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Court ruling wrests control of IDB from Nochi Dankner
By NIV ELIS, YONAH JEREMY BOB AND DANIEL CLINTON
17/12/2013
Judge's decision will transfer ownership to Eduardo Elsztain and Motti Ben-Moshe; Dankner: "The last word hasn't been spoken."
 
After an arduous, seemingly endless battle, Nochi Dankner on Tuesday lost control of IDB, Israel’s largest conglomerate, though a narrow possibility remains that he could win it back.

Tel Aviv District Court Judge Eitan Orenstein approved a bondholder vote that wrested control of the company from the tycoon in favor of a plan offered by Argentine billionaire Eduardo Elsztain, a former Dankner ally, and businessman Motti Ben-Moshe, subject to certain conditions.

IDB owns Cellcom, Shufersal, Clal Insurance and many others, and the change in ownership could widely impact the public at large, as many people’s pensions are invested in the company and its subsidiaries. IDB stock trading halted on the Tel Aviv Stock Exchange following the decision.

The court said that while in principle, Elsztain and Ben- Moshe already controlled the company and not Dankner, the decision would not formally go into effect until December 29, and could not be implemented until Ben- Moshe turns over full documentation of his German business Xtra Holdings to prove he had the wherewithal to fund the deal.

Should the Israel Securities Authority, the state trustee and the state observer, deem Ben-Moshe’s financial position untenable, the decision could yet be overturned by the Tel Aviv District Court. If Ben- Moshe’s financial position is approved, Dankner could still appeal to the Supreme Court to overturn Tuesday’s ruling.

Following the judge’s ruling, Dankner sounded a defiant note: “I believe, that when all is said and done, the company will remain in our hands. The last word has not yet been spoken.”

Dankner added: “I’ve said several times that I believe in the Israeli justice system and its decisions. The judge required the other group to reveal the source of their money and to uncover who the true controlling shareholders are – something that has not yet been done.”

Ben-Moshe rejected Dankner’s comments, stating, “It is his right to live in a fantasy.”

He thanked the judge for his decision and vowed that IDB was “beginning on a new path.”

The court called the entire course of the case highly irregular, exhibiting a range of unusually complex legal puzzles.

It added that there was no basis to order a liquidation of the company, since an expert had said that the company’s value would be maximized by staying in business under the new deal.

The court said that Dankner’s insistence that he had offered a better deal was not sufficient to overcome his creditors clear will, which manifested itself this month in a 75 percent vote favoring new leadership under Elsztain and Ben-Moshe’s plan.

Dankner’s troubles began when the company began reporting major losses in 2011, as investments in Credit Suisse, Cellcom and US real estate – hit respectively by the financial crisis, cellular reforms and the real estate bubble burst – failed. By late 2012, it became increasingly clear that IDB would not be able to pay its creditors for much longer.

Bondholders struggled to recoup their losses as Dankner tried to attract more investments from the likes of Elsztain to stabilize the company.

In April, public outrage forced Bank Leumi to reverse a decision to write off NIS 150 million of debt from IDB’s parent company, Ganden holdings. By July, Elsztain withdrew his support for Dankner, and set out to offer an alternative arrangement, sending Dankner into the arms of Ukrainian businessman Alexander Granovsky.

Psagot, Israel’s largest investment house and one of the bondholders’ representatives, welcomed the decision, saying in a statement the IDB case “redefined the rules of the game between institutional bodies and the controlling shareholder that do not live up to their obligations to toward the saving public.”

The decision aligned with the goals of finding a feasible settlement that returned the most value to debt-holders – including new investments into the economically successful part of the company – and setting a precedent.

The investment group said Israel’s regulatory system needed to learn lessons in order to shorten the process, which took 15 months, for future cases. Labor MK Shelly Yacimovich echoed the sentiment, calling on regulators to act in order to “ensure that these kinds of dangerous adventures and insatiable greed won’t repeat themselves.”

Notwithstanding the court decision, the company was already headed for significant changes. Earlier in the month, the Knesset passed a bill to limit market concentration, requiring so-called pyramid companies – companies whose subsidiaries own subsidiaries – break apart. As a result, IDB, the largest of Israel’s pyramid companies, has to restructure significantly in the next four to six years.

Meretz Chairwoman Zehava Gal-On said that while she was pleased that Dankner, “who exploited IDB’s pyramid structure,” was removed, the court’s decision was a “missed opportunity.”

“Instead of moving the IDB pyramid from the hands of one leveraged tycoon to the hands of other leverage tycoons, it would have been better for the court to order the dissolution of the pyramid, sending a clear message to Israel’s capital-owning families that the era of pyramids and milking companies has ended,” she said.

Finance Minister Yair Lapid and Economy Minister Naftali Bennett did not comment on the decision.
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