"No chance that Solbar's Israeli plant will be closed"

Solbar CEO Shaul Shelach says that the company's US buyers CHS Inc. will continue operating the plants in Israel.

We arrived at the Solbar Industries Ltd. (TASE: SLBR) plant in Israel at 8:30 am. Employees are already entering the offices, but the energy animating the corridors makes it feel like noon on a very busy day. The receptionist welcomes each employee with a big smile. "That's how it is with us. There's no distance. Everybody is everyone's friend," CEO Shaul Shelach of the soy proteins and products maker, which has been acquired by CHS Inc. (Nasdaq: CHSCP) US farmer-owned cooperative for $133 million, told "Globes".

Founded in 1961 by Kibbutz Hatzor, had gone through a lot until it found a suitable American giant that was prepared to pay 2.2 times its market cap. In early 2007, the company faced the worst crisis in its history and was on the brink of insolvency. Kibbutz Hatzor, lacking independent means, turned to Ishay Davidi's private equity firm First Israel Mezzanine Investors Fund (FIMI) and Meir Shamir-controlled Mivtach Shamir Holdings Ltd. (TASE:MISH) and Frutarom Industries Ltd. (TASE: FRUT; LSE:FRUT; Pink Sheets:FRUTF) CEO Ori Yehudai, which injected considerable capital into the company, bringing itback to life. Solbar now has about 400 employees, half of them at its Ashdod plant. Most of them reside in the city and its environs.

FIMI will receive $37 million for its 27.8% stake in Solbar (3.5 times its investment), Mivtach Shamir will receive $22 million for its 16.6% stake, Kibbutz Hatzor will receive $29 million for its 21.7% stake, and Solbar director Yehudai will receive $2.3 million for his 1.7% stake.

Solbar's buyer is a bit surprising, since the largest US soy products company is Memphis-based Solae Inc., with about half of the market, followed by Archer Daniels Midland Company (NYSE: ADM), which has a market cap of $19 billion.

Shelach told "Globes" that neither ADM, and especially Solae, were potential buyers for Solbar. "We made a decision not to be sold to Solae," he said. "I was a party to this decision for one simple reason - to protect the interests of Solbar. That is why it was very important to us that the sale process be handled discretely and as quickly as possible. Otherwise, it would have hurt the company."

What is the real reason why you weren’t sold to Solae?

Shelach: "Zionism."

Zionism or ego that is trying to deal with a rival that is obstructing you?

"No. It wasn’t ego. In the case of FIMI, its ego is based solely on how much it will profit from the sale, which is legitimate. However, Solbar is a company without ego. I call this 'Zionism', because in the end, what influenced out decision was the risk that if Solae acquired Solbar, it would close some of the company's plants, mostly likely its plant in Israel."

Did Solae make an offer?

After hesitating, Shelach said, "No. I think they didn’t even know about the sale process. The investment banker received clear instructions not to bring Solae into the process."

Because of the business rivalry?

"It wasn’t because of the business rivalry. We're not talking about Osem Investments Ltd. (TASE: OSEM) and Strauss Group Ltd. (TASE:STRS) here. The only reason was fear that our plants would be closed. Some of Solbar's directors explicitly said that we must not sell the company to someone who might close the Israeli plant, and now there's no risk that that will happen. There will always be a willingness to operate it, but Solae was the only potential buyer that was liable to make a decision not based on economics and close it."

Despite Shelach's harsh comments about his main rival, he did not rule the possibility that Solbar might ultimately be sold to Solae. "Everything is still open, and if before closing the CHS deal, Solae makes an unexpected and better offer than CHS's, Solbar has the option of cancelling the deal," he said, adding, however, "This is not a realistic scenario at the moment."

What guarantee do you have that CHS won't close the factory in a few years?

"Nothing. We don’t live in a world of guarantees, and right now I can only talk about intentions, plans, and a company's DNA, which in the case of CHS, is very compatible to the DNA of Solbar."

To support his claim, Shelach related that CHS representatives visited and thoroughly examined Solbar's plants, including the one in Ashdod. "They tested the thickness of the machinery walls, which is a measure of their erosion. This tells me that they are serious about the company, and that they intend to continue operating the plant."

CHS is no small company, but a huge corporation, with a net profit of $961.4 million on $36.9 billion revenue in its 2011 fiscal year (which ended in August). The company has range of operations in energy, operating a refinery and network of pipelines, cereals, grains, nutrition, food and ingredients products.

Aren’t you afraid to sell the company to a corporation whose core business is not soy products?

"No. On the contrary, I see this as an advantage. What Solar has done in the past few years has made it a more attractive acquisition target for CHS than for Solae. Solae would have acquired us in order to eliminate an annoying rival, whereas CHS acquired us in order to develop us and move us forward."

Do you believe that this was the right time to sell Solbar?

"Absolutely. Solar was in a position in which a private equity fund like FIMI no longer suited us. I do not disparage the billions of dollars that FIMI managers, but when a company like Solbar wants to expand and build its competitive advantage, a shareholder like FIMI isn't suitable.

"During the years when Solbar needed financing, FIMI was good to it, because FIMI is a firm that knows how to inject capital. That's its expertise. And until recently, the company fit with its shareholders who solved its financial problems was excellent for Solbar. But things change, and Solbar no longer has financial problems, but its challenges are no simpler."

Shelach admits that the experience he gained in working with FIMI was why he vetoed the sale of Solbar to another private equity fund, which was one of the options available. "It wouldn’t have been good for Solbar, and I believe that, unlike a financial buyer, a strategic buyer would be prepared to pay a suitable price."

Shelach will continue running Solbar after the acquisition, until September 2012. "I'll stay here as long as they need me; that I am good for Solbar, and Solbar is good for me," he said.

And after September?

"I'll probably still be here, but I promise nothing," he said with a smile.

How did Solbar's employees take the news of its sale?

"There's something in the Solbar's kibbutz ethos that creates a lot of optimism, trust, and even naivety, and this is not only true for the employees in Israel. In truth, it's more them than me. When I stand before them, looking at them in the eye, and tell them, 'This is a good thing, and you have nothing to be afraid of', they believe me. For them, 'Shaul said, and we buy what he's saying'. Their first choice is to believe me."

Published by Globes [online], Israel business news - www.globes-online.com - on December 15, 2011

© Copyright of Globes Publisher Itonut (1983) Ltd. 2011

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