Three years after arriving at Discount Investment and two years after being appointed president and CEO, Yoram Turbowicz dropped a bombshell by announcing his resignation. Discount Investment reported that Turbowicz wishes to leave his position when chairman of the board Oudi Recanati resigns at the end of the month.
Oudi Recanati will be replaced by his cousin, Leon Recanati. The two jointly control the IDB group. The fact that Turbowicz will vacate his position on the same day that Oudi Recanati leaves Discount Investment to concentrate on overseas business is of more than symbolic significance. After all, it was Oudi Recanati that gambled by appointing Turbowicz, who was 40 and without business management experience.
Recent capital market rumors had Turbowicz perspiring because he failed to realize his company’s investments at their peak, particularly Cellcom and Tevel (which became the chief source of company’s losses). These rumors were strengthened by the unprecedented losses reported by Discount Investment in the fourth quarter of 2000, which resulted from investments in advanced technology ventures, particularly Internet ones.
It was important to Turbowicz to emphasize that he had no disagreements with Leon Recanati before deciding to resign and that as far as Leon Recanati was concerned, Turbowicz could have continued in his position. He nevertheless admitted that, “I decided to resign because the company is undergoing significant changes. Leon Recanati has been appointed in Oudi’s place. To the best of my knowledge, IDB plans as-yet-undecided organizational changes. I decided it was time for me to go.” Turbowicz’s statement can be construed as meaning that he himself took no part in those decisions, which are likely to involve the merger of Discount Investment with its sister company Clal Industries, managed by Meir Shani.
Turbowicz’s place in Discount Investment will be taken by Ami Erel, who will also continue as president and chairman of Elron (Nasdaq: ELRN), which belongs to the IDB group. Discount Investment has its own way of saying goodbye. Discount Investment padded the exit of Turbowicz’s predecessor Dov Tadmor with NIS 22 million. Considering his short term, Turbowicz can certainly feel comfortable with a golden handshake of over NIS 5 million.
Turbowicz, whose employment cost the company NIS 3.9 million last year, mostly bonus, will continue to receive a monthly salary and accompanying benefits until the end of June 2002 – thirteen salary checks of NIS 150,000 each. At the end of this period, he will be handed the benefits of his executive insurance policy, including a company allowance for double severance pay.
Discount Investment will also redeem Turbowicz’s options in the company, which were once worth over NIS 10 million, for NIS 2.9 million (the stock market decline has made these options worthless). For dessert, Turbowicz will be entitled to participate in future company profits from its investments in Brazilian telephone company GVT, provided this investment is actually realized within three years of his resignation. Participation in these profits will be according to an agreed formula, up to a maximum of 2% of Discount Investment’s profit on its investment.
GVT, jointly controlled by Discount Investment and its sister company Clal Industries, together with the Magnum fund, has a franchise to operate inland communications services in southern Brazil, a region with 39 million inhabitants. In order to exercise the franchise, the cost of which is estimated at $900 million, the shareholders have committed themselves to investing a total of $350 million in the project, of which Discount Investment’s share is $50 million.
Turbowicz arrived at Discount Investment in February 1998, and was appointed deputy CEO. Before that, he served as Anti-Trust Authority director-general, a position that more than once put him at loggerheads with the heads of IDB, which is active in almost all economic sectors. Turbowicz now says, “I still have no idea what I will do.”
”Globes”: “Did Discount Investment’s poor results pay a role in your decision?
Turbowicz: ”No, that’s ridiculous, because the company is in an excellent situation. We have large profits that have not yet been reflected in the reports, mostly from the guaranteed sale of shares in cable company UPC ($53-80 million – S.S). We’ve done a great deal in the past two years, like the merger of Discount Investment with PEC and the sale of traditional holdings, including Caniel, Klil, and Tambour, at good prices, and not under pressure.
”We also made promising new investments, such as the fantastic GVT project and a very promising investment in a license to operate third generation cellular communications services in Italy. We have technology investments that look great, and don’t forget the turnaround we led in Super-Sol (NYSE: SAE) and Tambour, in which we sold control yesterday. Cellcom doubled the number of its subscribers and became one of the three largest concerns in the communications market, next to the cable companies and Bezeq.”
For all that, what didn’t work out?
”I am disappointed at the lack of success in bringing the cable industry in general and Tevel in particular to a more secure standing.”
Do you think the industry faces a threat to its existence?
”Not to its existence, but it is hard to escape the regulatory maze. In the current situation, every regulator has a different policy. That is the main reason for Discount Investment’s loss last year. It’s a pity, because the industry is splendid, with exceptional capabilities for providing the consumer with the best package. The only obstacle preventing it is the regulatory chaos, which has been going on for several years. In this matter, I was confident that in Israel, as in the rest of the world, a solution would be found that would permit the cable companies to merge and compete effectively against Bezeq – the national communications monopoly.”
What about the losses from the Internet?
”All in all, we were conservative in the extent of our Internet investments. The XXL e-commerce venture was unsuccessful, but a company must operate in such a promising field, which matches Discount Investment’s investment policy and strategy. Concerning XXL itself, when we saw that the venture had no prospect of succeeding within a reasonable time span, we decided not to put it online. That, too, is part of being an investment company.”
Turbowicz was not the only reinforcement Oudi Recanati brought to Discount Investment in recent years. Other senior executives, such as Benny Einhorn (ex-Pele-Phone), Elon Shalev (former “Yediot Ahronot” editor), Yaakov Gelbard, Eliezer (Eli) Yones, who resigned, and others cost, and are still costing, millions of shekels each year. It can be assumed that the Leon Recanati’s organizational changes will thin out company management.
It is important to Turbowicz to broadcast a soothing message to his colleagues, although it is by no means sure they can continue sleeping peacefully. According to Turbowicz, “Einhorn and Shalev are not expected to resign. Preserving company continuity and stability is of primary importance. They are top level managers, professional and talented. I am sure they will continue to succeed in their positions, together with Leon and Ami Erel.”
Turbowicz and the other Discount Investment managers focused on communications and commerce for the past year and were unsuccessful. A catastrophic fourth quarter, with a NIS 304 million loss, put the company NIS 150 million into the red for the entire year. A primary reason was Discount Investment’s holdings in cable company Tevel, which reported a NIS 244 million loss, compared with a NIS 27 million loss in 1999.
Turbowicz is winding up his romance with Discount Investment on a positive note. Yesterday the company announced it would sell its 85% controlling share in Tambour to Granite Hacarmel Investments for $109 million. The deal will yield Discount Investment a $17 million capital gain. The profit is on top of a $2.5 million profit from the sale of aluminum company Klil Industries to the Daboosh family, the already realized $1 million profit from UPC shares, and of course the still unrealized $53-80 million profit in this company. Under the terms of the hedging transaction signed with a foreign investment bank, this profit can be realized by October 2002.
Published by Israel's Business Arena on May 7, 2001