Exactly one month ago, businessman Aryeh Genger, controlling shareholder in Haifa Chemicals, who has a stake in ESC, announced his intention of taking steps to bring about changes in the company’s Board of Directors, in such a way that control passes to his group.
Genger, who together with US businessman Bernard Gottstein holds 17% of the shares of ESC, sent company management a letter demanding the replacement of three directors, and the inclusion of another director. ESC management politely refused, leaving Genger and Gottstein no choice but to proceed to the next step.
The two men now intend to apply officially for the convening of an extraordinary general meeting in ESC, to discuss their proposal for changes in the company’s Board of Directors. Aryeh Genger told "Globes" the application is to be filed within a week from today. Israel's Companies Ordinance provides that an extraordinary meeting in a public company shall be convened at the demand of holders of 10% of the shares, a hurdle easily overcome by Genger and Gottstein.
The two partners’ move follows the dramatic deterioration that occurred in the past two months in the financial results of medical-cosmetic equipment manufacturer ESC, reflected in the fall of the share to a low of less than $5.
True, the share did recently post something of a recovery, against the background of what looked like the emergence of a battle for control in the company, and the share is now trading at $6, reflecting a market value of $164 million. Either way, ESC is still a long way away from its glory days in Wall Street, when it traded at a market value of a billion dollars.
Aryeh Genger now blames ESC’s commercial decline on the company’s management which, he maintains, is directly responsible for the dismal position reached by the company. "ESC’s managerial failure", said Genger, "relates to all the company’s spheres of activity, from product development to marketing. And when management does not function, the company obviously cannot succeed".
To date, Genger has been in the habit of stating that the move made by his group is not aimed directly against ESC manager and founder Dr. Shimon Eckhouse; now, however, the gloves are off.
"The wagon can be dug out of the mud", he said, "and the way to do it is for the Board of Directors, in its new composition, to choose the right management. Today, there is an option for replacing management, and it is the board that will decide the matter".
"I have known not a few public companies in my lifetime", Genger said, "and I want to tell you, the incumbent management of ESC is tainted with arrogance and conceit that I have never before encountered in any public company. This is a classic case of a management team divorced from reality and demonstrating total contempt for all the managerial procedures of a public company. This is simply irresponsibility of the first degree", Genger said.
It was meanwhile reported that US businessman Asher Edelman, known in the USA as a takeover wizard, who recently attained a 7% holding in ESC, has decided to support Genger’s candidates for the Board of Directors.
Genger confirmed this report to "Globes". "It is true that Edelman and I have different objectives (the prevailing assessment to date was that Edelman is working to sell the company to a foreign concern - A.D.), Genger said, "But Edelman, too, understands that the present management cannot be left in place and has decided to support our candidates for the Board of Directors. It should not be forgotten that Edelman has a holding in ESC, and would obviously like to see the share value increase".
Published by Israel's Business Arena April 12, 1999