unitel. However, El Al's management torpedoed the idea and the Antitrust Authority is also likely to shudder at the concept of a marriage between El Al and Israir.

Another name that arose at the last moment yesterday, as a possible buyer for Izzy Borovich's shares in Knafaim, was London-based Finnish businessman Poju Zabludowicz. His business arm Tamares Group had previously suggested that it might want to increase its stake in Knafaim.

On May 27 Dedi stated to the TASE that he was exercising an option given to him by Izzy to buy the Knafaim shares based on a company valuation of $145 million. The brothers agreed that the transaction would be finalized by August 31, which was a month later than originally envisioned.

Consummating the deal would have increased Dedi's stake in Knafaim to 32%.

What of the future? If you ask Izzy Borovich: "As long as I am chairman of El Al, there is no chance that it will reach the situation of Alitalia or other airlines in the past, like Sabena." he Italian carrier Alitalia filed for bankruptcy protection on Friday and the Belgian airline Sabena is defunct.