How the Risk-takers Fared in Last Year's Choppy Seas

The stock market activities of Roy Gill and Eitan Eldar, the controlling shareholders of the Gibor Sport group of companies, were, at first, truly astonishing. The acquisition of Gibor Alpha and the attempt to take over Israel Land Development Corporation (Hachsharat Hayishuv) from the Nimrodi family were considered interesting and daring deals in their time.

Among other things, Gill and Eldar were dubbed "financial wizards" or "the financiers" by the capital market, appreciating their talent in leveraging huge deals. Some of the deals even generated handsome profits.

Another duo, Ronen Bechor and Udi Frumkin, who bought the publicly traded companies Megam and Eliram, and went on to a NIS 17 million exit, were considered promising financiers for a while.

And one financier who made headlines was a friend of these four and their neighbor in the bourse compound in Ramat Gan - Ofer Hirchson, the son of the new chair of the Knesset Finance Committee, Avraham Hirchson. For the past two years, Ofer and his partner Zvi Barak have been buying a series of publicly traded companies for millions of shekels.

A place of honor on the list of Tel Aviv Stock Exchange financiers is, of course, reserved for Tal Jaegerman who, with the backing of Rafi Peled and Arie Givony, succeeded in ruining a long list of industrial companies and valuable assets in just a few short months.

The young financiers tried to copy the activities of the more established and better known players in the market, like Itschak Shrem, Eliezer Fishman and Meir Shamir.

However, with the passing of the happy days of 1998-2000 on the stock market, and with the tail wind from Wall Street changing direction, the appreciation of the band of financiers in Tel Aviv also changed.

After the dust from the deals settled and the media hype fell silent, it turned out that most of the young businessmen knew how to buy companies and properties at hot prices, how to handle complex financial deals and split holdings, but mainly how to obtain more and more from the leverage of the publicly traded companies they had acquired. Their true abilities were revealed, however, when they had to manage their affairs better as sales tumbled and the markets collapsed.

It turned out, in fact, that they made very few really good deals that had positive yields in the long run and were able to disburse dividends that could be used to pay back the bank loans. The financial reports from 2002 show that the financial state of more than a few of the companies headed by the financiers could not be worse.

The network of Gibor Sport companies currently operates under a "going concern" warning and the group's companies are defined as unable to pay their debts. Four of the group's major companies owe the banks and Gibor Sport bond holders more than NIS 700 million. Without the formulation of an arrangement with creditors, the group is liable to find itself faced with liquidation demands from the creditors.

The only really bourse success that Gill and Eldar can claim is from the first investment they made - the takeover of the cash-rich Gibor Alpha sock enterprise. The company, which makes and markets sports socks under private labels for overseas companies (mainly Nike), is the group's biggest cash generator. Up until a few months ago, the dividends from Gibor Alpha were being used to repay the massive loans taken to finance the purchase of Israel Land Development (ILDC) shares. But even a profitable company like Gibor Alpha is now unable to bear the burden of that problematic deal.

Over the past three years, the investment of NIS 300 million has dwindled to an asset worth just NIS 60 million. When ILDC's market value fell, the share prices of the companies in the group also fell, and some of these had been used as securities for the bank loans.

One after another, their financial relationships also collapsed and Gill and Eldar had to meet their obligations, which were dependent on the value of the shares and the equity of the companies. The group's demise is now dependent on the goodwill of the banks (mainly the Industrial Development Bank, itself in trouble) and the bond holders.

Expensive shopping spree

Ofer Hirchson and Zvi Barak, who drew annual salaries of close to NIS 3 million, saddled their joint company - Hirchson Barak - with net losses of NIS 23.5 million. This was after a loss of NIS 5.5 million in 2001. The losses of Hirchson Barak, which is actually a holding company, is particularly odious given the background of the high salaries and general and administration expenses of NIS 12 million. In one year, the company's equity shrank from NIS 48 million to NIS 25 million.

In their two-year shopping spree, Barak and Hirchson gained control of a few publicly traded companies, including Sahar Investec, DCL Technologies and Hilan-Tech. Hirchson Barak purchased DCL from Gibor Sport for NIS 48 million.

Among other things, Hirchson Barak bought and sold the controlling stake in Super Enamel (within a three-month period), and managed to sign and cancel an agreement for the purchase of Megam from other financiers - Frumkin and Bechor (in a seven-month period). Hirchson Barak also did a few deals within the group itself. The company sold real estate it owned to Oz, which it controlled, for $16.4 million, and DCL from Sahar for NIS 35 million.

Hirchson Barak has an equity deficit of NIS 25 million. Company sources said they are negotiating with the banks to reorganize their debt. In the explanatory notes to its financial report, Hirchson Barak included this relatively rosy forecast: "With the completion of the negotiations, the equity deficit will be significantly reduced and the company will be able to meet its financial obligations in keeping with the agreed conditions."

The expansive plans of Barak and Hirchson can be seen from Sahar's registration activities. In 2001, Sahar set up three subsidiaries, two in Holland and one in Cyprus. The registration costs (NIS 130,000) were recorded in the company's profit and loss reports but the companies have still not begun operating and it is doubtful they ever will.