Not one of the projections issued concerning Scitex's quarterly loss ever mentioned $150 million. Initial forecasts mentioned $50-60 million, which then rose to $110-120 million. But no one ever thought of, or wrote, $150 million.
It could be that Scitex maintains complete, leak-proof secrecy. That is the optimistic scenario. More worrisome is the thought that last week no one within Scitex could have estimated the extent of the quarterly loss. Is anyone in charge of things over there?
Since his appointment, slightly over one year ago, company president Yoav Chelouche has managed to tell the press on at least three occasions, that the severe market conditions had come as a surprise to him. Chelouche is evidently an sincere man, but perhaps its wise to keep a little to yourself. Scitex investors probably take little comfort in the fact that the market situation takes the company president by surprise, over and over again.
And if the company president has recently become more open, then conversely, the chairman of the board of directors Dov Tadmor has all but closed himself off. The man who more than anyone else represented Scitex, which was until recently the world leader in pre-press technology, has fallen silent.
A year ago, after releasing third quarter results for 1995, and after a marathon meeting, previous company president Arie Rosenfeld announced his resignation. Since then, Scitex management has resembled nothing so much as a train station. A new company president. A new president for the largest and most troublesome division, who has since resigned. A new General Manager for Scitex US. A new Added Investor Value manager, who also resigned yesterday. A new CFO. And yesterday, after record losses, a year after taking on the position, rumors circulated that Chelouche too, would be replaced. In the meantime, however, he is still there.
Only Tadmor’s name was not mentioned as a candidate for replacement. Aside from the Scitex matter and perhaps unfairly, Tadmor is identified with economic standstill. The same problem that turned Scitex from Israel’s flagship high tech company to the country’s most losing enterprise. Tadmor, more than the others, is also identified with rejecting Davidi Gilo’s offer to buy the company, half a year ago.
"A nice fat deal, from which he would benefit at the investors’ expense,” was how Tadmor defined Gilo’s intentions to acquire Scitex for $1 billion, or $25 per share, in a letter to shareholders. Scitex’s largest interest holders then girded themselves by acquiring over 2.5% of shares, which essentially guaranteed their control of the company.
But Tadmor was not satisfied, and explained exactly why Scitex was worth more. These same words can be said today, with minor changes. “The company is in the process of implementing a strategic plan via a new, experienced management team.” Since that time, almost all the management staff has changed, so one can still speak of a new management team. The strategic plan . . . isn’t that what company management decided on last Friday?
Tadmor also allowed himself to prophesize. “We have taken dramatic steps in order to return the graphic arts division to profitability in 1996,” he said. Today, after the most recent write-offs and lay-offs, the same statement may be made, but at the moment, the year Scitex hopes to return to profitability is 1998.
Scitex founder Efi Arazi was summoned to management’s aid. Arazi is the man whose departure from the company symbolized the beginning of Scitex’s decline, and whose new company, Electronics for Imaging, symbolizes perhaps, what Scitex could have been. Arazi attacked Gilo from another standpoint, that of job security. “Scitex employs the best of Israeli youth,” he explained. “Its existence is dependent on worker motivation.” Since then, Scitex has laid off 800 workers and those that remain will see their salaries slashed. Motivation, one may assume, is not on the horizon.
Scitex shareholders have also seen better days. Those same shareholders whose bank accounts Gilo tried to raid, today hold shares worth $10. Scitex itself is valued at $400 million.
Even more worrisome are questions concerning the future. Scitex has awakened to a morning without hope. Investors have not yet responded to the overwhelming quarterly loss, but the disconcerting fact is: there is nothing to wait for. This time, Chelouche is not promising profitability for the next quarter, or next year. The current target date for a return to profitability is 1998. In an ever-changing market, this means no one knows when Scitex will again be profitable.
One of Scitex’s attractions was a deep well of cash resources, and indeed, the company still has $135 million in liquid assets. However, the remainder of liquid assets are customer obligations and merchandise. At Scitex, both items tend to be written-off, from time to time.
On the other hand, current liabilities now stand at $230 million, so the Scitex balance sheet is also not what it used to be.
In the meantime, Scitex’s future is not in danger. The company has rich parents who think highly of their status. If Scitex needs money, the company can rely on them. But these parents are also responsible for Israel’s biggest managerial failure.