KOLBER GOT COLD - IT APPEARS THAT THE ECONOMY IS ALSO NOT SO HOT - 19-Aug-96

KOLBER GOT COLD - IT APPEARS THAT THE ECONOMY IS ALSO NOT SO HOT

(Commentary by Guy Rolnik, "Ha'aretz", Aug 19, 1996, P.C7)

KOLBER AND HIS PARTNERS ARE CALCULATING COOLY AND CLEVERLY. EVEN IF THEY CAN BE MISTAKEN, EVEN IF THIS REFLECTS A TEMPORARY SITUATION, IT IS WORTHWHILE TO LISTEN TO THEIR ANALYSIS. OVER THE WEEKEND THEY RECOMMENDED A HOLD ON THE ISRAELI ECONOMY. IT IS NOT SELL, BUT IT CERTAINLY IS NOT BUY.

"The group's excitement calmed down several months ago, when the Brodet committee conclusions were publicized", Aharon Dovrat explained yesterday, one of the advisors and partners of the Bronfman group, which competed to acquire controlling equity in Bank Hapoalim, "I already proposed leaving the tender", said Dovrat.

Dovrat's proposal was accepted in the end, even though it was late. Over the weekend we were informed, that one of the most serious foreign groups seen in Israel during the past few years, decided to abandon the only diamond that still sparkles in the fading crown of the privatization plan - the tender for selling controlling equity in Bank Hapoalim.

MI Holdings, managing the sale, is left with Eliezer Fishman, that despite his financial qualifications and his real estate and industrial successes, there are questions about the abilities of the group he is organizing to fulfill the tender's complete conditions. We are left wondering about the privatization process in general, and in particular, the reasons which caused Claridge to drop out.

For a change, especially the way in which the privatization process of Bank Hapoalim was managed, and the drawn out zigzags along the way, are not the story here. The main disappointment was caused as a result of the establishment of the Brodet Commission, and the enactment of its conclusions concerning dismantling the bank's non financial holdings, is no less important than privatization itself.

More interesting than the Government's incompetence is the simple business decision by Jonathan Kolber and his partners, that it is not worthwhile to buy Bank Hapoalim. It is interesting, because Hapoalim, as opposed to most of the investments the group has executed up to now in Israel, is an investment solely linked to forecasts about Israel's economy as a whole, with few considerations for the single company.

Kolber says that he will continue to invest in real investments in Israel - and we actually believe him. But investments in Indigo, Geotek, or even Osem - are totally different from investing in Bank Hapoalim. To acquire 20% or 25% of the shares in the country's largest bank for approximately half a billion dollars, is akin to buying an option in the Israeli economy

and this option, in spite of the wonderful achievements of its basic assets in the past few years, is more dangerous than many people may think.

Ted Arison, one of the members of the group, recently completed acquisition of controlling equity in Israel's most profitable real estate company Housing and Construction. It appears to be a contradiction: here they decided to invest in a the leveraged real estate company, and here they are retreating from the tender to acquire a large bank.

However, there is no contradiction here. Housing and Construction is a "good deal" type of business the type that was widespread in the Israeli economy at the end of the 1980's and beginning of the 1990's but less widespread during the past two years. Today, after seven years of flourishing economic growth, most companies are sold at full price. The "good deal' era has ended. In Housing and Construction, Arison succeeded, through stitching together a complex deal, to pay a "good deal" price; with Bank Hapoalim this did not work.

The non-financial holdings of Bank Hapoalim, mainly Koor and Clal, were the security pillow for Kolber until the publication of the Brodet Commission recommendations. Kolber knew that if he dismantled the bank of its non-financial holdings whether sold or spun off he would create for himself a large profit hidden in the balance sheets.

When the Brodet Commission took these pillows from him, Kolber found himself with the bank. A big bank, a bank presenting high accounting profits during the past few years, but a bank with many question marks. These begin with credit to kibbutzim and in real estate and other surprises which can be hidden in the balance sheets; pass through potential troubles with militant workers committees which was learnt by Wertheim and Ofer (at Bank Mizrahi); and principally ends with acquiring an option in the Israeli economy, in an era in which winds are blowing in the area.

Aharon Dovrat says the group invested $4 million in the tender. But we are not obligated to view this quantitatively in order to recognize that we are talking about a serious group of investors, perhaps the most serious, that has acted in Israel. The Bronfman's already have a business record in Israel and George Soros and Goldman Sachs are no less serious.

Jonathan Kolber got cold, because all of the economic forecasts about Israel's economy have cooled down in the past few months. A bank, as Eliezer Fishman says, is a long term investment, seven, maybe, ten years. But whoever only thinks business, and is not among those who get excited just by the idea of controlling a bank, already today wants to see how to get a return on his investment with an appropriate yield.