Aharon Dovrat and Avi Wertheim are not giving up on BOS Better Online Solutions (Nasdaq: BOSC). The two men and their associates, who jointly own 17% of the company, have petitioned the court to issue an injunction against the allocation of 19.9% of BOS to Catalyst Fund, controlled by Cukierman and Co. The court issued the injunction until a hearing early next month.
The Dovrat-Wertheim group believes the allocation of shares to the Catalyst Fund was intended to consolidate the control of BOS president and BOSCom president and CEO Israel Gal. He owned 24% of BOS before the allocation.
“Allocating BOS shares to the Catalyst Fund in exchange for Surf Communications Solutions shares is not worthwhile for BOS,” said Dovrat representative Moti Weiss. “What does it matter to BOS if it owns 14% or 18% of Surf? We’re not talking about the controlling interest in the company. Its simply not economically worthwhile. The fact is that this is an artificial deal to avoid the need for the shareholders’ approval. They allocated 19.9% of shares in the first stage in exchange for two-thirds of Catalyst’s holding in Surf, plus an option to acquire the rest of the stake. The deal was designed so the allocation would not exceed 20% [of BOS], which would require shareholders’ approval.
“We ask BOS’s board of directors to bring the deal before the shareholders for approval, but the board decided to approve it. They did not vote for the good of the company. That is why we and others, who own over 30% of BOS, are trying to block the deal.”
Weiss added that Dovrat-Wertheim want to control BOS. “The power struggle began long ago. We intend to prevent the allocation of shares to Catalyst, and we’ll consider other measures later.”
BOS develops IP-based end-to-end telephony solutions for call centers and small and medium-sized enterprises. The struggle for the company broke out five months ago, when BOS chairman Avi Wertheim and other board members, Aharon Dovrat, Moti Weiss and Ariella Zochovitzky resigned after bitter differences of opinion with BOS’s managers, headed by Israel Gal.
The bone of contention was Gal’s involvement in the sale of BOS subsidiary, Pacific Information Systems (PIS), which handles BOS’s US commercial activities. Wertheim emphasized that his decision to resign was due to his opinion that the decision to appoint Gal to replace Weiss hurt the sale and future of PIS. He added that the bitter differences of opinion between BOS’s executives prevented proper management of the company.
The next step to an outright power struggle was short. Two months ago, Gal seemed to have formed a bloc against Dovrat-Wertheim. Catalyst Fund would get 16.7% of BOS in exchange for 4% Surf, most of its 6.7% holding in the company. The deal would increase BOS’s holding in Surf to 17%. Surf develops software-based access solutions that provide enabling technology to OEM systems providing data modem, fax, and voice services over Packet Telephony networks. BOS would also receive a three-year option to acquire the rest of Catalyst’s 2.3% stake in Surf for $1.2 million.
Gal stated in his announcement about the Catalyst deal that it was a purely financial measure. “I don’t think it prevents anyone from doing anything, nor is there any intention of blocking anyone. As a company, BOS needed some things, and this agreement provides some of them. In any case, there is no voting agreement between Catalyst and me. Wertheim can join up with them against me tomorrow. I nevertheless believe their perspective conforms with mine. I frequently speak with them. They believe in the company and its business, unlike the Wertheim group.”
Catalyst Fund co-CEO Edouard Cuckierman also claims he is not a party in the power struggle for BOS. “I come from the financial world,” he says. “We’re an investment house focused on the European market. We intend to maximize the company’s value. That is also the goal of the other shareholders, both Israel Gal and the Wertheim group. We look at the business, and we may become a balancing factor in the company. We’re bringing new blood to the company, which will benefit it and give it a vision, to the good of everyone.”
Dovrat-Wertheim aren’t buying it. They intend to bring the deal before BOS’s shareholders and prevent its implementation.
It was all supposed to be different. Wertheim entered BOS a year ago, and his appointment as chairman was supposed to be part of a general plan initiated by Aharon Dovrat and Avi Wertheim’s uncle Moshe Wertheim to enhance BOS’s value.
BOS launched a restructuring a year ago. The company’s current operations were transferred to a fully-owned Israeli subsidiary BOSCom, while PIS handled its US business. BOS also acquired a stake in Surf. The restructuring also led to personnel changes: Weiss switched from being a member of the board of BOS to its CEO. It seems that he and Gal did not get along.
The restructuring failed. Business remained weak and the share continued to slide, reaching its current price of $0.57, reflecting a market cap of only $1.7 million. Dovrat-Wertheim have lost $8.5 million on paper of their $9.3 million investment of two years ago. As we said, Avi Wertheim has since withdrawn his investment and resigned as BOS chairman.
Published by Globes [online] - www.globes.co.il - on January 16, 2003