Taking Stock / Wouldn't Change a Thing

Once upon a time, there were three brothers.

Joseph, Abraham, and Isaac Mayo had a marvelous little company, the kind you don't often find on the Tel Aviv Stock Exchange. Even though the company engaged in the humble import of cooking pots and sundry household goods, an occupation that engendered mainly sneers among the City's traders, every time their financial reports would hit the floor the smirks would be replaced by awed stares.

Every year their itty-bitty company, MZPK, reported net profits of NIS 6-10 million, always exceeding the company's strong cash flow that consistently poured into the company's coffers.

Then one morning, on July 27, 1997, the three brothers announced they'd sold their company to two young entrepreneurs, Eitan Eldar and Roy Gill, for NIS 9.5 per share, or, NIS 52 million in cash.

Back then, Gill and Eldar were considered a white-hot dynamic duo. They took over a whole slew of publicly traded companies, buddied up with big-name businessmen such as Ofer Nimrodi and Itschak Shrem, and nurtured relations with the press. They exemplified the essence of stock market success, back then in the 1990s.

There were a few old-time market animals who decried their style and suggested the frenzied fliers weren't actually creating genuine value for shareholders, that most of their action was based on raising capital, cross-ownership tangles and leverage.

The veterans suspected that the takeover of cash-flush MZPK was a harbinger of things to come. The "things" being the transformation of the successful little pots-and-pans importer into a clearinghouse for related-parties transactions by the twosome, designed mainly to line their own wallets.

But the market was frothy, the mood gay, the bankers were waxing generous, and the critics were accused of being blind, or sourly indisposed to acknowledge the advent of the new stars.

Twinkle twinkle little black hole

In less than four years from its first twinkle in the stock market sky, Gill-Eldar became one of the hottest suns in the firmament. Shrem and Nimrodi were joined by another national-league player, Michael Strauss, who also invested in MZPK.

On Sunday, six years to the day after taking over MZPK, which had its name changed to Sagiel Investment, Gill and Eldar filed an offer to repurchase the company's shares in order to delist it from the Tel Aviv Stock Exchange.

Their offer is a stellar opportunity to examine the value these stars created for shareholders.

Gill and Eldar bought the MZPK shares for NIS 9.5 each, as we said, in July 1997. Now they are offering NIS 0.143 per share, less than 2 percent of the price they paid.

Does that sound ungenerous? Don't leap to conclusions. Sources close to the company relate that Gill-Eldar expect the public to leap at the offer.

Why? Because MZPK model 2003 is a company with an equity deficit of a quarter-billion shekels. That is the accomplishment of wonderkids Gill and Eldar.

The MZPK shareholders weren't the only ones to be squeezed dry. Yesterday the creditors' arrangement that Gill and Eldar's group of publicly traded companies finalized was officially published. The group, it transpired, was a master at squeezing creditors of all shapes and kinds - Bank Leumi, Bank Hapoalim, United Mizrahi Bank, Industrial Development Bank. Big and small alike, they bowed and agreed to forgive NIS 160 million in debts, roughly speaking. (It could turn out to be a lot more.)

The last two years were rough on Gill and Eldar, as they were on many leveraged businessmen. Companies they had bought collapsed, partners disappointed, acquisitions made using bank credit went sour, losses mounted, pressure from creditors intensified, their stocks crashed and finally they got caught in the tangled webs they had themselves woven.

Yet last week, after all the banks agreed to write off debt, it transpired that maybe the ride worked out for them after all.

While the going was good

Gill and Eldar had always played the game using other people's money. They had the good sense to withdraw tens of millions of shekels from the companies while they could.

The first big deal MZPK made, right after the takeover, was to hand all its cash over to Gill and Eldar in exchange for their shares in another company they'd taken over, one Gibor Sport Holdings. The bottom line is awe-inspiring.

We bought companies, they could boast, we issued bonds, we borrowed hundreds of millions of shekels, we pushed through sweetheart deals and we got filthy, stinking rich.

Some of our deals worked out in some small way, others were a colossal failure and finally we reached the brink of bankruptcy, they could admit.

But we were given absolution, everybody wrote off our sins, we held on to the helm at our companies, we got another chance and now we're off and running again! And if we had a chance to live it all over again, we wouldn't change a thing.