More Brawn For An Israeli Powerhouse?
Few would dispute that Charles R. Bronfman and his Tel Aviv partner, Jonathan Kolber, have been Israel's most successful foreign investors. The value of their portfolio there has more than quadrupled in the past four years, to $846 million, as the Canadian billionaire puts his bets on the success of the Mideast peace process and a booming Israeli economy. On July 23, the two took on their most challenging target yet by buying a 20% stake in Koor Industries, Israel's largest industrial conglomerate, with $3.5 billion in sales.
Bronfman's mission is to turn Koor, already Israel's most profitable company, into an internationally known powerhouse. Unlike Los Angeles' Shamrock Investments, which sold the shares, Bronfman insists he is not looking to break up Koor and sell it piecemeal. "We hope that Koor will be in the family for decades," he says. Bronfman's Koor holding will be second only to his stake in Canada's Seagram Co., of which he is co-chairman with his brother Edgar.
KOOR AS CORE. The deal, in which Bronfman's Claridge Israel bought Shamrock's Koor stake for $374 million, comes as Koor Chief Executive Benjamin D. Gaon has hired consultants McKinsey & Co. to advise on ways to focus the conglomerate better. Koor is in dozens of industries, from telecommunications and tourism to cement and chemicals. But whereas Shamrock President Stanley P. Gold had hoped to boost the conglomerate's stock price by dismantling the company, Bronfman is looking to make it the core of his Israeli investments. "Koor should concentrate its efforts in the future in three to four key areas," says Bronfman.
The question is just which fields these will be. Claridge already has a 10.2% stake in ECI Telecom, a world leader in telephone-line enhancement, while Koor has a 63% share in Tadiran, a major producer of telephone exchanges. Kolber says the two companies would be a natural fit. But Israel's new antitrust commissioner, David Tadmor, has ruled that Bronfman must sell either Claridge's ECI stake or Koor's 50% interest in Nesher Cement, estimated to be worth $800 million to $900 million. Says Tal Liani, an analyst at Tel Aviv's Zannex Securities: "Bronfman and Kolber will have to choose soon whether they want to be in the cement or telecommunications business."
Any consolidation will come under scrutiny. Tadmor is aiming to break the link between Israel's two largest holding companies, Koor and Clal Israel, which together account for some 6% of the country's economy. The two jointly own Israel's cement monopoly and, with Claridge's entry into Koor, would also control more than 35% of ECI Telecom.
As for sell-offs, observers believe that Bronfman and Kolber will unload Koor's tourism investments, since industry analysts predict far fewer tourists next year for Israel's 50th anniversary than originally estimated. Bronfman is also expected to sell off Koor's stakes in United Steel and Middle East Tubes, together worth about $65 million. McKinsey will then look at ways of meshing Claridge's holdings with those of Koor.
SECOND FIDDLE. Up to now, Claridge has been strictly a minority investor in such companies as Teva Pharmaceuticals, ECI Telecom, and Osem Investments. But Bronfman says he's ready to "graduate" to more hands-on management. To help him, he plans to retain Gaon, 62, as CEO. Gaon rescued the company from bankruptcy after being appointed to the top spot back in 1988 by the Histadrut Labor Federation, which controlled Koor at the time. He rescheduled the company's bank debt and fired half of Koor's workforce. Last year, Koor reported net profits of $181 million.
Still, whereas Gaon called the shots under Shamrock, now "Bronfman and Kolber will be directly involved in every decision," says a leading investment banker, who adds that Gaon will have to get used to playing second fiddle. That being the case, Koor's future direction is up to Bronfman and Kolber. The market is giving them a vote of confidence: After trailing the overall Israeli market, Koor shares jumped 6% after the deal was announced. Now, Bronfman must prove he can manage, as well as make money.