This morning, IDB Holding Corp. Ltd. (TASE:IDBH) chairman Nochi Dankner announced the sale of the controlling interest in subsidiary Clal Industries and Investments Ltd. (TASE: CII) to Len Blavatnik. First of all, a good word for Dankner, who in contrast to businessmen seeking debt settlements, is fighting, maneuvering, and doing everything he can to avoid a settlement. In his own words to "Channel 2 News" last night, "There will be no haircut, comb over, or anything of the sort."
Will the sale of Clal Industries save IDB from the threat of a debt settlement that is hanging over it? Can Dankner go into reverse out of the one-way street to a debt settlement? Here are some points worth considering:
The Blavatnik deal looks good for Dankner. The sale of an asset for more than its market price, and in cash. But will the deal go through? This is no small question, because, as we have learned, nothing is over for Dankner until it is over.
In the wake of two sets of talks for the sale of Clal Insurance Enterprises Holdings Ltd. (TASE: CLIS), Shufersal Ltd. (TASE:SAE), and Clal Industries to Viola Private Equity, none of which materialized, IDB's track record in the past year as far as closing sales is rather weak. This means that only when the current deal is closed can we say that it is signed, sealed and delivered.
The Blavatnik deal, if it materializes, will give IDB Development Corporation oxygen and help it meet its bond payments. This is important for the company's survival, but it is not enough to save the conglomerate. Above IDB Development is its parent company, IDB Holding, it has its own debts amounting to billions of shekels, which it services through dividends from IDB Development. Will IDB Development's bondholders let Dankner distribute dividends upwards? Will they not assert that such a distribution is not in IDB Development's interest, but only in the interest of IDB Holdings, which Dankner owns directly?
Another troubling matter for Dankner is the claim that will likely arise about preferential creditors. IDB Development's bondholders might argue that the upcoming bond payment in June is tantamount to creditor discrimination, because it will empty the company's coffers, and who knows what will happen during the following year.
Another question: What will the Israel Securities Authority say about all this? A similar situation to that of IDB arose a year ago, when the Securities Authority ordered Ilan Ben Dov-controlled Tao Tsuot Ltd. (TASE: TAO-M) to publish a report on the company's sources and uses for more than two years forward, which started the snowball toward the investment house's debt settlement.
Then there are the debts of Ganden Investment Ltd., Dankner's private company through which he controls IDB, to the banks, especially Bank Leumi (TASE: LUMI). It is hard to see Bank Leumi's new president and CEO Rakefet Russak-Aminoach making things easy for Dankner. If she gives favors, easements or waivers, she will face harsh public criticism.
This means that the Blavatnik deal is not the final word, and Dankner will have to carry out more measures to remove the sword of debt settlement from his neck.
In any event, even if Dankner escapes his dilemma, IDB will no longer be the company as we knew it. It will no longer the powerful conglomerate that influences the economy. Makhteshim Agan Industries Ltd. has been sold, Mashav Initiation and Development Ltd. (which owns Nesher Cement Industries Ltd.) and Clal Industries are heading the same way. IDB's biggest cash cows - Cellcom Israel Ltd. (NYSE:CEL; TASE:CEL), Clal Insurance, and Shufersal, all have their own problems. In the coming years, IDB will be IDB Lite, weaker and less aggressive.
Published by Globes [online], Israel business news - www.globes-online.com - on May 20, 2012
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