Taking Stock / What Hezi Really Wanted

The deal is supposed to be closed on Thursday, and it's a whopper.

That is the deadline for Mickey Federmann to advise IDB Holdings manager Nochi Dankner, his partner in Elbit Systems, whether he is exercising his right to buy 19.6 percent of Elbit Systems from Elron Electronic Industries, which is an IDB group company.

Three weeks ago, Dankner agreed to sell the 19.6 percent stake to Tadiran Communications for $200 million. Tadiran's manager, Hezi Hermoni, chortled that his contribution to Elbit Systems management would restore its glory. If the outraged Federmann wants to retain exclusive control, he has to come up with $200 million cash himself, to meet Tadiran's offer. That is no small mission, even for a multi-millionaire like Federmann.

But Federmann is nothing if not tenacious, and in recent days he's clarified that he does not want Hermoni as his partner. Barring last-minute surprises, on Thursday he'll have to write Dankner a fat check. But even now we can do the math and map out the winners and losers of this extraordinary turn of events.

Nochi Dankner

His role in this unbelievable story is clear enough: he's the biggest winner. Dankner had no particular sentiment toward Elbit Systems, although it was a giant company that IDB had set up and cultivated. Dankner decided to sell; the only question was price.

Three months ago, he suggested to his partner, Federmann, that he buy control over the company for $120 million. Federmann already owned 30 percent. Dankner suggested selling him 10 percent together with formal control of the company in return for $120 million, after which Dankner meant to get rid of the remaining 9 percent via the stock exchange.

Federmann refused. He misread the writing on the wall. Dankner met with Hermoni, and within 48 hours they had a deal - Tadiran would buy all the Elron shares at a 25 percent premium above the market price. Federmann may have the right of first refusal, but what does Dankner care? He'll get his $200 million, either from Mickey or Hezi.

Mickey Federmann

At this stage, Federmann is the biggest loser. Three months ago he could have bought control over Elbit Systems for $120 million. Now he has to fork out $200 million and find a partner to share the burden.

It won't be easy for him to find somebody fast. For one thing, the Defense Ministry has to approve his choice because of Elbit Systems' many top-secret operations. Secondly, potential investors know Federmann's vulnerability perfectly well.

Naturally, in the long run, if Elbit Systems flourishes, Federmann could also wind up a winner from this whole sorry saga. But as of today, nobody thinks that at a billion-dollar company value, Elbit Systems is a steal.

Hezi Hermoni

Dankner won, Federmann's scurrying, and what about Hezi Hermoni? At the end of the day, all he accomplished was to do Dankner a great service. He set the price of Elbit Systems sky-high, forcing Federmann to pay top dollar.

Didn't it occur to Hermoni that Federmann might not want to tango with Tadiran, which operates in the same arena as Elbit Systems and has a CEO who thinks he's the latest word in defense company management?

Apparently not. In his vision, if Federmann didn't want to share the scepter, then Hermoni and his partners (Stanley Gold of Shamrock and Ishay Davidi of First Israel Mezzanine Investors) would offer him another deal - to buy Tadiran.

Tadiran would buy the 19.6 percent interest in Elbit Systems. Then, instead of investing $200 million in Elbit Systems to retain solo control, Federmann could invest $180 million in buying control over Tadiran itself from Gold, Davidi and Hermoni. It would have been one beautiful exit.

Elegant, isn't it. They put the gun to Mickey's head and say, you don't want us as partners Fine. Buy us out. Unlike you, we aren't sentimental. For the right price, we walk.

Unlike Federmann, whose heart is in the business, Gold, Davidi and Hermoni are financial players. They bought Tadiran from Koor Industries using bank loans. They improved the company, made hundreds of millions of shekels in profits, much of which they've already cashed out. Now they'd be perfectly happy to sell the whole thing lock, stock and barrel.

But Federmann didn't play along. He doesn't want Tadiran as partner, and he doesn't want to buy it either. Hermoni and his friends are left dangling: no exit and no Elbit. All he got out of this wild ride was the name of a big player who almost bought the biggest civilian defense systems company in Israel.

Joseph Ackerman

The chief executive of Elbit Systems hasn't so much as peeped since the storm arose. He would seem to be among the winners, because if Hermoni were to have come on board, Ackerman's life would have become more complicated. Right now he rules the roost single-handed.

Yet his life may change anyway. The day after Federmann cuts that $200 million check, he's going to get antsy about Elbit Systems' profits, cash flow and ability to generate dividends. He is going to adopt a more Hermonian approach, a more Stanleygold-like mien, a more Ishaydavidi-ish slant.

That could be a headache for Ackerman, or actually present new prospects. Whether he wins or not depends on how he sees the new hungrier Mickey Federmann: as a threat or opportunity.