Many local capital market veterans must have raised their eyebrows in astonishment upon learning about Meir Gurvitz's interest in acquiring control of financially troubled El Al Israel Airlines Ltd. (TASE: ELAL).
After all, this is the same businessman under whose control real estate company Arazim Investment Ltd. (TASE: AZRM) has been required to make three debt settlements over the last decade, with negative equity, and regular warnings from its accountants of "significant doubts about the company's continued existence as a going concern" attached to its financial statements.
Gurvitz, his associates claim, views El Al as a business opportunity where money can be made, despite and perhaps because of the company's desperate situation (it also has a "going concern warning" in its financials). He is not seeking a hostile takeover and instead wishes to cooperate with the current controlling shareholder, Tami Mozes-Borowitz, either through El Al parent company Knafaim Holdings Ltd. (TASE: KNFM), or privately.
At stake, some say, is a $50-70 million private placement that will buy Gurvitz and Knafaim/Mozes-Borowitz joint ownership of 40%-50% of the shares following a planned $150 million public offering.
As for the debt restructuring of Arazim, (which operates in the lucrative UK real estate market), Gurvitz's associates claim assertively that the company's debt to bondholders has gone from NIS 400 million in 2011 (before the first settlement) to less than NIS 200 million today, and without the need for any haircut - although payment deadlines have been delayed repeatedly.
Gurvitz, who lives in New York, did not himself inject funds into company’s debt restructuring, having assessed that its asset value was lower than its liabilities. He retired from the board of directors after Arazim's first debt settlement was completed in 2012.
Gurvitz’s NIS 75m exit on Arazim
Few remember today that, a few years before the global credit crunch that crushed Arazim, Gurvitz was considered a "White Knight" who saved the company - in its previous incarnation - from the imminent threat of bond repaymentys by bondholders. That was in 1997, when he acquired control of the company, which had fallen on hard times, for less than $2 million.
Gurvitz then put Arazim on the straight and narrow, and managed to bring in investors, both private and institutional, that invested considerable amounts. Under his leadership, Arazim became among the most prominent Israeli real estate companies making investments abroad, a symbol of successful Israeli activity in the UK.
At its peak, Arazim traded at a market cap of over NIS 1.1 billion, and its share was listed on the Tel Aviv 100 index. At that time, Gurvitz recorded a handsome exit when he sold shares for NIS 75 million.
Regarding his current interest in El Al, it’s interesting to note that Gurvitz (65) has a pilot's license, and even used to fly the executive jet that Arazim acquired in its glory days, before its business collapsed during the global economic crisis of 2008.
From £500 in pocket to UK real estate empire
Meir Gurvitz was born in Kiryat Ata and was orphaned at a young age after the death of his father. At age 15, he left Israel to study at a yeshiva in Gateshead, in the north of England. Five years later, he moved to London with £500 in his pocket, which he’d borrowed from a friend. With part of the money, he purchased an old Renault car, using it as he began trading in building materials.
Gurvitz operated this business for the next nine years; it opened the door for him in the construction industry. In 1984, he entered into real estate development, initially on a small scale and taking any opportunity that came his way. Ten years later, after having weathered two property market downturns that all but depleted his bank account, he had a handsome portfolio of more than ten assets.
In late 1996, an extraordinary opportunity came Gurvitz's way. With the British real estate slump over, and the property market starting to recover, Lloyds Bank offered to sell 73 properties, housing its branches across the UK, for $50 million. The bank further promised potential purchasers that it would continue to rent all these branches for a period of 15 years, with rental income guaranteeing an annual return of 9.6%.
Gurvitz, seeking financing for this real estate transaction, offered his then-friend Motti Zisser to join him in the purchase. Within two weeks, Zisser organized financing for the deal (from Bank Hapoalim), and the purchase - which at the time was considered exceptional in terms of its scope for local entrepreneurs - went ahead. At the same time, having completed the Lloyds purchase, Gurvitz took control of the inactive and troubled Arazim in February, 1997. A year and a half later, having "doused the fires" at Arazim, he merged his entire UK real estate activity into it.
Thanks to his vast knowledge of the British real estate market, Gurvitz embarked on an aggressive buying spree, increasing Arazim's revenues and propelling its net profit from NIS 7 million in 1999 to NIS 162 million in 2006. In parallel with its investments in the UK, Arazim also made significant investments in Germany, all the while steadily increasing its leverage ratios.
The rapid improvement in the value of the company's assets during the high point of the mid-2000s did not go unnoticed by institutional entities, which began to pursue investments in real estate markets abroad. The first to hitch their wagon to Gurvitz's star was insurance company The Phoenix Holdings Ltd. (TASE: PHOE1;PHOE5), which in 2004 lent Arazim NIS 100 million for a 15-year period, and received options that could be exercised for 10% of the company's shares. (In the end, Phoenix was forced to forgive more than half of the loan).
That same year, another insurance company, Menorah Mivtachim Holdings Ltd. (TASE: MORA), joined Arazim's business through the joint acquisition of real estate in Germany. Menorah, fortunately, did not get burned like the Phoenix, and managed to sell its share in its joint portfolio with Arazim before the credit crisis.
In parallel with the legitimacy granted by the institutions, Gurvitz made a promising addition to Arazim's management, when in 2004 he appointed Tali Yaron-Eldar, the outgoing income tax commissioner, as the company's CEO.
In 2007, the media ranked Gurvitz as the "most effective" of company CEOs on the Tel Aviv 100 index in terms of salary, share performance, and company value. By the way, the runner-up in that ranking was none other than Lev Leviev, the former controlling shareholder in Africa-Israel Investments (TLV:AFIL) who, in those years, rose along with the international real estate market tide.
A TASE symbol of the 2008 financial crisis
With the outbreak of the global economic crisis at the end of 2008, Gurvitz made moves that clearly led Arazim into decline. The collapse in the value of company's assets and heavy financing expenses brought about huge losses; the share dropped in price, and its bonds were downgraded to the lowest level, reflecting insolvency. Taken together, these turned Arazim - burdened by a NIS 2.5 billion obligation to the banks, institutional investors, and bondholders - into one of the symbols of the crisis on the Tel Aviv Stock Exchange.
Arazim has not recovered since. Even at the beginning of deliberations with bondholders, in a rare public appearance, Gurvitz himself testified that "the biggest loser in Arazim is Meir Gurvitz. My holding in shares was worth more than that of all the bondholders. I will try to do what is good for the company so that it can weather the storm in peace. I recently bought Arazim shares - so, am I a sucker?"
In 2012, after negotiations that lasted no less than three years, the court approved the first debt restructuring between the bondholders and Arazim, amounting to NIS 400 million, which included a cash payment of part of the debt and a distribution of balance up until 2016. Gurvitz himself objected to the settlement because he estimated that Arazim would not be able to meet it, and later it became clear that he was right; due to Arazim's inability to recover, the company had to formulate debt arrangements in 2016 and 2017 as well.
The former pioneer of Israeli real estate investment abroad now owns six commercial buildings in England, whose fair value is reported in its financials at about NIS 178 million, and generate revenues of about NIS 22 million a year. As mentioned, the company's reports are accompanied by a "going concern qualification", drawing investors’ attention to a deficit of approximately NIS 52 million in shareholder equity.
Arazim is currently traded on the stock exchange through two series of bonds with a combined volume of more than NIS 150 million, bearing double-digit "junk" yields. Its shares were delisted a few years ago, "due to the company's non-compliance with minimum capital requirements."
Published by Globes, Israel business news - en.globes.co.il - on August 30, 2020 © Copyright of Globes Publisher Itonut (1983) Ltd. 2020