Do the Investment House Dosey Doe

With the near-completion of Markstone's takeover of the new investment house last week and with Roni Elroy's withdrawal of his investment in Berger Capital Markets, the private company that acquired the controlling stake in Solomon Investments and Consulting, we can now examine what Amit Berger gained from all this, just four months after his celebrated return from Savyon to the Tel Aviv Stock Exchange.

The numbers are confusing: Berger will record profits of NIS 13 million on the investment he has not yet made; Elroy sold 25 percent of a company whose stock market value is NIS 90 million for only NIS 9 million - and still came out with a big profit.

Solomon has NIS 17 million in equity and NIS 115 million in debts, and is traded on the stock exchange at a market value of NIS 83 million, after dipping 23 percent from its high point. Is the company really worth that much? Let's try to calculate its value.

First, let's check the investment in the firm being established by Markstone (Poalim Mutual Funds-PKN et al). Berger will inject NIS 35 million in the investment house (which for the purpose of our calculations is empty), which will start operating with equity of NIS 480 million (Markstone will pay NIS 410 million and receive 80 percent of the shares). The new firm will buy PKN and the mutual funds currently owned by Bank Leumi and Bank Hapoalim for NIS 2 billion. Berger will receive 10 percent of the company's shares, which will be recorded in Solomon's books at a value of NIS 48 million - thus netting him a profit of NIS 13 million.

This is no small investment, since in addition to the share capital, Berger will grant the company a loan of NIS 25 million. The new company will finance its acquisitions with NIS 1 billion in external loans. From Berger's perspective, the total investment is NIS 200 million. The capital he is channeling in the new investment house - the NIS 35 million - will be the activity of the veteran Solomon company (the management of the portfolios, the funds, the brokerage and the publicly traded companies).

At the conclusion of this adventure with Markstone, the publicly traded Solomon will become a shell company devoid of activity, with cash in its coffers. Berger will receive NIS 2 million per annum, plus bonuses, for managing the company. Do you know of any shekel funds that charge such high management fees, plus a success commission?

What remains of Solomon

It is worth examining what still remains of Solomon. After a round of capital raising via negotiable bonds (which doubled due to an option granted to investors) there is NIS 120 million in the till. The owners' loan to Markstone will leave Solomon with NIS 80 million. Solomon's other asset is a dormant bundle of its own shares that are recorded in the books with a value of zero. Both of these can be sold for a profit of NIS 15 million. The sale of the dormant shares would dilute Berger's holding in the company to 46 percent. He also has substantial profits from the sale of Reshef shares to Kravitz - NIS 3.5 million - plus the profits that will be generated by the investment house's activities until the closing of the deal.

In short, Berger has an asset worth NIS 35 million (Markstone) plus NIS 20 million in equity, plus profits on Markstone (NIS 13 million) plus profits on the dormant shares (NIS 15-17 million), for a total of about NIS 85 million - precisely the market value obtained by the company's shares on the stock exchange Sunday, after shedding 23 percent since the beginning of December.

Analysts for Markstone-Berger-Ben Dov figure the new investment house will generate revenues of NIS 600 million, with net profits of NIS 200 million. Anyone who wants to live with that dream can do the math and discover just how much Berger's investment in Markstone is worth.

It is worth remembering that Berger acquired Solomon from Eli Solomon at a market value of NIS 50 million, which means Berger has turned a profit of NIS 30 million in just four months.

It is somewhat ironic that on the very day Berger sold his holdings, Apex Investments (formerly Berger Holdings), the last company in which Berger sold his shares, was accepted onto the Tel Aviv 100 index, which Solomon cannot even dream of entering. Apex is now valued at NIS 620 million.

It's hard to believe that just a year and a half ago Berger sold his substantial share in Berger Holdings for just NIS 13 million. If he had sat tight when Mickey Zoller bought out his partners, Haim Sakal and Michael Strauss, Berger's share would have been worth over NIS 100 million today. What a tremendous loss.