While the local capital market witnesses almost daily battles between owners and managers of public companies and the institutional and private investors in those companies over the size of haircuts, in the north of Israel a "war room" was recently set up in advance of a fateful shareholders meeting of an Israeli public company that is traded only on Wall Street. The battle in the north will not be over a haircut, but over wrenching control from the company's founders and managers.
The meeting in question is the one that will take place on Friday in Rosh Pina, in the offices of OTI - On Track Innovations Ltd. (Nasdaq: OTIV; DAX: OT5), and it is likely to be the beginning of a classic American-style process in which frustrated, but aggressive, investment institutions take into their own hands the running of a company from the stunned family of founders, who over the years have issued more and more shares until they are left with holdings of just a few percent.
What makes this takeover battle special is that, for the first time, American investors with no particular connection to Israel have decided to wage all-out war over the management of an Israeli public company that has caused them heavy losses. And not just any old Israeli company, but one located far away in the Upper Galilee.
US investment institutions that lose a lot of money on Israeli stocks traded on Nasdaq usually sell the shares at any price, say "good riddance", set the losses off against tax, and move on.
OTI was founded more than twenty years ago by Oded Bashan, from Kibbutz Kfar Blum in the Galilee, a combat soldier in Sayeret Golani unit in the battle of Tel Fahed in the Six Day War.
Today, everyone knows about PayPal, but OTI has for many years been developing smart payment solutions, and it has nearly 100 patents, most of them in Bashan's own name, including in today's hottest niche, NFC, i.e. payment by smartphone.
In early 2103, a trial will begin in the US following a claim of patent infringement filed by OTI against T-Mobile, alleging that some of the smartphones that T-Mobile sells use OTI's technology.
As a public company, OTI has greatly frustrated investors. It has always lost money, it has always had dreams just around the corner that never materialized, and on the way to the dreams it always raised more money from the public.
Two years before the Beijing Olympics, the company's share price soared to a peak of $15, on the back of the belief that every Chinese would soon have a smart identity card based on OTI technology. Today, the share is wallowing at around $1, when less than two years ago the company raised funds at a share price of $3.
The move to replace OTI's management is led by an investor called Jerry Ivy, who has amassed nearly 10% of the company in recent years.
An Internet search found that Ivy has teamed up with a well-known expert in shaking up managements of problem companies, called Charles Gillman. The immediate aim is to prevent the appointment of three directors that Bashan wishes to bring onto OTI's board. The best known of them is Yossi Peled, former OC Northern Command and until recently a minister in Benjamin Netanyahu's government.
As far as I am aware, Ivy has never been to Israel, and he is conducting his war via the Internet, among other things by means of a video clip in which he appealed to the workers and explained that his campaign would benefit them and that he had no intention of doing them harm.
Judging from the make-up of OTI's shareholders, I see no chance of Bashan getting the appointment of his three candidates through, and the next stage of Ivy's campaign will be to ask for another shareholders meeting within a few months, at which he will propose his own list of directors, all of them Americans, which will give him a majority on the board.
The third stage will be the removal of the existing management and the implementation of a business plan the goal of which will be to maximize the value of the company for its shareholders, whether by selling all or part of it, or by selling patents. It turns out that the expert in company control battles, Gillman, led a similar campaign in another technology company, one that is half Israeli, MRV (MRVC).
The result that Gillman achieved at MRV does not portend good for Bashan. MRV was founded by Dr. Shlomo Margalit. Margalit was chairman, while the company was managed for 20 year by Noam Lotan. Between the summer of 2007 and the summer of 2009, MRV's share price collapsed by about 90%, and the investors brought in Gillman and his people to do something about it. Similarly to their plan at OTI, they conducted a campaign in stages to replace the board and management. They succeeded, and Margalit and Lotan are no longer at the company. Along the way, Gillman also engineered dividends of over $100 million.
Published by Globes [online], Israel business news - www.globes-online.com - on November 5, 2012
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