Investors Fear Koor Has Designs on Tadiran Communications' Coffers

Koor Industries' takeover of Tadiran Communications has brought some discomfort to the company's minority shareholders - the public. Investors fear, mostly institutional investors who have extensive holdings in Tadiran Communications, that the company will use its plump $250 million cash kitty to overpay for buying Elisra, which Koor controls.

Those fears were based in part on comments by Koor executives, who said it does have plans to buy Elisra. This was also the main reason for the 10 percent drop and huge turnover in Tadiran Communications in the two days since the Koor takeover was announced.

In the past few days, at least two groups of minority shareholders have gotten together - one of them foreigners with 3 percent in the company - in efforts to build a force that will be a counterweight to the new controlling shareholders. The groups hope to force a change in the company bylaws so that public shareholders can also appoint directors to the board.

Tadiran Communications became a takeover target for two reasons. First, there's its huge cash position. Second, its relatively small controlling core, 32 percent of the company, which also makes it relatively cheap Second is the desire of the controlling shareholders, First Israel Mezzaninine Investors and Shamrock Holdings, to cash out their investment.

But the control by FIMI and Shamrock, and now Koor, is not fortified - they hold just 32 percent of the company and the rest is floated to the public. This leaves an uncertain situation and control of the company is open to battle.

When Tadiran Communications went public in 2000, the public had just 10 percent of shares and the rest were held by Shamrock, FIMI and the company's executives. In four years, these three groups have sold off large chunks of those stakes, giving the public a combined 68 percent in the company today.

Despite this large share, bylaws state that those who hold more than 25 percent appoint he directors, except for the two required external directors. FIMI - which now has 7 percent - has three directors, and Shanrock, which has 25 percent, has five directors.

Apparently, the two groups of minority shareholders are trying to demand a general assembly be called - any shareholder can demand an assembly - to change the bylaws. The groups will try to create a public representation on the board according to the size of its holding. Bylaws can be amended with a plain majority.

In the event the change is accepted, the Tadiran Communications board will be able to hamper any Koor designs on its cash. Apparently the demand for a general assembly will only be submitted after the Jewish holidays, which will allow the organizers to contact more minority shareholders.