Read the eerie parallel between Scitex and Nice and about Efi Arazi, Davidi Gilo, Rimon Ben Shaoul, Lauri Hanover and Haim Shani (Shaposhnik) It is about time the Israeli high-tech learned that value is built, not revealed.

Making a purely financial move

Shlomi Cohen, Globes
17.May.2001 15:56

”Hostile takeover of NICE-Systems (Nasdaq: NICE),” screamed the headlines. No takeover was involved – just a financial maneuver.

A takeover means offering a fair price to all the company’s shareholders, turning it into a private company, rehabilitating it through hard, tiresome work, and perhaps, if the process is successful, reissuing the company at a higher price in the future or selling it at a large profit after it recovers. That is not what happened at NICE. What they are plotting would leave the small investor in the lurch, probably with a much lower share price.

That’s what happened at Scitex

Six years ago Davidi Gilo submitted a fair offer to the Recanatis and all the other public shareholders to acquire Scitex (Nasdaq: SCIX) and rehabilitate it. Company founder Efi Arazi became alarmed and sent Gilo an emotional letter saying that Scitex wasn’t a stolen car that someone could disassemble in Gaza, afterwards selling the parts at a fat profit. Scitex remained the property of the Recanatis, who recruited Rimon Ben-Shaoul. He did exactly what Arazi accused Gilo of planning, except that he called it “revealing value”, rather than disassembly and sale of the parts.

The result is well known. The Scitex share, for which Gilo offered $20-25, was “revealed,” and the share tumbled to its current price of $8. Rimon Ben Shaoul and others are now trying to do for NICE Systems with its alluring $53 million cash reserves what they did for Scitex.

That is also what is happening at the moment in Koor Industries’ (NYSE: KOR)ECI Telecom (Nasdaq: ECIL). Koor has not yet finished “revealing” ECI’s value, and now it is turning to NICE, aided by information from former NICE CFO Yuval Yanai, who joined Koor. We will only mention that NICE’s financial distress occurred during Yanai’s term, not during current CFO Lauri Hanover’s tenure.

It is about time we learned that value is built, not revealed. What NICE needs is focused management with strong financial backing, not financial engineers. Anyone who thinks he can sell NICE to Comverse Infosys and take its cash is making a big mistake. Comverse Infosys has exactly the same difficulties as NICE. Only yesterday Salomon Smith Barney published a recommendation on Comverse (Nasdaq: CMVT), in view of the share’s decline. The review noted that while Comverse’s business is good, the same is not true of Comverse Infosys, which is suffering from the same drop in demand for its products as NICE.

In my humble opinion, Comverse chairman Kobi Alexander would be glad to sell Comverse Infosys to NICE in return for an allocation of NICE shares, in the hope that CEO Haim Shani’s good management, backed up by $53 million in cash, will lead NICE to prosperity when its markets recover. The unification of NICE and Comverse Infosys is essential and likely to succeed, just as the successful merger between Orbot and Optrotech produced highly prosperous Orbotech (Nasdaq: ORBK). Engineers and managers with a technology background led the process, not financial engineers.

The collapse of many stocks inspires financial operators to get their hands on companies like NICE with large cash reserves. I happen to know that a large mezzanine fund recently tried such a move on Optibase(Nasdaq: OBAS). The fund tried to convince the board of directors to cooperate in the sale of the company’s technology activity for a large sum, while leaving the cash, $53 million in this case also, in the shareholders’ hands.

In this case, the board showed the financial operators the door. Optibase’s management is busy building real value for all its shareholders by making the company a leader in broadband network video transmission equipment. This field is likely to grow enormously each year, as broadband becomes available to almost every Internet user.

Perhaps the Optibase management believes that in the future, with the expected growth in its business, the company will be able to merge with a major communications equipment manufacturers at much higher prices than those currently offered by any financial operator. There are at least two large foreign institutional investors that believe this. Wellington Management holds over 10% of Optibase. The Bloomberg news service reported yesterday that a Swiss concern named Festin Management also raised its holding to over 10%, after purchasing shares from Morgan Stanley Dean Witter.

Published by Israel’s Business Arena on May 17, 2001