Israeli tycoon Nochi Dankner's chances of retaining control of the IDB Group suffered a major blow Thursday, after Argentine Jewish businessman Eduardo Elsztain, who was supposed to invest $75 million in the company and help Dankner fight a hostile takeover by his bondholders, pulled out of the deal.
IDB owes some 1.8 billion shekels ($500 million) to bondholders, and NIS 206 million (about $57 million) to various banks. Elsztain was supposed to invest $57 million in IDB and another $18 million in Ganden Holdings, its parent company, providing both with a much-needed financial lifeline.
Dankner and his bondholders have been locked in a legal battle over the past few months. The bondholders demand Dankner's resignation and have rejected several debt and corporate restructuring deals presented to them.
The Tel Aviv District Court has ordered the parties to pursue arbitration before it rules on the matter, giving Dankner until Sunday to address his bondholders' concerns.
The embattled tycoon has been racing to find outside investors to rescue IDB. Elsztain's withdrawal from the deal means that Dankner must scramble to find new investors that could pump enough cash into IDB -- one of the biggest conglomerates in Israel -- to keep it from going under.
"Nochi and Elsztain parted ways with a warm handshake and Nochi thanked him for his efforts on behalf of IDB," a spokesman for Dankner and IDB said.
Dankner's associates confirmed that he was in talks with several possible investors, adding that he plans to secure an investment in IDB by Sunday -- the court mandated deadline.
Elsztain's departure from the negotiation was surprising and is rumored to have stemmed from an ongoing disagreement between the two over how much of the Argentine businessman's investment would be used as operational capital and how much would be placed in a trust in favor of the bondholders.
His involvement was also challenged by one of the bondholders, attorney Yitzhak Aviram, who petitioned the court against Dankner's intention to name Elsztain the vice president of IDB. He later pulled the petition.
Sources familiar with the negotiation, however, said that it was another development that tipped the scale against Dankner, namely a bondholders' meeting held Thursday in which 90 percent of them voted to remove him as the company's CEO.
Faced with the bondholders' overwhelming objection to have Dankner head the company, Elsztain had reportedly decided to bow out of the negotiations.
Despite Elsztain's exit, sourced in the capital market said that the bondholders' vote does not necessary mean that a hostile takeover has been set in motion, and that they may opt to sell some of the company's subsidiaries to recover their losses.
IDB Holdings is expected to present its restructuring plan, which entails merging with its largest subsidiary IDB Development, to the bondholders on Sunday. Danker is hoping to present the bondholders with his new investors at that time as well.
The court hearing meant to ratify Sunday's decision has not been set at this time.
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