Taking Stock / Take One Shell and One Slob. Mix Well

The scientific community is completely agog.

Scientists from Cornell University in New York have developed a robot that can replicate itself, using spare parts. A robot with this capability can repair itself when necessary, and even create more robots to help it with the job at hand.

Self-replication is a tremendous breakthrough in robotics, but when they read the news, the public's hair stood on end. Many are still in the thrall of "Matrix" and "Terminator," envisioning horror scenarios of shiny, self-replicating "bots" warring against hirsute humanity.

We couldn't get that worked up about it here at Haaretz, though, because we're so thoroughly inured to the Tel Aviv Stock Exchange, which is swarming with self-replicating companies. Even more astonishing, these TASE firms build new versions of themselves starting with nothing more than empty shells.

When the papers start to report more and more shell companies being listed on the exchange, you know there's a boom.

"Shell corporation" is a euphemism for a company devoid of active business operations or assets that is nonetheless registered on the exchange. To the layman, this sounds like an offer that is very easy to refuse.

But when the stock market is booming, shell companies are the wet dream of entrepreneurs looking for a quickie ride, because the very weakness of the shell - its emptiness - is also its strength. You can imbue it with content.

Why do investors prefer shell companies onto which content has been tacked over real companies, rich with actual content? Well, stock market animals love transformations: One day it's an empty vessel, the next it's busy as a bee and their imaginations take wing.

Just ask Eyal Sheratzky, Zeev Bronfeld, Meni Mor and Gal Erez, a group of entrepreneurs who have taken over two shell companies - Aryt Systems and DCL.

Stock market veterans remember Aryt Systems as company with many a story to tell and many a transformation, all of which ended up about the same. DCL is one of those shabby companies belonging to Ofer Hirchson, son of Knesset member Abraham Hirchson. Its star on the TASE went out like a candle in a storm, and the young man crept off into the night, leaving investors to lick their wounds.

It's a bird, it's a plane - it's biotech!

But that's history. What's happening now is that Sheratzky et al bought the two shell companies for a few hundred thousand dollars, and announced a change in business model. They'd be leaping into biotechnology and life sciences, they explained.

Biotechnology? You must be kidding, giggle the more experienced of our readers. That's a field that depends on years of patience, investments of tens to hundreds of millions of dollars, an experienced management team studded with scientists sporting decades of research under their belts. But mainly, what biotechnology needs is pockets deep enough to actually reach results.

Most of Israel's biotechnology companies collapsed, even though they had managed to raise tens to hundreds of millions of dollars. And in any case, the real home for biotechnology companies isn't the little TASE swamp, it's the great oceanic markets of America.

More fools we

Actually, all this merely goes to demonstrate our ignorance, and yours, if you went along. Evidently, we dullards aren't in the loop, we don't have our finger on the market's pulse. Thing is, when the TA-100 index doubles in the space of a year and a half, approaching 700 points, biotechnology becomes another story entirely.

Results do the talking, dear reader. Overnight, Aryt Systems morphed into D-Medical and announced acquisitions in the field of medical technology. Its stock rocketed skywards, gaining 500 percent, lifting its market capitalization to NIS 110 million.

As for DCL, it long since forgot Hirchson, and today it's called Biomedics Incubator. The name is much nicer, too. And it's reached a market cap of NIS 118 million, which is 60 times the price at which the miserable Hirchson sold the shell.

Now you understand why we maintain our equanimity in the face of self-replicating robots, who can barely do that trick once and certainly can't do anything else. Over here, itty-bitty little companies duplicate their value every few months, without any human touch at all! All you need is to release a few announcements to the computerized TASE system and wait.

The issue at stake isn't mere paper profits that come and go. The young entrepreneurs told Haaretz in an interview that they aren't in the deal for a quickie capital gain, and that they deeply believe in biotechnology. But in parallel, to be safe, they sold 20 percent of the company's shares to a mysterious foreign fund for NIS 14.2 million, which is 100 times the amount they'd paid for the same shares.

By the way, some proper disclosure is due here. We too tend to duplicate every few years. In the Haaretz archive, you can find that every five to seven years, there are articles about the sudden bloom of shell companies. The last time the articles appeared was in 2000, but then the fashion applied to Nasdaq.

Indeed, the fad for shells may just be starting. Many a wannabe entrepreneur enviously watching the stock market spiral skywards finds himself sent by some stock market pimp to snap up a shell company and insert his business inside.

We are clearly too callow to understand the biotech incubator business, or those newfangled business models declamed by the entrepreneurs injecting content into stock market shells. Who knows, maybe they'll really make it, paving a road for others to follow.

One thing does have to be said in favor of shell corporations: The whole thing is pretty predictable. Most will end where they started, as stock market shells, replete with losses exploitable for tax purposes, sitting on the shelf winking at wannabe entrepreneurs looking for a place to inject his business. And then they'll hit the road again, all nice and cleaned up, more audacious and exciting than ever before.