IDB controlling shareholder and chairman Eduardo Elsztain continues to do battle over the future of his holding in Clal Insurance Enterprises Holdings Ltd. (TASE: CLIS) and generally over the existence of IDB, the faltering conglomerate in which he has so far invested more than NIS 2 billion, most of which has gone to meeting liabilities to creditors.
After opening a front against Supervisor of Capital Markets, Insurance and Savings Dorit Salinger and the trustee appointed on her behalf for the controlling stake in Clal Insurance, Moshe Tery, with the aim of preventing them from carrying out their decision to sell the shares on the stock market, Elsztain has now marked Clal Insurance chairman Danny Naveh and the board as a whole as a target in IDB's struggle for survival.
In a letter addressed to Clal Insurance last Thursday, Elsztain writes, "I approach you as a shareholder in the company in a moment of deep sorrow and trepidation. The fact that Clal Insurance's stock has performed disappointingly is not news to us.
"The Clal Insurance share has quite simply been the weakest performing share in the Israeli insurance sector in the past six months… investors have poor expectations about the future, which is manifest in the fact that the company is traded at almost half its shareholders' equity, while its competitors, with clearer strategies and business plans, are traded at multiples of up to five on their shareholders' equity (in fact, there is only one such company, IDI Insurance, which is substantially different from the large, traditional insurance companies, all of which are traded at below their shareholders' equity, R.S.).
"This state of affairs is made worse by the fact that we have already heard feeble arguments from the company presenting it as a victim that cannot pay a dividend or buy back shares because of regulatory orders and the need to strengthen its capital under the provisions of Solvency II."
It should be pointed out that this is true of insurance companies in general, all of which have found it difficult to distribute dividends, but it is especially so at Clal Insurance, which has not distributed dividends in recent years. This complicated reality was however known to everybody before Elsztain came into IDB, and when he agreed to the conditions of the Supervisor of Capital Markets, Insurance and Savings, which were laid down at the time that Nochi Dankner controlled the company.
In his letter, Elsztain criticizes Clal Insurance for not having bought back its own shares, which he says "would undoubtedly have been more profitable than any other investment the company could make today," and adds, "The comfort that the chairman derives from a situation in which the company has more capital, which in the end will yield him gains in the form of higher bonuses, worked against our interests as shareholders in the company."
Elsztain, who states that Naveh "lacks any financial experience" and that his compensation is "excessive", is the one who wanted to give Gil Sharon an unprecedented compensation package amounting to NIS 14 million annually to manage Discount Investment. He writes that Naveh's appointment by Nochi Dankner "was a terrible decision even then, but at least we now have an opportunity of correcting the mistake by ejecting him from the company or at least paying him in accordance with his real economic value."
Former minister of health Naveh was appointed as executive chairman of Clal Insurance in an 85% position in June 2013, when his terms of employment were approved for three years to June 2016, and he has led the company alongside its dominant CEO Izzy Cohen. Elsztain sent his sharply worded letter in response to the shareholders meeting that last week approved Naveh's new employment terms by a large majority. Under the new employment agreement, Naveh's annual compensation will be reduced to a little less than NIS 2.4 million annually, compared with NIS 3.7 million in the original agreement.
Sources close to events at Clal Insurance sharply criticized Elsztain's "stupid" letter, as they called it, adding that there was no intention of removing Naveh. The sources said that Elsztain had "lost it", and was still hoping to retain control of Clal Insurance, which they said was a continuing mistake that was destroying value.
Clal Insurance stated in response to the letter: "The board of directors of Clal Insurance rejects the IDB chairman's attempt to circumvent the instructions of the regulator, which explicitly forbid him from directing the actions of the board and from influencing it. The board of directors of Clal Insurance is bemused by the unbridled attack on the chairman, Danny Naveh, who in the past three years has led the group's board, together with the management, responsibly and professionally, making the group a leader in its business results, its financial strength, and its stability.
"This has happened in a period of frequent significant changes in the industry, and despite the effect of the prolonged process of selling the company, which IDB has conducted in the past few years with Clal Insurance's full assistance, and which IDB has not yet managed to complete." Clal Insurance further states, "The board is fully satisfied with Naveh's performance and dedication and is sure that he will continue to serve in his post with unabated effort… with the good of the company his, and the board's, sole goal."
Published by Globes [online], Israel business news - www.globes-online.com - on May 30, 2016
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