Office Depot Israel Ltd. general manager Tzahi Fishbein has resigned, citing, "After deep thought and in view of the circumstances created in the company from the mutual lawsuits with Office Depot Inc., the lack of capital injections and/or a credit line for the company's proper functioning, I have concluded that I cannot continue to run the company."
While serving as Office Depot Israel's general manager, Fishbein with a group of investors was in negotiations to acquire the company from Hamashbir 365 Holdings Ltd. (TASE:MSAH), which holds the franchise from Office Depot Inc. (NYSE: ODP). In his letter of resignation, which Hamashbir disclosed in a notice to the TASE today, Fishbein said that he would continue the negotiations because "the conditions have been created to allow the proper functioning of the company", hinting that it had not been functioning properly.
In August, Hamashbir notified the TASE that the parties had signed a letter of intent for the sale of Office Depot Israel to Fishbein and the investor group for nothing, and that Fishbein would invest NIS 30 million in the retail chain. No agreement has been reached in the subsequent talks.
Office Depot began operating in Israel in 1994, originally as a partnership between Office Depot Inc., Fishbein, and Super-Pharm Ltd. Office Depot Inc. bought out its partners in the Israeli franchise in 2008 at a company value of $80 million, and sold the franchise to Hamashbir in December 2010 for $47 million. Hamashbir had hoped that Office Depot Israel would become the department store chain's growth engine.
Hamashbir promised to boost Office Depot Israel's sales from NIS 620 million in 2010 to NIS 1 billion in 2013. It didn’t.
Mounting losses by Office Depot Israel are weighing on Hamashbir. Office Depot Israel lost NIS 19 million in the first half of 2012, including NIS 5.5 million in the first quarter, after losing NIS 37 million in 2011. Most of the losses are due to poor management and difficult market conditions, as well as accounting errors related to suppliers' bills and estimates for provisions.
Hamashbir has disclosed Office Depot Israel's losses in Hamashbir's latest financial reports as part of the negotiations for the sale of the business. Hamashbir lists Office Depot Israel as a terminated activity that is up for sale, and does not report its results separately. Office Depot Israel had NIS 150 million revenue in the first quarter of 2012, after NIS 600 million in 2011.
Losses by Office Depot Israel caused Hamashbir, controlled by chairman Rami Shavit, to lose NIS 18 million in the first half, including NIS 17 million in the second quarter. Excluding Office Depot Israel, Hamashbir's net profit was NIS 11 million in the first half.
Meanwhile talks continue in the Tel Aviv District Court on Office Depot's NIS 51 million suit against Office Depot Israel. Judge Avigal Cohen agreed to freeze legal action for three weeks while the two sides continue talks.
But following the resignation of Office Depot Israel CEO there is concern that the company may see a stay-of-proceedings.
Published by Globes [online], Israel business news - www.globes-online.com - on October 22, 2012
© Copyright of Globes Publisher Itonut (1983) Ltd. 2012