The attachment of a going concern warning to IDB Holding Corporation's (TASE:IDBH) financial report for the second quarter on Friday does not indicate that chairman Nochi Dankner has thrown up his hands in face of the company's huge debts. The capital market was not surprised by the warning, as it had already priced in the warning a long time ago, as reflected by the yields on IDB's bonds.
Nonetheless, the warning is a watershed moment dividing the public's previous perception of Dankner as an economic golden boy, and its present perception of him as just another tycoon struggling to repay his debts; from being an employer who top business sought to work for, and the man who can no longer promise fat multimillion shekel contracts, especially not in the long term.
Now, crawling out from under every rock and from behind every bush are people seeking to ambush Dankner, along with those hoping to hitch a ride on his business troubles: competitors, anonymous officials at the banks and the Ministry of Finance, managers of mutual and provident funds, insurance executives, and, of course, journalists. Where there was once veiled criticism of Dankner's unsuccessful business moves, now the gloves are off: the going concern warning, a statement that IDB will struggle to meet its debts, will likely bring an outpouring of venomous criticism, the likes of which he never faced before.
Now come the questions: Is Dankner the man who should head IDB during such challenging and difficult times? Is he the man to whom, until now, everything came easily, who can change his spots and get his hands dirty, go to meetings with creditors and confront furious bondholders? Does he have the character to fire hundreds of employees if necessary, to sell assets he personally built, and shed executives who are also friends?
The moment of truth
During the almost ten years that Danker controlled Israel's largest conglomerate, he was spared these dubious pleasures. But the moment of truth has arrived, even if IDB's creditors give him another 100 days of grace, or even more, he must show results, and he better do it fast. Delek Group Ltd. (TASE: DLEKG) controlling shareholder Yitzhak Tshuva, who like Dankner once had the Midas touch, can tell him how quickly the hoi polloi turn on you from an admired businessman into a man who is reviled.
It is to Dankner's credit, leading the campaign is a man who, despite the erosion of his standing in the past year, is still seen as a different kind of businessman. A man whose word is a bond, whose reputation is more important to him than anything else, and a man who will do whatever it takes to repay his debts to the public.
Will he succeed? The market conditions that are affecting the business results of IDB's main holdings, and its ability to sell them, will have a crucial role in answering this multibillion shekel question. A global economic recovery, in particular in Israel, should restore the value of IDB's holdings in mobile carrier Cellcom Israel Ltd. (NYSE:CEL; TASE:CEL), Clal Insurance Enterprises Holdings Ltd. (TASE: CLIS), Shufersal Ltd. (TASE:SAE), and, of course, in Credit Suisse Group AG (NYSE: CS; SWX: CSGN; XETRA: CSGZ).
But Dankner need not wait for the markets to recover. Here are some things he could do now.
Climb down from the tower
Dankner fully understands his situation, and we can trust him to do what he can to solve IDB's debt problem. However, the measures must be seen, and it is hard to see them from the 44th floor of the Azrieli Towers.
IDB's spacious headquarters, impressive art collection gracing its walls, and private kitchen all reflect better days, which are unlikely to return anytime soon. The manager of a business with a NIS 1.65 billion shareholders' equity deficit and NIS 2 billion in debts has to adjust his conduct to his financial reality.
For example, Dankner could move his headquarters to the periphery, set up shop in a prefab, fly business class, and switch to a more modest car. This is the time to roll up his sleeves and show his employees, managers, shareholders and bondholders that he is on their side, shoulder to shoulder, until the good (or bitter) end.
Forego ego
The crisis at IDB did not emerge out of nowhere. It was preceded by bad managerial decisions, beginning with the purchase of shares in Credit Suisse (irresponsible), the investment in Hebrew daily "Ma'ariv" (bad business), and the Plaza hotel and casino in Las Vegas (immodest). Dankner was directly responsible for many of these decisions, which followed a string of successes, which peaked with the success in surviving the 2008-09 global credit crisis, almost made him immune to criticism and turned him into a kind of patron of the Israeli economy, and even a prophet of market conduct.
Dankner must now understand that IDB can no longer be a one-man show. The need for an outside infusion of cash requires not only the sale of core businesses, but, most of all, bringing in a partner with deep pockets to the controlling core of IDB itself.
3. Face the creditors
Despite his mistakes, Dankner is fully aware of the situation, as is seen by the realization of investments at excellent prices in the past year, headed by the sales of Makhteshim Agan Industries Ltd. and Clal Industries and Investments Ltd. (TASE: CII), which brought a lot of cash to IDB. To continue to sell assets at the best time, rather than under pressure, Dankner must lower the pressure from and fears of his creditors.
It is quite clear to most IDB bondholders that Dankner should continue to pull the company out of the mire. To enable him to do so, populist and headline-chasing figures should not be allowed to sabotage his efforts, thereby minimizing the disaster to IDB and its creditors.
Published by Globes [online], Israel business news - www.globes-online.com - on September 2, 2012
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