Taking Stock / Baa Bye Black Sheep

l The first warning arrived in the summer of 2002, at a presentation held for us by the younger Dankner generation, cousins Dori and Gadi, together with Boaz Tchetchik, who had managed the Dankner family firm Ellern.

The Ellern presentation was part of a wider campaign to pitch the so-called "Ellern deal" to the press and analysts. In a gigantic financial overhaul, the publicly traded Ellern companies were to relieve the Dankners of their holdings in three companies: Dor Chemicals, Dankner Investment and Israel Salt Industries.

The Dankners came up with plenty of excellent reasons for reorganizing the family assets. But something rankled. At the end of the day, much of the family's personal debt would be assumed by the publicly-traded company Ellern Investments. The family had built up tremendous debt by splurging on acquisitions shortly before the high-tech bubble burst, sending the entire economy into a deep recession.

The big question mark was exactly how much Dor, Salt Industries and Dankner Investments were worth. The Dankners claimed they were worth a lot, and presented a deal in which Ellern would pay a considerable premium above the companies' market valuations.

What captured our attention in the presentation was the main pillar on which the optimistic scenarios rested: terrific developments at Dor Chemicals. Once the smallest corporation in the Dankner group, it mushroomed into monstrous proportions, with revenues growing at warp speed and eye-popping profit forecasts. Dor Chemicals legitimized the entire problematic Ellern deal.

l Dor Chemicals' meteoric advance was not organic, of course: The company carried out a series of daring acquisitions in Germany, Italy, Australia, Mexico and South Africa. Impressed, investors sent its stock soaring to record heights. But an unanswered question mark still hovered: Exactly how had Dor's CEO Zvi Mor, formerly a submarine commander in the Israeli Navy, become an expert on mergers and acquisitions?

Eli Hurvitz of Teva Pharmaceuticals took 20 or 30 years of experience to advance serious M&A transactions; Strauss-Elite Industries and even Gershon Salkind of the Elco group sweated blood to carry out their massive acquisitions abroad. But Mor seemed to be pulling off the deals without breaking a sweat.

l By the end of 2003, that warning light had turned into a screaming klaxon. It turned out that Dor Chemicals had indulged in aggressive accounting to present fat capital gains, while in reality its operating earnings were in decline. Mor did not wait for true, sustainable operating profit to mature. He hastened to give himself bonuses worth millions based on the creatively attained profits.

l The warnings spoke true. At first, the losses trickled in, small amounts that Dor Chemicals shrugged off as nonrecurring stumbles. But the losses mounted and ballooned. The company ended 2003 with a NIS 41 million loss, and lost an additional NIS 45 million in 2004.

Two weeks ago, the whole sorry affair took a sordid turn, albeit not a surprising one. Dor Chemicals was forced to disclose that 3.5 million euros withdrawn from its European subsidiary had reached Mor's pocket, without the Dor board being consulted. And on Sunday, Mor was forced to abandon submarine and take an unpaid, unlimited vacation. That is an elegant way to retire at the bottom, from managing a company whose financial statements are all too liable to spring a few more nasty surprises.

l One can only imagine the drama at the Dor board's meetings in recent weeks, the moment the family began the gauntlet of public humiliation they had prepared for Mor.

We may assume that if Dor Chemicals hadn't deteriorated to massive losses, if its shares hadn't lost 65 percent of their value, the truth about the payments to Mor underneath the board's radar would never have surfaced. It is the nature for such affairs to surface only when storms raise them, bloated by the gases of rot, and everybody involved is busy finding somebody else to blame.

Mor is going home in disgrace. But let's not forget that he didn't concoct those M&A deals by himself. Over him stood the board of directors approving all those daring transactions. Over him were the controlling shareholders, who gave him the green light and saw it as a lifeboat to rescue him from their oceans of personal debt. That's how life is: One moment you're the darling of the family, and the next you're the black sheep.