Israel Corp. shareholder sues over Zim deals

Yaakov Zelika has filed a $346 million derivative action against Idan Ofer and Udi Angel.

Israel Corporation (TASE: ILCO) shareholder Yaakov Zelika has filed a derivative action in the Tel Aviv District Court against Israel Corp. chairman Idan Ofer and Ofer Group chairman Ehud (Udi) Angel alleging $346 million of damage caused to the company by Ofer and Angel's decisions, including the acquisition of shares in Zim Integrated Shipping Services Ltd. and the decision to inject $100 million into it. Zelika alleges that the moves were made without the mandated majority approval.

A derivative action is a lawsuit filed by a shareholder or director on behalf of a company when company decision-makers cannot file a lawsuit themselves, because of interests that are not in line with the good of the company. The claimant must demonstrate that the action is for the good of the company.

Zelika owns seven Israel Corp. shares, worth about NIS 17,000. Ofer and Angel indirectly control Israel Corp. through Ofer Holdings Group. Zelika claims that, in August 2008, Israel Corp. owned 98.4% of Zim, but nonetheless invested $246 million in a rights issue by Zim in order to increase the holding by just 0.7% to 99.1%, even though it was already the sole controlling shareholder.

In July 2009, Israel Corp. injected $100 million into Zim via a long-term loan with no guarantees.

A month later, the company announced a further $100 million cash injection. In contrast to the first two transactions (the rights issue and the first loan), the report to the stock exchange on the third transaction was accompanied by an invitation to a shareholders meeting, as Ofer and Angel could be considered parties at interest in approving it.

Zelika claims that the company thereby admitted and confirmed that extraordinary transactions it carries out with Zim come within the definition of "an extraordinary transaction by a public company with another person, in which the controlling shareholder has a personal interest." Zelika says that these transactions require approval by a special majority (one third of shareholders who have no personal interest in the transaction) at a general shareholders meeting, but that these transactions were not brought to the meeting for a vote. Zelika claims that Ofer and Angel's personal interest arises from the fact that the private companies through which they control Israel Corp. are Zim creditors, and have maintained with it a longstanding business relationship in substantial sums.

Israel Corp.'s legal counsel stated in response to the report, "A week ago, an important discussion took place at an Israel Corp. board meeting, attended by directors unconnected even indirectly with the controlling shareholders, most of whom were not even directors at the time of the first transactions. After we gave the matter due consideration, it was determined unanimously that there were no grounds for filing a derivative action in these circumstances, and a reply to this effect was sent to the plaintiff's counsel."

Published by Globes [online], Israel business news - - on November 5, 2009

© Copyright of Globes Publisher Itonut (1983) Ltd. 2009

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