Koor's High-Tech Makeover Didn't Make It
By his own admission, Jonathan Kolber has been having plenty of sleepless nights lately. The onetime darling of the Israeli business community is working overtime trying to rescue the local empire of his mentor Charles R. Bronfman, one of the heirs to the Seagram (VO ) liquor fortune and a formidable investor in his own right. After Kolber was named CEO of Bronfman-controlled Koor Industries Ltd. (KOOR ) in 1998, he set about transforming the largely Old Economy conglomerate into one of Israel's leading New Economy players--just in time to be hit by the crash in global tech stocks and the collapse of the Middle East peace process.
Now, Bronfman says his $500 million investment in Koor has plummeted 70% in value as the company's share price has crashed with much of the rest of Israel's tech sector. ECI Telecom Ltd. (ECIL ), once one of Israel's high-tech stories and most profitable companies, has become Koor's biggest headache. It reported a $120 million fourth-quarter loss, and sales continue to decline. On Kolber's advice, Bronfman boosted his stake in ECI more than threefold, then merged it with Tadiran Telecommunications Ltd., a Koor subsidiary. Says Bronfman: "We thought ECI was going to be Israel's Nokia, but that's not going to happen."
ECI was Bronfman's best-performing Israeli investment in 1997, when his Tel Aviv-based investment company, Claridge Israel Inc., held a 10% stake. But ECI's success was based almost exclusively on its technology for doubling traffic on existing phone lines, and that business has declined with the emergence of new technologies. Its other products have been hit by the crisis in the telecom industry. "We're long-term investors and with patience we'll get ECI back on track," says Kolber.
Bronfman and Kolber, a Harvard graduate in Middle Eastern Studies, had the most successful track record of any foreign investor in Israel for much of the 1990s. Kolber's Montreal family had long-standing business ties to the Bronfmans. Now 39, Kolber came to Israel in the late 1980s to run Claridge Israel. He pushed the decision to buy control of Koor from Los Angeles-based Shamrock Investments, owned by the Roy Disney family.
Within months, Koor CEO Benjamin Gaon was let go, and Kolber took control. He quickly proceeded to sell off assets ranging from cement to steel to batteries, then poured the proceeds into Israel's booming telecommunications equipment sector. Telecom equipment now accounts for more than 40% of Koor's $2.5 billion in revenues. Profits last year were $66 million. Kolber also set up a venture-capital fund in 1999 to invest in telecom and biotechnology startups. But the timing was off--none of these investments has paid off.
BRIGHT SPOTS. Ironically, Koor's low-tech divisions are keeping the conglomerate afloat. Kolber could not find a buyer for pesticide maker Makhteshim-Agan Industries Ltd., so he fixed it up: Now, it's Koor's cash cow. "It's definitely the biggest jewel in a very faded crown," says Richard Gussow, Israel analyst at Lehman Brothers Holdings Inc. The other bright spot is Elisra Electronic Systems Ltd., a maker of advanced electronic warfare equipment that has an $800 million backlog from the Israel Defense Forces and foreign customers.
The closest Bronfman comes to criticizing his Israeli lieutenants is to wonder whether "we may have put too many eggs in the ECI basket." A senior Israeli banker familiar with the company is far more direct: "Kolber failed to do his homework. The writing was already on the wall at ECI when they sharply increased their stake."
Kolber himself has a lot riding on Koor's rebound. He invested $90 million of his own money for a 5% interest in the company. But the stock slide has slashed the value of his original investment by two-thirds. Kolber professes nonchalance at the huge paper loss. He remembers that in the 1982 real estate crash in North America, the Bronfman and Kolber families saw the share price of their Cadillac Fairview Corp. development company fall from $20 to $3. Five years later they sold Cadillac Fairview to Chicago-based JMB Realty Corp. for $34 a share. With Koor, Kolber expects a similar happy outcome. Trouble is, it could be a long wait.
By Neal Sandler in Jerusalem