Securities Authority to Finance Class Action Suit Against Zeevi

The Securities Authority has agreed to participate in the financing of the class action suit against businessman Gad Zeevi. The suit, filed yesterday at the Tel Aviv Magistrate's Court by the Dekel-Sabo law firm, concerns the removal of the Mirage company from public trading on the Tel Aviv Stock Exchange. This removal was announced about a month ago following the publication of a total buyout offer by Snowy Israel, which is owned by Zeevi.

The complainant, who held 18,000 Mirage shares before the buyout offer, claims that he lost some NIS 107,000 due to the low and unrealistic price of the shares in the buyout offer. Mirage shares were purchased under the buyout offer for NIS 1.55 per share. This price is just 4 percent higher than the share's price on the TASE at the time of the buyout - NIS 1.48 per share. The price that Zeevi offered Mirage shareholders among the public reflected a company value of about $15 million.

Two economic indicators of a higher company value, however, prompted lawyers to turn to the courts for them to order a reevaluation of the company. The first of these indicators is Zeevi's acquisition of the remainder of Mirage's shares (1.4 percent) from the Apex mutual fund management company on the day that the buyout offer was publicized, for 20 percent more than the price offered to the public.

The second and more significant indicator is the economic evaluation of Mirage that appeared in the prospectus of the buyout offer published by Snowy itself. According to that evaluation, which was written at the beginning of 2001 by an external assessor in order to obtain bank financing, Mirage is worth five times the value derived from the share price in the buyout offer, and totals $76.5 million.

The evaluation was not accepted by the bank because its economists felt that the assessor had overvalued Mirage, and refused to grant the Zeevi group credit based on the evaluation. In spite of this, however, the evaluation is significant to the future discussion by the parties in or out of court, as they attempt to reach a compromise.

Among other things, the complainants agree that Mirage's low share price on the TASE stemmed from the negative publications regarding Zeevi's dealings and his management of the Zeevi Group over the past year, and they feel that Mirage's real value should not have been affected by the publications.

It is also reasonable to assume that the banking institution from which the Zeevi Group wished to obtain credit made its own evaluation of Mirage, in order to check the reliability of the report Zeevi's representatives had brought. Another reasonable assumption is that the bank felt that its own assessment of Mirage's value was the more reasonable. When the time comes, the court will probably use the bank's evaluation also.

According to the buyout offer, Zeevi owned close to 90 percent of Mirage's shares via companies that he controls. When members of the public who held 5.7 percent of Mirage's shares responded positively to Zeevi's offer, his holdings reached 95 percent of the company's shares.

Legally, when a person or organization holds such a high percentage of a publicly-traded company's shares, he or it must buy the outstanding shares from the public at the price stated in the buyout offer. If the suit is accepted in its entirety, Zeevi will have to pay those who sold their shares an additional sum that may be as much as NIS 23 million. He has already paid NIS 6 million for the publicly held shares.

According to the Companies Law, and in order to protect minority shareholders among the public, any shareholder who feels that he has been financially injured by the success of a buyout offer at a price that he feels is illogical can turn to the courts - up to three months after the actual sale of his shares.

The court is authorized to set a different price than that in the buyout offer, in accordance with economic parameters that are presented by the complainants and an independent assessment of the company's economic value by the court. An application to the court can be recognized as a class action suit in the name of all the shareholders who sold their holdings via the buyout offer.

The law likewise states that the Securities Authority may finance a suit if the authority feels that the suit is of public interest. The authority acceded to the request filed by the complainants' lawyers to finance the suit against Zeevi.

This is only the second suit to be filed concerning the reevaluation of a company since the law took effect in 1999. The first such suit was filed last month against the Ofer brothers. That case is similar in nature to the suit against Zeevi - the complainant has asked the court to order the Ofer brothers to pay more for Hof Almog shares than was listed in the buyout offer, in accordance with a correct company value to be set by the court, and to have Hof Almog removed from trading on the TASE.

Zeevi and the Securities Authority have been at loggerheads for several months already. A few of the Zeevi Group's internal transactions were approved after the fact at a meeting of Mirage shareholders, only after the authority requested the meeting. The authority also demanded that Zeevi obtain the shareholders' after-the-fact approval for the transfer of NIS 8 million from Mirage's subsidiary, Japanauto, to the Betar Jerusalem soccer club.

The approval of that decision at the Mirage shareholders' meeting, a year after the transfer of the funds, stirred up a public storm that those close to Zeevi were afraid would not pass. It was not until two hours before the meeting that Zeevi was assured of the approval of the deal, after he had signed papers for the purchase of Apex's 3.4 percent holdings in Mirage in exchange for NIS 2.8 million so that Apex would not stand in his way.

It was recently revealed that Mirage executives had been corresponding with the authority, which had been demanding a shareholders' meeting for the approval of additional transactions executed over the past few years between Mirage and companies privately owned by Zeevi.

The authority also demanded that Mirage publish the financial reports of Galaxo, a company that Zeevi owns and which received a NIS 6-million guarantee from Elisha. Galaxo refused to comply, claiming that it is a privately-owned company and even announced that it would appeal to the courts against the authority.

The complainants in the Mirage case claim that the authority forced Zeevi to publish an amendment to the original buyout offer for Mirage, noting that he had purchased some of the shares in violation of the Companies Law because he had already gained control of over 90 percent of the Mirage and had not issued a special buyout offer to the public.

Zeevi's main reasons for wanting Mirage removed from public trading are apparently rooted in the friction between himself and the authority regarding securities regulations and the transparency required in transactions of publicly-traded companies.

Mirage, formerly Clal Developments, manages and develops real estate. It owns land slated for construction in Haifa and Tel Aviv, including 50 percent of the land on which the private Assaf Harofeh hospital stands, 45 percent of the land on which the City Center project in Haifa was built and 37 percent of a tract of land in Kiryat Bialik for which there are plans for the construction of 700 apartments. Mirage also manages the private Elisha hospital, the Horev medical center and the Elisha Towers sheltered living complex for the elderly. Mirage also owns Japanauto, which imports Subaru cars.