Taking Stock / Making Money the IDB Way

Nochi Dankner managed to stir up a storm again this week. But this time, the winds weren't blowing in his direction.

Half a year after taking over the IDB group in what many believe was the deal of the decade, Dankner on Tuesday again collided head-on with the institutionals - the provident funds, the mutuals and the insurance companies that manage our money, and also hold quite a few IDB shares.

The issue at stake was employment contracts for him and his partners, Avi Fischer and Zvi Livnat. Dankner presented the contracts, incorporating handsome bonuses, for the approval of the shareholders. He got the majority he needed, too, but left some of the institutionals' representatives steaming mad.

Dankner got his. He won the battle against the institutionals and assured himself and his associates lovely bonuses when IDB's business waxes fat. But at the end of the day, he'd do well to remember that the big money isn't made through salaries, but through creating genuine value.

The deal of the decade

Pundits have been wowed by the timing of his acquisition. In early May 2003, Dankner acquired the controlling interest in IDB Holding Corporation at a company value of $840 million, though the company was trading at a lowly market cap of $680 million at the time.

He made the deal of the decade, many aver. But let's take a look at the thresholds set by two other Israeli tycoons who effected takeovers.

Moments before Dankner bought IDB, the capital market started to rally. IDB Holding Corporation stock soared, and today, after the company handed out a $102 million dividend, it's trading at a valuation of $780 million. Counting in the dividend, IDB is trading 10 percent above the price Dankner paid, and 30 percent above its level the day he closed the deal.

The value of management

Now let's look at Lev Leviev, who acquired the controlling interest in Africa Israel in early 1997. Leviev bought the company at a valuation of $400 million, which was considered excessive at the time.

Since then, Africa Israel has paid $200 million in dividends. It is now trading at a company value of $840 million and Leviev, who owns 65 percent of its shares, declares it to be worth a billion dollars. Whether true or not, he's made about $400 million on the deal, a third of that in cash.

His profit is all the more remarkable when you consider that the last seven years were among the worst Israel's real estate industry has ever known. In fact, from the moment Leviev laid hands on the company, land and housing prices stopped rising. Yet talented, careful management managed to create tremendous value for himself and the shareholders.

Tshuva's answer to shareholders

Dankner bought IDB from the Recanati family in a weak moment, and he wasn't alone in taking advantage of their travails. He was preceded by a little-known contractor from Netanya, today a household name - Yitzhak Tshuva, who in March 1998 snatched Delek Group from under their noses, audaciously collecting shares on and off the floor.

Tshuva bought the controlling stake in Delek according to a company valuation of $400 million. He has withdrawn $300 million in dividends in cash and kind (Supersol shares).

Today Delek is trading at a company value of $860 million. Tshuva owns 86 percent of the company's shares, meaning he's made about $750 million, a third in cash.

Most of his profit is still on paper, but the increase in value and dividends paid so far make the Delek deal one of the most amazing ever in Israel. Tshuva certainly set a very hard record to beat.

Bulldogs and sycophants

One difference between Dankner, and Leviev and Tshuva is that the Dankner directly holds only 18 percent of IDB's shares. Theoretically he has more interest than the other two in wages and perks that the other shareholders don't share.

Unlike Leviev and Tshuva, Dankner bought control of a giant corporation that is not tightly focused on a few core companies. It has tentacles in every sector and industry, and holdings in dozens of companies. IDB isn't a company, it's an empire, making its controller the most powerful figure in Israeli business.

The best sign of that came Tuesday, when the institutionals attacked his cushy wage arrangement at the assembly and in the evening press. Yet when the crunch came they forced a smile, because at the end of the day most of them fear him, and their bosses need his favor.

But Dankner may have one characteristic in which he beats Tshuva and Leviev: a terrific hunger for success and public acknowledgment of his success. He would do well to look at the lessons the financial markets have taught over the years.

People trying to make money from their companies via salaries and perks, and controversial shareholders deals, do well when the market is booming and benefit from the shareholders' short memories. But ultimately these ploys undermine the corporate culture, the management, and the chances of being crowned a symbol of success.