Taking Stock / Landaus Lose Face

One can imagine the torment and soul-searching Yeshayahu "Shaike" Landau and his sons Yigal and Yuval went through as they tossed and turned sleeplessly through the nights.

After years in which the family managed to run its business without attracting needless attention, after spending three decades building up a reputation as cautious, conservative businessmen, the Landaus yesterday found themselves forced to announce that Hiram Gat (formerly called Ben Yakar Gat), which they had acquired in August 2001, is foundering. Wrestling with financial difficulties, Hiram Gat has asked the court to appoint a temporary receiver to run its operations.

The Landaus shun the media spotlight. As of yesterday, the only message they had for the public was contained in a letter from their partner, David Gat, to the company's hundreds of employees. Gat described the special values that characterized the company, its owners and managers, and ended by professing fond hopes for their future success.

On the face of it, Hiram Gat is just another construction company that the recession killed. Rubanenko, Baranovitch and other industry luminaries also folded in the last year; Hiram Gat is just another.

Small debt, big import

Hiram Gat's debts total all of $30-$40 million, which is far less than other companies that collapsed in the last two years. But its demise is far more significant for three reasons.

The Landaus, who bought Hiram Gat two years ago and have been actively trying to rehabilitate the company, belong to one of Israel's richest, most veteran families. Patriarch Shaike Landau has been working in construction for 50 years. Among other achievements, he co-founded Granite Hacarmel (TASE: GRNT), which controls the Sonol energy group.

Hiram Gat is one of the smaller investments in the Landau family portfolio. The family's net asset value is estimated at over $100 million. Therefore, Hiram Gat's collapse is more reminiscent of the cable TV company Tevel's, which is controlled by the Recanati family, than of the ruin of other construction companies. In both cases, at some point the owners simply decided that rich as they might be, they'd had enough of supporting a bleeding company. They gave up.

Hiram Gat is not one of those the companies milked to death by shareholders. The Landaus got in after it had been close to bankruptcy from exploitation, when its former owners withdrew elephantine salaries. Landau and sons pursued a massive restructuring plan for the company, including steep cuts in management outlay. They also improved company relations with the banks, stressing that they would not be withdrawing salaries or management fees. They delivered a clear-cut message to the business community that the newly renamed company, Hiram Gat, had adopted a new business culture.

The Landaus never imagined they would reach such straits. Unlike so many of Israel's tycoons, they never took massive loans to finance leveraged buyouts as the millennium closed. When they took over Ben Yakar Gat in 2001, they believed the conservatism they had practiced during the boom years would enable it to take advantage of the crisis pervading the marketplace.

Yet yesterday it transpired that their timing in the acquisition had been as bad as other investments made in the late 1990s. Their investment in Ben Yakar Gat shares was negligible, less than the price of a four-room apartment in Tel Aviv. But to keep the company floating, Landau had to extend guarantees in the millions of dollars, which he will probably never get back.

The Landaus are not only one of Israel's richest families and owners of 23 percent of Granite Hacarmel. They also own a controlling stake in an Israeli bank. A decade ago the family, Shlomo Eliahu and the Rotlevy family bought from the state shares in Union Bank of Israel (TASE: UNON). Today, the Landaus own a 23 percent interest.

Shaike Landau knows what it means for a partner in a bank to declare one of his companies bankrupt due to heavy debt to the banks. Worse, the bank to which Hiram Gat owes money is none other than Bank Leumi (TASE: LUMI), another owner of Union Bank.

It is hard to assess just how rich Israel's "richest" families are. Some of the nation's great fortunes are built on a massive platform of credit. But the business community figures the Landaus still have a lot more assets than liabilities.

In other words, if the Landaus wanted, they could have kept Hiram Gat sailing on, to prevent the embarrassment of shipwreck, especially given their status as bankers.

Their decision to ask the courts to appoint a receiver is another step in the process having taken place over the last two years, in which deteriorating business results are forcing the wealthiest players to take off their masks and admit to the painful reality.

Until a year ago, the big players kept up the act and hid the severity of their situations. But the ignominy of entering bankruptcy isn't that great any more, and the willingness to keep throwing good money after bad just to keep face isn't that great either.