Would Feuchtwanger by Any Other Name Smell So Sweet to Rafi Peled?

The laconic announcement by the Feuchtwanger investment house to the bourse Wednesday regarding a shareholders' meeting about the appointment of Noah Kinarti as external director, does not indicate the real storm brewing under the surface. Even though the meeting that was held Tuesday approved the appointment of one of the three candidates that the board of directors had recommended, the important issues that aroused opposition concerned the changing of the company's name and, even more importantly, the clauses that the board of directors removed from the agenda just 24 hours before the meeting, regarding insurance and indemnification for board members.

Feuchtwanger Investments is one of several publicly-traded companies that was taken over this past year by the group headed by Rafi Peled and Aryeh Givony, via a number of swift, but rocky moves. After, in exchange for $1 million, they took over the Jack Mitrani company and changed its name to Karen Peled Investments, the group purchased Ha'il Holdings, a Haifa-based real estate firm, in a deal valued at NIS 45 million.

A few months later, Ha'il gained control of a group of publicly-traded companies that had been controlled by Azriel Feuchtwanger, including Feuchtwanger Investments. A few days after Feuchtwanger was taken over, it bought the publicly-traded Iscal Holdings venture capital fund, which, within a day, signed papers for the acquisition of the controlling interest in the Formula VC fund from Danny Goldstein. Formula's shares were purchased at a value some 150 percent higher than the fund's market value at the time. Meanwhile, Givony used a construction company that he controlled to take over Mashav, which, in turn, participated in the Feuchtwanger takeover, acquiring a controlling interest in Feuchtwanger Industries.

Ever since these takeovers, the share prices of all the companies have lost ground. In general, investors have not taken kindly to the activities of the group, responding negatively to the takeover campaign. Iscal's share has suffered the most, shedding 70 percent of its value since the takeover. Formula, Feuchtwanger Investments and Feuchtwanger Industries have lost up to 20 percent of their values.

In addition to electing a new external director for the group, after Yoram Gabai resigned in protest against the group's activities, Peled and Givony wanted to change the group's name to Pelgav (using the first syllables of their names). Some members of the group claimed that the significance of the name was purely symbolic, but it seems that in this case, the symbolism has a certain significance; and if the group cannot even agree to the name change, it is unclear if it will be able to effect a turnaround and raise the value of the companies it has taken over.

The failure in changing the group's name is also a manifestation of the low point in the relationship between the Peled group and its minority shareholders, particularly the institutional ones. The administrator of one institutional body that has shares in Feuchtwanger Investments said Wednesday that the company had decided unequivocally to foil any proposal brought forward by Peled's group. "We have no faith in them and we don't trust them," he said.

Another shareholder said that the opposition to the name change was not only symbolic because it affected the way in which the company was perceived. "The lion's share of a company's reputation is in its name," he said, "and we didn't want to give up that reputation." Even so, it seems that this is only the official explanation, and the real reasons for his opposition are his interminable confrontations with the new controlling shareholders.

One of the interesting points concerning Tuesday's events was that Mashav and Ha'il, which together hold 46 percent of Feuchtwanger Investments, sent no representatives to the meeting. The appointment of Kinarti was passed on the weight of Feuchtwanger industries, which holds 5 percent of the shares in Feuchtwanger Investments.

The reason the controlling shareholders did not come to vote lies apparently in the suit filed against them by two other shareholders. Eltka and Ora Weiss (a mother and daughter), who are being represented by attorneys Shuki Stein and Guy Gissin, contend that the shares held by Ha'il and Mashav were acquired illegally and should, therefore, be considered dormant shares, with no voting rights. It is also likely that Ha'il and Mashav's failure to attend the meeting indicates their acceptance of Stein and Gissin's claims, or at least that Peled and Givony are proceeding cautiously. Stein and Gissin also claim that the shares held by Feuchtwanger industries should be considered as dormant, thus making Kinarti's appointment and, similarly, any decision-making in which he takes part invalid.

The insurance battle

The main battle, which was eventually won, was waged by the institutional investors and private shareholders and concerned the granting of insurance, indemnification and the exemption to the company's board members. In the company's announcement to the bourse regarding the removal of the clauses concerning the board members insurance one day before the meeting, it stated that the clauses were removed at the shareholders' request. Sources in the Peled group noted that they were trying to reach an agreement with all the institutional shareholders - including Clal Insurance, Maritime Bank of Israel and mutual and provident funds managed by the big banks - and this was why the insurance issue had been removed from the agenda.

One of the shareholders' objections to the indemnification of the board members was that the board discussed the matter even before the company was taken over in August 2001 and thus affected board members who had already been replaced. Furthermore, the company is now in a totally different business situation. Other arguments concerned the provision of missing details, such as the maximum sum for indemnification, the level of the insurance premiums and the deductible rate.

Shareholders also argued that the insurance issue had been brought up again after they had already been sent letters by the board, cautioning against decisions on which they had voted, and after a breach of trust suit had been filed against them.

Peled's group claims that the critical issue at the meeting was the appointment of the external board member that passed uneventfully. It is very important for the company to have an external board member because legally-binding decisions can be made only if he is present.

Immediately after the signing of the agreement with Goldstein, the market expressed its astonishment at the high value paid for the shares in various companies, and at the high financing costs that the group would have to pay the banks, thanks to the generous credit it had received. The institutional investors also began to voice their objections to the Formula deal and the guarantee that Feuchtwanger had granted Iscal for the payment to Goldstein. Even so, the main problems encountered by the Peled-Givony group involved the minority shareholders. Some of them hired lawyers and contacted the Securities Authority or threatened to sue the group's board.

Since the acquisition of a controlling share of Formula in August 2001, it seems that the more the group gained control over publicly-traded companies and reached agreements with their major shareholders, the more the Peled-Givony pairing failed in its relationships with the minor shareholders in those companies, shareholders that included many institutional investors.

Despite the (albeit belated) discussions between Peled and the group's institutional investors, it has not managed to solve the problems via a signed agreement with one or two of them. A close look at the imbroglios facing the group reveals the need for some kind of comprehensive move, such as an offer to buy all the shares.