"The acquisition of Mega was without question the best deal I made. I got the best locations," Yenot Bitan controlling shareholder Nahum Bitan told "Globes" 18 months ago, referring to the huge acquisition of Israel's second largest retail chain. Subsequent events, however, have once again shown that it is often difficult to integrate ambitious acquisitions into a fast growing company. This is what is threatening Bitan, who has been financially challenged since the first day of the deal, and now faces a showdown with Mega's workers.
In a meeting yesterday at the Histadrut (General Federation of Labor in Israel), Bitan wanted discuss with the workers' committee for the first time an across-the-board cut, including reduction of personnel through laying off hundreds of workers at the company headquarters, in its logistics center, and in its stores, including closing of branches, in addition to those that have already been closed or sold in deals that were already reported.
In the meeting, attended by Bitan and other senior managers in the chain, the sensitive financial situation facing the group was explained to the workers' committee and the Histadrut representatives.
The purpose of the cutbacks, as presented at the meeting, is to financial stabilize the group and pay the remaining NIS 100 million debt to the Mega trustees, which will relieve the pressure now bearing down on Yenot Bitan. Sources present at the meeting say that the chairman of the workers' committee became incensed at one point, saying to Bitan, "Your headquarters are wasteful and slothful; start cutting there." Other sources, however, say that the meeting ended with a handshake and a promise of another meeting.
Upheaval in relation with the Mega chain's workers
Until now, relations between Bitan and the workers' committee of the acquired chain were peaceful. Bitan is the man who rescued Mega from its dire straits four years ago, and agreed to hire its workers and provide amazingly positive conditions for them, in comparison with the competitors in the sector. He took care over the years to maintain positive relations with them. In the past 18 months, he also injected NIS 180 million of his own money in order to maintain the chain's stability.
Even in the past month, when Bitan sought to sell Mega branches to competing chains, the workers' committee cooperated by supporting the sale of eight stores in which Mega workers were employed.
This contribution, however, was not enough to stabilize the group. These relations are now being tested, while Bitan feels responsible for not only the 3,300 workers at Mega, which he acquired three and a half years ago, but also for the rest of his group, which has nearly 5,000 more workers.
For Bitan, this is the moment of truth. He will have to make difficult and painful decisions, even at the price of giving up workers and branches, in order to preserve the empire that he built with his own hands in recent decades, turning it into Israel's second largest retail group. In order to achieve stability, however, it is clear that he will have to give up things in the Yenot Bitan group and act with the responsibility of someone managing a NIS 5 billion business with nearly 8,000 employees.
The workers' committee is unwilling to pay the price
The workers' committee, however, which represents above all the 3,300 Mega workers, has a different slant on things. They regard Mega, with some justice, as the golden goose that is still generating profits now, with branches in leading locations, and is now having to pay the price for the state of the other chain owned by Bitan - Yenot Bitan, and even more of the neglected stores acquired years ago from the Zim brothers - the Kimat Hinam chain. An informed source summarized the mood concerning the branches acquired in this deal by saying, "The state of the branches was so bad that the workers didn't even have toilet stalls."
In any case, for the Mega workers, the demand to exact a price from them in the form of layoffs and closing Mega stores in order to stabilize the entire enterprise is unacceptable. As far as the Mega workers are concerned, they are operating the most profitable of the group's chains, and it should be preserved in toto.
While Bitan was criticized until recently for not making tough decisions, it now appears that he realizes that something has to done, and quickly. He faces a dilemma, however: the more responsibly he behaves and the more willing he is to recognize his cash flow distress and take more painful steps to put the entire company back on the rails, the more opposition and uncertainty he will face from all the parties around him: the workers' committee, the banks, and the chain's suppliers.
Workers' committee sources told "Globes" today, "Last year, the group was loaded up with deputy managers from outside, each of whom hired workers and drove cars. He should practice what he preaches; let him first fire the people he brought, and only afterwards the cashiers. We shouldn't have to fix the ills of his stores and those of Kimat Hinam. We won't accept any layoffs or closing branches; let him sell the entire Yenot Bitan chain."
Published by Globes, Israel business news - en.globes.co.il - on November 5, 2019
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