IDB endgame approaches

In the face of growing fears that he will lose control of IDB Holding Corp. Ltd. (TASE:IDBH), chairman Nochi Dankner is preparing an emergency plan, which he will use if he cannot obtain NIS 500 million by Sunday. Sources inform ''Globes'' that he is planning to submit to the court a plan, under which in exchange for a two-month extension to secure the financing, he will deposit his shares in IDB with a trustee. If he cannot obtain the money by early November, the shares will be transferred to the company's bondholders.

On Sunday, Tel Aviv District Court Judge Eitan Orenstin gave Dankner until Sunday, August 25, to deposit NIS 500 million to prove the seriousness of his proposal for a debt settlement, which is based on a capital injection of hundreds of millions of shekels into IDB by Emblaze Ltd. (LSE: BLZ) (after Alexander Granovsky takes control of Emblaze in a few weeks). The judge ruled that if Dankner deposits the money, he will be granted an extension to present the investment deal and the debt settlement proposal for IDB.

In the latest move, Dankner and his aides are apparently relying on the fact that Israel's courts are reluctant to take control of a company from its controlling shareholder and transfer it to the creditors. Therefore, it cannot be ruled out that Dankner's new offer will give him the extra time he is seeking. Problems with Elsztain's proposal

While Granovsky, Dankner's new partner, is moving ahead with his acquisition of Emblaze, Dankner's old partner, Eduardo Elsztain is preparing a counteroffer with IDB Holding's bondholders, who have long sinceceased to believe that Dankner can deliver the goods.

Today, the IDB bonds' trustees published the proposed deal with Elsztain, which "Globes" revealed earlier this week. The trustees intend to submit the proposal to the IDB bondholders meeting later today. Elsztain proposes injecting NIS 700 million into IDB Holding's subsidiary IDB Development, and an additional NIS 70 million to buy the company's shares from the creditors. When completed, Elsztain will own 50.5% of IDB Development.

To demonstrate his seriousness, when the deal is signed, Elsztain will deposit $75 million (NIS 270 million) in an account in an Israeli bank in favor of the creditors. 14 days after the court approves the proposed investment, he will transfer an additional $25 million (NIS 90 million). The balance of NIS 410 million will be paid to the creditors after the allocation of shares, probably after six months, or even more.

Besides the bondholders' belief that Elsztain's proposal is preferable to Dankner's offer, they see another advantage in Elsztain's proposal is that heads of IDB are not immune from future claims. The Dankner-Granovsky deal is conditional on such immunity. The court-appointed expert, Eyal Gabbay, estimates these claims at NIS 200 million.

However, Elsztain's proposal is not free of major problems. He has apparently raised the initial $75 million, but not the rest of the investment, and market sources doubt if he can do so. In other words, just as he did in his first round in IDB as Dankner's partner, Elsztain is putting on the table the initial amount in cash, while it is doubtful if he can meet the future payments.

Furthermore, the agreement between the parties states, "To the extent that the people making the offer do not meet their commitment to transfer the full amount of the investment… the full amount deposited by them with the IDB Development trustees (NIS 100 million as mentioned above) will be injected against a smaller number of IDB Development shares." In other words, if Elsztain cannot raise the NIS 410 million balance, he will be allotted IDB shares at a higher company value than the value at which he would acquire them if he completes the deal in full.

Published by Globes [online], Israel business news - www.globes-online.com - on August 20, 2013

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