1.Arcadi Gaydamak's entry into the Israel capital market characterized his personality - fast, aggressive, unpredictable, and grandiose. In April 2007, Gaydamak took the capital market by surprise with the acquisition of real estate developer Ocif Investments and Development (TASE: OCIF) and then went on a buying spree. Within three months, he had taken over four companies in different sectors.
One year on, it would appear that the hopes and dreams have evaporated into thin air. The shares of the companies Gaydamak bought plummeted. None of them has made an exceptional business move, and some of the people he brought in have left. Last week, the Gaydamak empire suffered yet another blow, when Uri Shani, who just six months earlier was appointed Gaydamak's business manager, suddenly announced he was stepping down.
Shani discovered a black hole in Gaydamak's business. There was no financing nor partnerships, and no clear picture about deals in the pipeline and the resources for financing them. He thought he was coming in to set up a holding company, but found himself spending most of his time on private flights to nowhere.
So a swift departure was inevitable. Uri Shani is still a member of the local political and business elite. He is still invited to parties hosted by top politicians and businessmen. If Gaydamak takes a tumble, something that could quite definitely happen, he doesn't want to be any near him.
2. Where did Gaydamak go wrong? In recent months Shani was part of that giant balloon called the Russian oligarchy. No one knows exactly how much each person has, so they all try to steal the show. The most luxurious cars, the toughest bodyguards, the most beautiful women, and the most expensive wine can make any Russian businessman an oligarch, or tycoon - insane, dangerous and totally unwarranted largesse, solely for the purpose of perpetuating the powerbroker image that is designed to fuel yet more deals.
This behavior characterized Gaydamak in the Israeli capital market as well. He made a pompous entry to the local stock exchange, and made a string of lightning acquisitions which he could hardly have managed to examine in depth beforehand. He agreed to massive premiums on the share prices of the firms, and paid prices which looked high at the time. Today, one year after the crisis first hit the markets, they already look ludicrous.
Gaydamak's main error was his timing. He went into the Tel Aviv Stock Exchange (TASE) when the markets were at a high, just before the falls. While market timing is an impossible task, one would still have expected of a businessman like Gaydamak to conduct a thorough examination before making any deal, and not to agree to a price differentials as high as these on the going prices on the market, which weren't cheap to begin with.
The combination of the entry to the market when it was at a high, and the payment of whopping premiums on share prices was lethal. One year on, Gaydamak is facing a loss on paper of NIS 700 million. After investing close to NIS 1 billion in the companies, his holdings are now worth just NIS 250 million.
But aside from Gaydamak, the investors were out of line as well. The name Gaydamak was the buzzword at the beginning of last summer. An acquisition by him and a rumor that he could be about to make an offer for a company were all it took to send shares soaring. On what basis? Largely expectations, dreams, and hopes.
Israeli investors are known for their impatience. Having concluded that Gaydamak had not delivered, they wasted little time of offloading his companies' shares, sending them crashing. Today, most of the shares are trading at less than the market cap they had before Gaydamak came in. While he did not, in most cases, bring added value to the companies he acquired, it would be difficult to say he caused them substantial damage. Yet the investors still hammered the shares. This, after all, is how a bubble works - it inflates share prices for no reason and then crushes them indiscriminately.
3. Some sense of proportion should be maintained here. Gaydamak is a character who draws fire. Every provocative statement he makes gets widespread coverage and triggers many responses. The same goes for his entry to the capital market, which was also widely commented on and covered in the media, perhaps even too much. Some media publications even went as far as publishing the Gaydamak "shares index", on the basis of the four companies he acquired, something that merely made the bubble surrounding him even more exotic.
Looking at it objectively, however, Gaydamak is not a key figure on the Israeli capital market. It may be worthwhile, at some point in the future, attempting to demystify the media image, and conducting a rational assessment of his role and the contribution he made to the market. Will it actually happen? Promising we'll learn from past mistakes is easy, but one may safely assume that the next time a colorful character like Gaydamak makes his entry to the market we'll make the same mistakes all over again. Because just like the Israeli public at large, we just love crowning kings and then bringing them down.
Published by Globes [online], Israel business news - www.globes-online.com - on July 6, 2008
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