ISA investigating ousting of Shufersal chairman

The Israel Securities Authority (ISA) has begun looking into the upheaval that took place at Shufersal Ltd. (TASE:SAE) last month, including the ousting of previous chairperson Israel Berman by Discount Investment Corporation Ltd. (TASE:DISI), controlled by Eduardo Elsztain, shortly after Discount Investment sold shares in Shufersal and declared that it was no longer the controlling shareholder in Israel's biggest retail supermarket chain, sources inform "Globes."

The ISA corporate division is conducting a check of the public companies for which it routinely supervises deals and irregular events that occur in them. Market sources said that it appears that this time, the examination is going beyond the usual extent of such queries.

For purposes of the examination, set off by Berman's dramatic dismissal, the ISA contacted Shufersal's law firm and collected the protocols from the board of directors meeting at which he was forced to resign, as well as the documents prepared for it. The ISA issued an order summoning Berman himself to appear.

The meeting with Berman was attended by five ISA representatives and took two hours. At the meeting, the ISA investigated in depth whether Elsztain disengaged from Shufersal only in the number of shares it owned, or also in its actions, connections, and meetings with Shufersal's management. In other words, whether Elsztain meets the criteria of a controlling shareholder in Shufersal, even though he is not the company's controlling shareholding according to accounting criteria. At this stage, only an inquiry is involved, but the ISA will decide on the basis of its inquiry whether to move its investigation into more serious channels.

As far as is known, the inquiry about Shufersal conducted by the ISA, headed by chairperson Anat Guetta, began even before the measures taken by Elsztain and his associates to dismiss Berman, when the ISA began summoning more people and asking for more documents. The corporate division conducts examinations from time to time and instructs companies to report and provide additional disclosures. This time, it appears that the examination is more thorough than usual, including possible aspects of reporting problems and more substantial issues of proper corporate governance.

Tumultuous meeting at the center of the probe

Shufersal made the headlines in July following a measure initiated by Elsztain to dismiss Berman. This culminated in Berman's resignation during a tumultuous meeting that in effect left him no choice in the matter.

The dismissal instigated by Elsztain took place shortly after Discount Investment, controlled by him, sold a 16.5% stake in Shufersal for NIS 850 million, after which it was no longer the controlling interest in Shufersal. The dismissal of Berman therefore initially surprised many people. The market now regards the measure as an effort by Elzstain to signal to the company and its leaders that despite the fact that although he now only owns 33.5% of the shares, he still regards himself as a dominant shareholder in Shufersal.

At the same time, "Globes" has obtained further particulars about the dramatic board of directors meeting at which Berman left his position and which is the focus of the ISA's probe. The meeting began at 12:30 and Berman was not in the room at the beginning. The directors who sought to summon the meeting severely criticized Berman's performance, saying that he was showing weakness when there was no controlling shareholder in the company, thereby causing damage, and that "new balancing" was needed.

When Berman entered the room, he began with a lengthy monologue listing everything he had done since joining the company and expressing astonishment about the timing of the demand to replace him and the motives for it, given the company's strong performance during his term. He wondered how it was possible that after there was no longer a controlling shareholder in the company, at a time when it was achieving excellent results, the replacement of the chairperson was suddenly being demanded.

Published by Globes [online], Israel business news - www.globes-online.com - on September 2, 2018