Liquidity needs shrink Dankner's empire

Irit Avissar

It turns out that where the Concentration Committee failed, market forces succeeded.

1. In the past few months, Nochi Dankner has been focused on solving the liquidity problem that IDB Holding Corp. Ltd. (TASE:IDBH) fell into during the latest economic crisis. To his credit, he has applied all his creativity and available tools, ranging from negotiations for the sale of the conglomerate's core assets, through drawing of dividends where it was possible and the adoption of helpful accounting rules where it was not, to the announcement of a bond buyback in order to regain the market's confidence.

The sale of the controlling interest in Clal Industries and Investments Ltd. (TASE: CII), if it goes through, is a major step that could alleviate IDB's liquidity distress for the coming years. The NIS 1.3 billion proceeds from the sale will go directly to its parent company, IDB Development Corp. Ltd., and should suffice to meet the group's bond payments for the next two years, thereby easing the pressure on IDB Holding and its securities.

Although this is a good solution, which the capital market was quick to welcome, boosting the price of the group's bonds by up to 10%, it should be remembered that the sale of Clal Industries is far from closed. It requires various approvals (including by the minority shareholders of IDB Holding, as this is a party at interest deal). The financing for the deal is not yet secured either. Although the Livnat family is wealthy, and has no leverage as far as is known, financing a NIS 1.3 billion acquisition during a credit crunch is no small matter, even for them.

2. When the name Nochi Dankner is mentioned, an image of Israel's strongest and most influential businessman comes to mind. It was the great power that he accumulated through the business pyramid that he heads that prompted the establishment of the Committee on Concentration in the Economy. But when one examines what is happening now, it turns out that where the Concentration Committee's recommendations failed, market forces succeeded.

Dankner's need for cash has forced him to sell off key IDB units. He has already sold agrochemicals company Makhteshim Agan Industries Ltd., and Shufersal Ltd. (TASE:SAE) and Clal Insurance Enterprises Holdings Ltd. (TASE: CLIS) are both up for sale (although these sales have not yet been made). Now, he will probably sell Clal Industries, IDB's longstanding investment arm which has incorporated its manufacturing and high tech operations for years.

If the sale of Clal Industries goes ahead, IDB's main holdings will be Shufersal and Cellcom Israel Ltd. (NYSE:CEL; TASE:CEL) (assuming that Clal Insurance will have to be sold pursuant to the Concentration Committee's recommendations). If that is the case, will IDB still be the big, threatening concern that we have become used to? Not really.

3. Where is the Livnat family going? The negotiations for the acquisition of Clal Industries raise the question whether this is the first step toward the sale of its share of the controlling core in IDB Holding. Sources at IDB say that such a sale is not on the agenda, and that personal relations between the parties are excellent.

Nonetheless, it is important to remember that the Livnat family has for decades specialized in manufacturing, infrastructures, and logistics. It is unused to leveraged investments, and it can be assumed that it has felt uncomfortable with IDB's condition in the past year, especially over the losses from the leveraged acquisition of Credit Suisse Group AG (NYSE: CS; SWX: CSGN; XETRA: CSGZ) shares. The takeover of Clal Industries will enable the Livnat family to deepen its traditional investments, and it will be no surprise if, in the future, and on good terms of course, it sells its stake in IDB.

Published by Globes [online], Israel business news - www.globes-online.com - on December 26, 2011

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

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