Doron Shorer, Chairman of Mivtachim fund, overcame Gemul fund after a long legal battle. Gemul, previously one of the largest pension funds in Israel managing billions of shekels, will be floated on the stock exchange with equity capital of 450 million shekels. The battle involved multiple lawsuits and opinions from lawyers as Shorer pushed to reduce Gemul's dominance and make it a publicly traded company, while Gemul's chairman Richard Armon fought to maintain the status quo. An agreement was finally reached downsizing Gemul significantly and requiring it to go public or become a smaller service company.

1. [Translated from Globes, October 24-25, 2000, pages 65 and 68]
R E W A R D A N D P U N I S H M E N T
Doron Shorer, Chairman of
Mivtachim, overcame Gemul,
“the mother of all funds”, one
of the last dinosaurs of the
Histadrut economy. The
flotation is due shortly, with
equity capital of 450 million
sheqels
Photograph of Doron Shorer

2. ANOTHER DINOSAUR BECOMES
EXTINCT
AFTER AN EXHAUSTING FIGHT, DORON SHORER, CHAIRMAN OF
MIVTACHIM, OVERCAME GEMUL WHICH YAACOV LEVINSON HAD
ESTABLISHED TO SERVE AS A CENTRAL FUND OF THE PENSION
FUNDS AND AN EASY SOURCE OF PROFITS FOR BANK HAPOALIM.
FROM A HEIGHT OF 3 BILLION SHEQELS, GEMUL WILL BE FLOATED
WITH AN EQUITY CAPITAL, IMPRESSIVE IN ITS OWN RIGHT, OF 450
MILLION SHEQELS.
Stella Korin-Leiber
Another ancient dinosaur yesterday announced its collapse. Gemul. After a
personal and business fight for survival which continued for three years, the
historic mother, the largest, fattest and most Bolshevistic of the pension funds
and provident funds, has become another investment company. It will be
controlled by its share-holders and will soon be registered for trade on the
Stock Exchange.
This was after a not inconsiderable personal battle which ended with winners
and losers. Doron Shorer, Chairman of the Mivtachim Fund – itself not such
a small dinosaur in its own right and one which should perhaps also be split
up – came out against the traditional establishment and overcame Richard
Armon, the Gemul Chairman, and his strongest supporter, Amiran Sivan, the
Director-General of Bank Hapoalim. Shosh Oren, the Chairperson of the
Social Security Division of the Histadrut, who supported Shorer, overcame
Shmuel Avital, the Histadrut Treasurer, who led the opposition until he was
forced to fold when Amir Peretz came into the picture. The young attorney,
Gilead Amozeg, only three years in the private market after having been a
legal advisor at the Ministry of Finance, overcame the battery of strong,
veteran attorneys, Pini Rubin, Prof. David Libai and Prof. Yosef Gross.
At its height, the equity capital of Gemul, the fund of the funds, was some 3
billion sheqels. Gemul was the creation of the late Yaacov Levinson, who
invented it as an interim stop, bearing hefty management fees, for Bank
Hapoalim, en route for deposits of pension monies with the Ministry of
Finance. Gemul managed the investments of the other funds and was another
of the tentacles of power and management fees of Bank Hapoalim, which, for
many years, held most of the controlling shares and a minority of the capital
shares. Most of the latter were held by a few score funds that, for their part,
never enjoyed dividends.
The revolution began in 1997. The amendment to the Banking Law forced the
banks to dispose of their real holdings to a maximum of 20%, and the large
bank also had to start unloading Gemul.

3. - 2 -
Two reports of the State Comptroller were also published, with harsh
criticism of the Ministry of Finance for its preferential attitude to Gemul and
for the conflict of interests of Bank Hapoalim in Gemul and excessive
centrality in the capital market.
David Brodet, then the Director-General of the Ministry of Finance, decided
to end the exemption from tax which had been granted to Gemul by one of the
Labor governments in the distant past. Armon, the strong man who controls
the comings and goings of Gemul and of Bank Hapoalim came and went to
friends in politics and, in the end, obtained a letter delaying cancellation of
the exemption for old investments until December 31, 2001. It also
determined that the surpluses were to be distributed as dividends to the share-
holders.
Gemul started a move for equalization of rights. There were to be no more
controlling shares and capital shares. In return for its relinquishing control,
the Bank demanded much money. The war of opinions went to arbitration by
Emeritus Judge Shaul Aloni and ended with support for the demand of the
Bank. The small funds which are partners in Gemul dared to announce their
objection and they obtained backing from the Ministry of Finance. A
compromise was reached: Bank Hapoalim received 1.35%.
With the ending of control by Bank Hapoalim over Gemul, that subsequently
turned out not to have happened in practice, the control stood at something
like: Mivtachim some 25%; Funds associated with Bank Hapoalim some 25%;
Bank Hapoalim – 8%; Central Pension Fund – 9%; Construction Workers’
Fund – 7%; Makefet – 5%; and all the remainder are bits of percentages held
by a few score provident funds.
Something else which was not implemented is the distribution of the
dividends to the share-holders. The Gemul Board of Directors did indeed pass
a resolution about distribution of dividends. The cash, however, was not
distributed but registered as a debt to the share-holders. And that was not
exactly with their approval.
At the beginning of 1999, Shorer took up his position as the Chairman of
Mivtachim and immediately began action against Gemul, the problematic of
which he knew from his job as Director of the Capital Market and Insurance
until 1996. He recruited Adv. Gilead Amozeg, of the firm of Zellermayer,
Pelossof, who wrote an opinion determining that the equalization of rights
move was indeed made and that Bank Hapoalim did indeed receive its portion
but that in practice the Bank had not relinquished control and was still, de
facto, in control through these or other means. In response to the requirement
that the directors be appointed by the controlling interests according to the
amount of control, the Board of Directors convened and passed a resolution to
secure the position of the directors for five years. This is something that was
not written anywhere but the procedural talks said that the Chinese Walls
celebrated with luxurious meals at the French restaurants of Tel Aviv.

4. - 3 -
Shorer demanded in effect that most of the monies held by Gemul, which was
coming close to the date of the exemption cancellation, be transferred to the
share-holders who continued to enjoy a tax exemption. With the intention of
making his point “ad absurdum”, he demanded that the equity capital be
reduced to 20 million. He was met with the fierce, all-out opposition of
Richard Armon, who was supported by Bank Hapoalim through Yaacov
Elinav, the director of real holdings.
In practice, one after the other, mainly under the influence of Elinav,
resolutions were passed to reduce the equity capital to the level of today: 800
million sheqels.
The Board of Directors was occupied with massive acquisitions. These
included, inter alia, parts of Natzba, Tau Industries, Sinal, Gazit Globe,
Supersol. Armon repeatedly argued before the share-holders that he could
bring such high returns that it would be worth their while to leave their money
with Gemul despite cancellation of the tax exemption. In some years, Armon
had indeed succeeded in bringing high returns but these met with harsh
criticism by Shorer, an accountant by profession.
The escalation in the relationships between Shorer, Armon and Elinav
continued to worsen. The mutual vilifications provided much gossip and
many headlines.
Together with Amozeg, Adv. Boaz Ben Tzur of the Dr. J Weinroth firm was
recruited. The other side recruited a number of respectable opinions, of Advs.
Pini Rubin, Prof. David Libai and Prof. Yosef Gross, who argued, each with
his own arguments and clients, that everything was in order and that Amozeg
was talking nonsense or imagining things.
But, as the opinions were being written, Mivtachim took another step and
filed an application with the Court for the liquidation of Gemul. The multi-
paged application reviewed the acquisition campaigns pursued by the
management of Gemul and also related, inter alia, the story of Gemulot
(which had in the past been managed by Ilan Tzuberi). This is a capital
intensive company that had been under the control of Gemul 50% and Bank
Hapoalim 50%. The share of Gemul in Gemulot was sold to Bank Hapoalim
for 112 New Israeli Sheqels. Mivtachim had serious questions on the subject.
A fierce internal battle was also being conducted in the Histadrut. The large
pension funds, Makefet and CPF, came together in total opposition to the
position of Mivtachim and they won the support of Shmuel Avital. The
Construction Workers’ Fund supported Shorer and also Shosh Oren. The
voices, here, too, were raised and outspoken.
Last May, Amir Peretz entered the picture and decided to obtain an opinion
from Prof. Amir Barnea. He determined that, for the good of the share-
holders, the equity capital of Gemul should be reduced in the first stage to
400 million sheqels and subsequently to 200 million sheqels, that the Board of
Directors had to include representatives of the share-holders at a ratio of one

5. - 4 -
director per 7.5%, as had been agreed by Bank Hapoalim. Barnea’s opinion
was adopted by Peretz as a compromise agreement. This required all the
other fund directors to make an upheaval in their thinking and interests and to
support the position of Mivtachim, although the latter was by no means a
favorite of theirs because of its size and the use it makes of its power.
The share-holders entered into compromise procedures which were led,
because of the personal emotional storm, mainly by the attorneys of the
parties, Ram Caspi on the part of Bank Hapoalim, Amozeg for Mivtachim and
Asher Heller who represented CPF and Makefet. It was decided, inter alia,
that the equity capital would be reduced to 450 million sheqels only.
Yesterday, the compromise received final approval in the Court.
So that a retreat from the process would not be possible, Barnea determined
that if, by May 31, 2001, the restrictions on turning Gemul into a public
company were not removed, there should be a further significant reduction in
the equity capital and the company would be turned into a service company
for pension and provident funds. This condition was also adopted.
At the meeting of the share-holders which was held yesterday, the
compromise agreement was approved. All members of the Board of Directors
were released from their position. The interested parties will appoint their
representatives at a meeting to be held later this week. It was agreed that,
after the new Board of Directors is elected, it would again elect Armon to the
position of the Chairman, and that he would lead the steps toward a flotation.
Armon will complete his term of office after the flotation. If no flotation is
made, he will complete his term of office the moment the company changes
its designation to a service company according to the Barnea opinion, i.e., by
May 31, 2001.
Text on upper photograph:
At the beginning of 1999, Shorer took up his position as the Chairman of
Mivtachim and immediately began action against Gemul, the problematic of
which he knew from his job as Director of the Capital Market and Insurance
until 1996.
Text on lower photograph:
Richard Armon will complete his term of office after the flotation. If no
flotation is made, he will complete his term of office the moment the
company changes its designation to a service company according to the
Barnea opinion, i.e., by May 31, 2001.