How Tycoon Arcadi Gaydamak Did Not Make His Fortune

Even now, three years after Gaydamak became a media star, nobody really knows how he made his money.

In contrast to the conventional wisdom, bubbles don't always burst all at once, with a bang. Sometimes the air seeps out gradually, then one morning we wake up to find nothing there. That everything had all been air.

Bleeding the air from a bubble slowly is an art form in itself. At the start of last week, one of the most talked-about businessman in Israel demonstrated as much.

Last Sunday, the Hebrew version of TheMarker ran an interview with the media star in question, who said he'd been involved in international business for decades, but it seems that the business environment in Israel isn't for him. He thought it would be good to invest in the nation of the Jews, but maybe one has to experience life here for many years in order to turn over major businesses. His timing wasn't so good, he admits, but he didn't do anything irregular: It was because of his bad image that his stocks were hammered so badly. So now he's looking at his options, including becoming a passive investor in his local real estate company, Ocif.

And in that one seemingly casual statement, Arcadi Gaydamak declared that behind the entire image he'd forged for himself in Israel - of being an experienced, daring, multi-talented businessman - lay nothing.

A year after buying up four local companies, led by Ocif, he said he might become a "passive investor" in it.

Gaydamak had created an image for himself as a successful, unconventional businessman, sharp, witty and different - as long as his business remained a mystery. To this day nobody knows exactly how he made his fortune in Russia or Angola, how much he's actually worth, or whether he has partners.

His power lay in refusing to play by the rules: He brilliantly mocked the politicians and much of the media as well, and ridiculed his critics.

But the moment Gaydamak decided to buy a big public company, the game was over. He had to play by the rules and be measured like any other businessman: according to financial statements, share price, financing, the hiring of good management, etc.

Seventeen months after Gaydamak bought Ocif from the Aviv family, it's possible to say, by most parameters, that he's failed. The company's stock has fallen by 65% to a price 80% below what he paid. Bank Mizrahi-Tefahot has called in the loan he took to buy the company and the only top manager he recruited, Uri Shani, has left.

Gaydamak had harsh words for Shani when he stepped down, but his criticism is a boomerang: He was the one who hired Shani, he heaped benefits and perks on Shani's head, and he hasn't been able to hire anybody in Shani's stead.

The entire marketplace is turning its back on Gaydamak now. Managers are afraid to work with a capricious owner, investors are fleeing his shares and bonds, and banks won't easily lend him money after the fiasco with Mizrahi-Tefahot.

Even now, three years after Gaydamak became a star on the business, sports and news pages, nobody really knows how he made his money. But after the events at Ocif, we can guess that:

b He did not locate or grow talented management.

b He did not win the trust of banks and investors; and

b He did not identify business opportunities that others missed.

There are a lot of ways to accrue wealth in places like Russia and Angola. Some of the people who made money there early in their careers managed to develop their other entrepreneurial and management skills. They learned how to conduct themselves in a Western, more transparent, more competitive environment. Gaydamak did not.

Perhaps because of arrogance or perhaps because he became enamored of his public image, or perhaps in the first round - he simply had more luck, and his skills suited that particular environment where he made his fortune.

Last week Gaydamak tried to plug a new excuse for his flop with Ocif: Perhaps people have to be in Israel for more years than he, to really make it in big business. But that's an unlikely theory.

Lev Leviev and Yitzhak Tshuva didn't have better starting positions than Gaydamak when they bought the companies with which they made their mark. Tshuva was on the brink of bankruptcy when he bought Delek Group from the Recanati family, and Israel's business leaders shrugged him off. Leviev was considered to be an enigmatic Russian, who bought Africa Israel, and was shunned by the financial circles.

From now on Gaydamak is a marginal element in the business world. His declaration that he might become a passive investor in Ocif may signal that he's come to terms with the range of his abilities. The situation in politics may develop similarly: When the time comes to turn public relations into a working, political mechanism, everything will collapse.

The more important thing here is the lesson to investors and other players. Because of the tremendous transfer of wealth in Russia into the hands of a few, we'll be seeing more people who made huge amounts of money in short periods of time.

The Israeli market must learn to identify which ones have skills that are limited to the corporate and political environments of Russia and Africa, and who can cope in the West.