This document summarizes a bitter corporate takeover battle taking place for control of the Gemul Company, which provides services to provident and pension funds in Israel. The key points of contention are whether Bank Hapoalim continues to exert control over Gemul despite agreements to transfer control to the funds two years prior, and whether funds' money is being improperly used. Opinions from lawyers are conflicting on these issues. The conduct of some fund directors in rejecting critical opinions and seeking opinions from lawyers also representing Bank Hapoalim is seen as suspicious and concerning for the interests of the fund members.

1. [Translated from Maariv Weekend Supplement, Friday 5 Adar I, 5760 (February 11, 2000)]
YOAV YITZCHAK FIRST CLASS
S T A R W A R S
ONE AND HALF MILLION PEOPLE – ME, YOU, ALL OF US – THOSE WHO INVEST
THEIR MONEY IN PENSION FUNDS AND PROVIDENT FUNDS, ARE NOT AWARE OF
THIS TAKEOVER BATTLE, BUT ALL MIGHT HAVE TO PAY ITS PRICE: THE
CORPORATE TAKEOVER OF “GEMUL” WHICH PROVIDES SERVICES TO THE
FUNDS. UNTIL ABOUT TWO AND A HALF YEARS AGO, THE COMPANY WAS
TOTALLY CONTROLLED BY BANK HAPOALIM AND CHEVRAT HA-OVDIM. UPON
THE INSTRUCTIONS OF THE ECONOMIC AUTHORITIES, THE SITUATION WAS
CHANGED, AT LEAST FORMALLY, AND IT SEEMED AS THOUGH CONTROL WERE
RETURNING TO THE MEMBERS. IN PRACTICE, IT TURNS OUT THAT, NOW,
TOO, THE REPRESENTATIVES OF BANK HAPOALIM ARE THE ONES WHO ARE
MANEUVERING THE BUSINESS MOVES OF “GEMUL”. SOMEWHERE, IN THE
ECONOMIC HEIGHTS, OUR MONEY IS BEING PLAYED WITH, AND WE ARE NOT
BEING ASKED. A FIRST ARTICLE IN A SERIES.
bitter corporate takeover battle is taking place these days for
control of the Gemul Company which provides services for the
provident funds and the pension funds. Many stars are
participating in this takeover battle: senior managers from the heads of the
business community, top-ranking lawyers, heads of Bank Hapoalim (which is
controlled by the Arison Group) and the heads of the Histadrut (General
Federation of Labor) are not conspicuous by their absence.
A
From the takeover battle, most of which is taking place behind the scenes, it
can already been realized that, as usual, the members of the funds could end
up paying the price. Its outcome, whatever it might be, concerns almost every
household in Israel. About one and a half million people invest in the pension
funds and provident funds. The question of who will manage their money
will, to a large extent, determine the face of the capital market in the coming
years, as well as the welfare of the investors. Whoever manages to secure his
position in this market could create a large advantage for himself. The
assumption – and this is a working assumption – is that management of the
funds will enable their manager to enjoy easy, vast, profits at the expense of
the public, as well as accompanying advantages. The amount of money
involved exceeds 100 billion Sheqels. Part of this could be used to acquire -
government or public – companies, and to arrange jobs for associates. This is
how institutional bodies behaved in the past and, with the level of
indifference reigning among the public nowadays, it is not out of the question
that this phenomenon will also continue into the future.
In the context of the struggle, it is claimed that improper use is, allegedly,
being made of the monies of the funds and that certain directors, who are
supposed to be loyal to the funds, are acting in a seemingly strange way. In
the following article – the first in a series I shall be publishing on this subject

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– we will focus on the struggle for control of the big treasure: the “Gemul”
Company.
THOSE WHO PAY THE PIPER
As noted, the Gemul Investments Co. Ltd. (hereinafter: Gemul) is at the root
of the dispute. This company is used as an investment pipeline for the
pension funds and provident funds in Israel. To be more accurate, it serves as
their long arm, intended from the earliest times to enable the concentrated
acquisition of financial assets at the very best price. The main elements who
acted through it funded its activity and were, in effect, its main share-holders.
They were, and are: Mivtachim an institution for the Social Security of the
Workers Limited (hereinafter: Mivtachim), the Central Pension Fund of the
Employees of the General Federation of Labor (hereinafter: CPF) and the
Comprehensive Center Fund for Pensions and Provident Payments A.S. Ltd.
(hereinafter: Makefet). These funds have invested hundreds of millions of
Sheqels in real estate through Gemul. Fund monies in excess of 100 billion
Sheqels were also deposited in its safe-keeping.
The fate of Gemul — its equity capital comes to some 1.4 billion Sheqels —
in effect concerns more than one and a half million members who receive
services from it, directly and/or indirectly through some 120 funds.
Until about two and a half years ago, Gemul was controlled without any limits
having been set by Bank Hapoalim Ltd. (22.12 percent) and Hevrat Ha-Ovdim
Ltd. (50 percent) through special shares that guaranteed them a decisive and
certain majority at the general meeting, including determination of the
composition of the board of directors of Gemul. This situation was changed,
at least formally, upon instructions of the authorities, among them the Bank of
Israel, the Ministry of Finance and the Attorney-General. They forced Bank
Hapoalim and Hevrat Ha-Ovdim, as also the funds, to work for a change in
the control structure of Gemul. The “stick” which the authorities used was:
warning of the start of procedures for the liquidation of Gemul and, at the
same time, revocation of the permit which granted Gemul an exemption from
payment of tax on its revenues. The agreement, which was attained in 1997
(termed: Brodet Document), set an interim period, in the course of which
extension of the exemption from tax was agreed for a period of five years –
until December 2001 (after which it was to become a regular company),
distribution of excess assets, termination of a cross-subsidy and non-
discrimination among the members. The main point, however, was: a change
in the structure of the capital and a unification of the shares in such a way
that Bank Hapoalim and Hevrat Ha-Ovdim were to be reduced to their true
size in Gemul. In other words: the pension and provident funds were to
exercise control in Gemul. In exchange for this, they were to pay to the
controlling interests in Gemul — primarily to Bank Hapoalim and Hevrat Ha-
Ovdim — financial compensation to be determined between the parties.

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The compensation determined was 32.4 million Sheqels. At the same time, a
mechanism was set up with the intention of enabling the new controlling
interests to appoint new directors in the place of some of those who had been
appointed by Bank Hapoalim and Hevrat Ha-Ovdim. The new appointments,
it was determined, were to be made gradually. At the end of the equalization
of rights process, which was completed some two and a half years ago, Bank
Hapoalim holds 8.13 percent of the shares of Gemul. The provident funds
and the pension funds, and other bodies, hold the remainder.
THOSE WHO CALL THE TUNE
On paper, everything looks fabulous. The members of the funds have
obtained control of Gemul and, apparently, a chance has been opened up for
them to manage their money as they wish. But in practice, it now turns out,
the representatives and agents of Bank Hapoalim, who are to be found at
various power points, are the ones who continue to maneuver the business
moves of Gemul. Seven out of the 15 directors have a connection to Bank
Hapoalim and a number of others are known on the board of directors to
support the moves of Bank Hapoalim. Put in simple terms: despite the
equalization of rights, Bank Hapoalim remains the actual controlling interest
and this is also expressed in the transactions carried out by Gemul.
The Mivtachim Company expressed this well in an application it filed with the
Court for liquidation of Gemul: “Just prior to the equalization of rights, seven
directors with a clear tie to Bank Hapoalim served on the board of directors of
Gemul. Today, two and a half years after the formal completion of the
equalization of rights step, the number of directors with a tie to Bank
Hapoalim is seven.”.
In the application, Mivtachim listed their names: Richard Armon (Chairman
of Gemul), formerly one of the heads of Bank Hapoalim; Aviyhu Olshansky (a
director on behalf of the public), formerly a director of Mishkan of the Bank
Hapoalim group; Yitzchak Bechar, deputy to the Director-General of Bank
Hapoalim; Sarah Aviran, provident funds of Bank Hapoalim; Menachem Zuta,
director of the provident funds division of Bank Hapoalim; Arye Abend, Bank
Hapoalim. As noted, these are the directors with a clear tie to Bank Hapoalim
but they are not the only directors who answer the interests of Bank
Hapoalim.
SUSPICION OF EXPLOITATION OF THE FUNDS
The question of how it happened that the piper managed to call the tune rather
than those who pay is interesting per se: Bank Hapoalim, which is in a
minority in Gemul (8.13 percent) maneuvers the members of the funds who
are the decisive majority in Gemul. Mivtachim holds that this situation
necessitates drastic change. This opinion is what led the controlling interests

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– Mivtachim, Makefet and CPF – to assess their relationships with Bank
Hapoalim. The issue on the agenda is: Following the equalization of rights
and the agreements signed with Bank Hapoalim, has the control indeed
changed hands, from the Bank to the provident and pension funds?
Those who spurred this process were mainly the Chairman of Mivtachim,
Doron Shorer (who has first hand knowledge of this matter by virtue of his
position as controller over insurance and the capital market at the Ministry of
Finance) and Shosh Oren, who serves as Chairperson of the Social Insurance
Division of the Histadruth. The latter acted in this matter, it should be said,
with the backing of senior officials of the Histadruth. It has been transferred
for the attention and opinion of Zellermayer, Pelossof – a law firm
specializing in company law and particularly in dealing with company take-
overs. It was Makefet, CPF and Mivtachim who requested the opinion which
was written by Adv. Gilead Amozeg of this firm. The decision to request the
opinion was taken in the management committees of the companies.
And, indeed, in the detailed opinion, it was found that Bank Hapoalim is in
effect mocking Gemul and its share-holders and continues to exercise
unrestrained control of it. Adv. Amozeg determined that improper use was
allegedly made of the members’ money, while taking advantage of the
standing and links of the Bank to some of the members of the Gemul board of
directors. In effect, Adv. Amozeg attributes to Bank Hapoalim and those
controlling it (the Arison Group) actions which are not impartial. In
discussions held in recent months the Gemul “list of purchases” was also
presented and it allegedly points to acquisitions from seemingly alien
considerations. We will deal with this in a separate article.
What happened subsequently with the opinion is apparent evidence of the
influence of Bank Hapoalim on certain members of the board of directors.
Mivtachim, headed by Doron Shorer, adopted the opinion in letter and in
spirit, and even, as mentioned, filed for the liquidation of the Gemul a few
weeks ago. The Makefet management initiated an examination of the opinion
and, either way, has avoided adopting it while the CPF management and
members of the board of directors have taken a negative and much more
extreme stance – they have rejected the opinion totally and have even come
out against the attorney who drew up the opinion for them. What is the
explanation for the conduct of the CPF people? Why did they behave the way
they did?
RUBIN’S HATS
In order to understand what happened, let us focus in on the CPF Company
and particularly on the conduct of the director-general, Shalom Tanami and
the chairman of the management, Ephraim Tzedaka. We will also take a look
at the activity of the Makefet Fund, headed by the director-general, Yitzchak
Shilon.

5. - 5 -
Captions under photographs, from right to left:
Knows the subject at first hand: Doron Shorer
Behaving in a strange way: Ephraim Tzedaka
Representing all the parties: Adv. Pinchas Rubin
It is clear that, soon after the opinion of Adv. Amozeg was given, Prof.
Tzedaka and Tanami acted to minimize it and to gnaw at its findings (a
further request, of course legitimate, was made to Prof. Yosef Gross).
Paradoxically enough, the two of them turned to Adv. Pinchas Rubin for his
opinion on the matter. This request would have seemed apparently to be
proper were it not for the fact that he is the same attorney who led the move
whose results are the subject matter of Adv. Amozeg’s opinion. Rubin
represented all the parties involved in the equalization of rights: Gemul, Bank
Hapoalim, the pension funds and the provident funds. This is not only a
matter of potential conflicts of interests for it is the result of Rubin’s work
that is criticized in the opinion.
The Chairperson of the Social Insurance Division of the Histadruth, Shosh
Oren, sent an angry letter about this to Tanami and to Shilon, a copy of which
was forwarded to the controller of the capital market, Zippy Sumet:
“As directors-general of CPF and Makefet, you are aware of the fact that the
preliminary review which was prepared at the legal firm of Zellermayer,
Pelossof was prepared at the request of CPF and Makefet and the request to
the firm of Zellermayer, Pelossof was made after all the requisite approvals
had been obtained in the competent institutions of CPF and Makefet.
“In absolute contradiction to what is stated in the above paragraph, you saw
fit to turn to Adv. Pinchas Rubin, privately and at your personal responsibility
only, without obtaining the requisite approvals from the institutions of the
pension funds which you head. And if that were not enough, of all the law
firms scattered throughout Tel Aviv, you chose to turn specifically to the law
firm which represents, currently, closely and intensively, Bank Hapoalim Ltd.
– the body that is the subject of the opinion.
“From this incident, as also from your letter to me of November 9, 1999, it
could be deduced that you are concerned with the promotion of interests other
than those of the pension funds.”
A further approach was made on the subject by the Advs. Gilead Amozeg and
Boaz Ben-Tzur (of the firm of Dr. J. Weinroth and associates). In their letter
to Rubin, they asked him to withdraw from representation of CPF because of
a suspicion of substantive conflicts of interests.
Anyone who expected that the directors in question would draw the obligatory
conclusions was mistaken. They insisted on obtaining an opinion from Adv.
Rubin. And they were not alone. In a letter dated November 18, 1999, which
Ephraim Tzedaka sent to members of the board of directors of CPF, he
granted authorization (his) to the request for Adv. Rubin’s opinion and
claimed that it had been sought after consultation with Adv. Asher Heller, the
regular legal advisor of CPF. The blame for the situation which had been

6. - 6 -
created, Tzedaka hung around the neck of Adv. Amozeg and his desire to
prevent “street battles”, as he put it, between the share-holders of Gemul.
Shosh Oren battled, as noted, so that she would be able to do her job as a
director of CPF. Once she realized that the CPF management, headed by
Tzedaka and Tanami, were preventing her from obtaining even elementary
information, such, for example, as the full minutes of meetings of the board of
directors, she asked for the help of Adv. Boaz Ben-Tzur and initiated legal
proceedings to safeguard the interests of the members of the funds. At the
same time, she wrote to the controller of the capital market at the Ministry of
Finance and even after the intervention of the director (through Accountant
Rami Dayyan), CPF did not agree to forward to her a copy of the minutes of
the meeting of the board of directors.
Adv. Pinchas Rubin responded affirmatively, as mentioned, to the request and
prepared an opinion on the matter, doing so despite the argument of conflicts
of interests. In a letter dated November 21, 1999, to Tanami and Shilon,
Rubin rejects the opinion of Adv. Amozeg. The opinion covers three pages,
only a few paragraphs of which relate to the matter in hand. All the rest
consists of general remarks and even criticism spiced with personal comments
addressed against the people who put this issue on the agenda of the members
of the funds. Here are some of his choice remarks:
“I regret that the source of the doubts in relation to the propriety of the
equalization of the rights from the point of view of the authorities specifically
come, apparently, from some of the share-holders or a share-holder in Gemul.
The publications which accompanied the subject in the press remind me, in
the extreme and as a paraphrase (and you will forgive me for not being able to
restrain myself), of the Biblical verse that “your destroyers and those that lay
you waste shall emerge from you”. And why am I taking such an extreme
position? It is not only because all (or most) of those concerned took part in
the processes and voted with their hands and their feet, and not only for the
reason that the state authorities appear to be satisfied with this process....
“It is better for me to end on this point and not list, like a peddler, the many
errors inherent in the other presentation of matters and I will also maintain
proper restraint in relation to the issue, the taxation outcome of which who
can foresee? I am intentionally desisting from relating to aspects which are
referred in the review directly against Bank Hapoalim, specifically in relation
to a possibility of breach of contract or enrichment.”
And further on: “I have written what I have written before perusing and
studying the thick files nor have I sought to cope with all the various
theoretical aspects that are apparently not acceptable to me.”
GREAT BUSINESS POTENTIAL

7. - 7 -
Had there been any doubt about the extent of the advance cooperation, even in
this opinion, between Adv. Rubin and Tanami and Shilon, the matter is
reinforced by Rubin’s own letter:
“I have dealt only with the aspect of the authorities and have not seen fit to
enlarge at this stage since ‘the means do not sanctify the end’. ‘The end’ is
what is puzzling for me. For me, as it is for you.
“Before adding my signature to this letter, I have sent it for your perusal so
that you can make any notes and comments, lest some error has crept into my
recollection or into my letter and in the presentation of matters, or lest
something has been omitted that is important and should be written as part of
such an initial letter. After you checked it, yourselves and with others, you
made some, but only a very few, comments, from which I conclude that this
letter of mine is acceptable to you”.
In simpler terms (mine – Y.Y.), it can be said as follows: Tanami and Shilon
turned to Rubin (who represents the partner-rival of the provident funds) so
that he would issue an opinion that would kill the opinion of Adv. Amozeg.
Otherwise, why did they coordinate the text of his letter with him? The
conduct of Ephraim Tzedaka also appears strange. Why did he agree to the
request for an opinion from Adv. Rubin? Why did he not insist on
safeguarding the interests of CPF, in the business-legal dispute with Bank
Hapoalim? Here it is worth noting that Prof. Tzedaka some years ago
received a payment to the value of tens of millions of Sheqels at the Shikun u-
Vinui Company (part of the Arison Group which controls Bank Hapoalim), in
the framework of work he did for it.
This struggle is likely to continue for a long time. It is a battle over the
management of the money and savings of more than one and a half million
members. This is really big money and a great business potential. The
parties concerned know this well and, perhaps for that reason, Tzedaka and
Tanami made a decision last week to engage the services of Adv. Ram Caspi
– for him to represent CPF in this affair.
Box:
REACTIONS
Yaacov Elinav, deputy to the director-general of Bank Hapoalim: “Most of
the directors were re-elected with the support of Mivtachim, and the chairman
Doron Shorer. Bank Hapoalim does not control Gemul. The Bank appointed
four directors only (out of 15). The Bank had excess rights in Gemul and we
gave them up against eight percent of the Gemul shares. The Bank is allowed
to make agreements with other share-holders in Gemul.
CPF (main points of the response): The request for receipt of an opinion
from Adv. Rubin was because he is an expert of the top rank and one of the

8. - 8 -
leaders in the country in the field of company law; because he accompanied
the process of equalization of the rights at Gemul and is au fait with the
specific material. The opinion of Prof. Gross, which was sought by the Fund,
supports the opinion of Adv. Rubin unreservedly; the equalization of the
voting rights in Gemul was approved by the relevant government ministries
and by Doron Shorer who then served as controller of the Capital Market
Division at the Ministry of Finance.
As to Prof. Tzedaka, we were told in reply that he does not see anything in
the positions he represents at CPF as tantamount to a conflict of interests,
considering the remuneration he received from the Arison Group. According
to a legal opinion of the Fund, there is no conflict of interests in that the
chairman of the board, Prof. Tzedaka, participates in deliberations on the
subject of Gemul at meetings of the company’s management.
Adv. Rubin did not respond to the request to talk with him in order to
obtain his reaction on this matter.
The director-general of the Makefet Group, Yitzchak Shilon: “I see nothing
wrong with our having turned to Advocate Pinchas Rubin with a request for
clarifications on this matter. Adv. Rubin has dealt at length with this subject
and has accompanied Makefet in the past, in the framework of the
equalization of rights process. He is well versed in this sphere and I, as the
director-general of Makefet, wish to see to our insured persons in every
possible way.”.