Dankner open to offers for everything

Irit Avissar

IDB chairman Nochi Dankner realizes that IDB was over-leveraged, and that it's vital to reduce its debt.

Everything is up for sale at IDB Holding Corp. Ltd. (TASE:IDBH), controlled by chairman Nochi Dankner. Fundtech Ltd. (Nasdaq: FNDT; TASE: FNDT) was sold a month ago, Shufersal Ltd. (TASE:SAE) was sold last week, the sale of Makhteshim Agan Industries Ltd. was closed yesterday, and negotiations for the sale of Clal Insurance Enterprises Holdings Ltd. (TASE: CLIS) are temporarily in abeyance. Cellcom Israel Ltd. (NYSE:CEL; TASE:CEL) might also be sold. The picture is clear: for the right price, Dankner is prepared to make good on his investments.

This should not come as a surprise, since as a holding company, IDB buys and sells assets. But when the issue is Nochi Dankner's IDB, the strategy in the past was different - buy low and sell high. But while Fundrech and Makhteshim were sold at a good price, and Shufersal at a great price, this is without question not a peak time in the markets that would justify a sale.

This raises the question why Dankner is selling core businesses of his company. First, he was burned during the summer by high leverage. He personally learned that one mistake - in his case, the huge and highly leveraged investment in Credit Suisse Group AG (NYSE: CS; SWX: CSGN; XETRA: CSGZ) shares - can jeopardize his entire conglomerate.

Dankner realized that IDB was over-leveraged, and that it was vital to reduce its debt and improve its liquidity in order to lower investor pressure, reflected in the soaring yields on the bonds of IDB's subsidiaries.

Although IDB will only recognize most of the proceeds from the sale of Shufersal in a few years, Dankner sent a loud a clear message to the capital market: the owner of the house is home and he's tackling its problems. The result is seen in the sharp drop in the bond yields of IDB's subsidiaries in the past few days.

The sale of the controlling interest in Makhteshim, for which IDB will make $1 billion, will greatly improve its financial position.

Another reason for the change in IDB's strategy is the social protest that erupted this past summer. Although Dankner is not (yet) a target of extensive consumer boycotts against his businesses, the anti-business mood and antipathy towards the men at the top has definitely influenced him. For a man whose image, especially his social image, is important, Dankner does not want to face the decline of Tnuva Food Industries Ltd. and its former chairwoman, Zehavit Cohen. Dankner is the last man prepared to suffer demonstrations outside his home.

Dankner also knows well that the pending tighter regulations against Israel's tycoons, and the rise in consumer awareness, will make it harder for him to raise prices, improve profit margins, and expand. He already knows that he has reached the limits of growth in the domestic market, and if the opportunity comes knocking, it's best to sell, increase liquidity, and maybe look for opportunities elsewhere. IDB apparently believes that the plunging markets have created a surfeit of opportunities.

Pursue growth abroad

Dankner's old dream was to take IDB abroad and turn into a multinational corporation. For years, he has talked about this strategy, and IDB made several foreign deals in recent years. But Dankner can't get any satisfaction from them.

As for the investment in Credit Suisse, which began as a success story, but since turned into a source of appalling losses, much has already been written. This is also the case for the multibillion dollar investment in the ambitious Plaza casino and hotel in Las Vegas, jointly made with Yitzhak Tshuva, and which is now stuck in the sands. The establishment of a US investment arm through Clal Finance Ltd., Titanium Asset Management Corporation (AIM:TAM), has also resulted in heavy write-offs.

Although Dankner has established many foreign ties over the years, mainly through the Credit Suisse investment, he knows that Israeli businessmen do not necessary add value overseas, and that foreign investment is inherently risky. Nonetheless, he has not given up, and he believes that the globalization of Israeli business will continue; in fact, it must continue, because there is no choice. There is little left to find in Israel.

IDB's globalization is not only reflected in the investment in and acquisition of companies. Dankner plans to move a substantial part of the company's financing abroad. There are a number of varied reasons for this, ranging from the single borrower restrictions on Israeli banks, which the Bank of Israel has tightened recently, to the Hodak committee recommendations for the bond market, which make it harder for IDB to raise capital at the easy terms it was used to in the past.

Why the Chinese stayed in the game

At the height of this summer's market crisis, when the yields of IDB bonds soared to junk bond status, and the share price daily sank lower, the capital market was deeply worried about the pending sale of Makhteshim to ChemChina, as the Chinese are known as unexpected business partners for whom signing a contract is often just the first step in negotiations. At the same time, there were real changes in share prices, and the price of six months ago is largely irrelevant to the current price.

Moreover, ChemChina undoubtedly saw IDB's liquidity problems caused by its losses on Credit Suisse. It knew how much IDB was depending on the sale of Makhteshim to improve its liquidity and they could have exploited this to get a better price. Had that happened, there was a good chance that Dankner would have agreed to a discount.

But ChemChina did not withdraw and the closed the sale at the terms agreed: the acquisition of Makhteshim at a company value of $2.4 billion - the largest acquisition by a Chinese government company outside the country in the past year.

The Chinese government, with more than $2 trillion in cash reserves, want to acquire foreign companies all over the world. They know that the world is viewing them with suspicion, because of China's different world view, and they know that the acquisition of Makhteshim was a good opportunity to show that they are reasonable partners who do not demand the reopening of contracts and discounts, even when they can do so.

Published by Globes [online], Israel business news - www.globes-online.com - on October 18, 2011

© Copyright of Globes Publisher Itonut (1983) Ltd. 2011

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