Oct. 11, 2012, 7:01 a.m. EDT, JERUSALEM (MarketWatch) – With its stock down more than 90% to less than 14 shekels ($3.63) from 152 shekels in winter 2010, pushing down its market cap to 620 million shekels from 5.74 billion shekels, Israeli corporate giant IDB Holding reported its latest financial results wrapped in a going-concern warning.
The sprawling holding company’s second-quarter net loss of 1.27 billion shekels followed a 36% drop in total assets to 35 billion euros in 2011 from 55 billion euros in 2010.
Lurking behind this shrinkage were failures to detect market mayhem abroad, social discontent at home, and a mixture of financial adventurism and corporate isolationism in IDB’s own boardroom.
Heart of the economy
IDB Holding IL:IDBH +5.44% has been at the heart of the Jewish state’s economy. The company has held controlling stakes in Israel’s top cellphone company, leading supermarket chain, biggest insurance firm and sole cement manufacturer, in addition to real-estate developer Property & Building Corp., IL:PTBL +0.54% agrichemicals giant Makhteshim-Agan, and high-tech gems like Given Imaging Ltd. GIVN +1.07% and Elron Electronic Industries Ltd. ELRNF +3.18%
Even so, while the Israeli economy and most of IDB’s subsidiaries performed well, the parent company sank in 2 billion shekels of debt, of which 1.6 billion is owed to holders of bonds whose yields have soared to 220%.
Staring into bankruptcy’s abyss, the company began swallowing a symptomatic treatment’s bitter pills.
Over the summer it sold a 49.9% stake in subsidiary Clal Industries IL:CII -1.01% for $300 million to Russian-American businessman Leonid Blavatnik’s Access Industries. And last month Argentina’s biggest real-estate tycoon, Eduardo Elshtein, in a personal deal with IDB Chairman Nochi Dankner, paid $25 million for a 10% stake in a company through which Dankner controls IDB Holdings.
Now, as IDB’s lawyers seek formulas to reschedule some of its mounting debt, and as more assets are likely to be spun off, the question is what caused the conglomerate’s crisis and what lessons investors should draw from it…Read More>>