Next Sunday, at around mid-day,

Ellern Holdings (TASE:

ELHD

) and

Ellern Investments (TASE:

ELIN

) will be convening their shareholders' assemblies. The companies will be seeking approval to acquire control over three other publicly traded companies, all of which are controlled by the Dankner family -

Israel Salt Industries (TASE:

SALT

),

Dor Chemicals (TASE:

DORC

) and

Dankner Investment (TASE:

DKNR

). As of writing, approval seems in the bag.

The deals are designed to create a fairly large corporation that will hold the reins over a double-digit number of companies, engaged in a widely diverse range of activities from banking to real estate to telecommunications.

The question is, what is in the deal for Ellern's minority shareholders, and what the incentive of the sellers is. The sellers are five Dankner clan households.

Let's start with a closer look at the family. The whole reorganization was catalyzed by scion Nochi Dankner's decision to buy control over

IDB Holding Corporation (TASE:

IDBH

). But the desire to simplify the current ownership structure also played a part: there are over 20 different Dankners spanning two generations owning pieces here and there, a cumbersome structure when trying to make far-reaching decisions.

But the deals presented fabulous opportunities for several Danknerites, to remain in control of star companies such as Salt Industries and Dor Chemicals, while receiving tens of millions of dollars to boot. What could be better than that?

The households of Shmuel and Avraham Dankner wind up with $51.3 million and $47.9 million respectively. Each undertook to roll about $5 million back into Ellern Investment through exercising options they received during a rights offering held today. The options granted to share- and bond-holders are exercisable by September 30, 2003, at NIS 113 each a premium of 105% over the company's share price.

The heirs of David Gineo will be getting about $50 million, of which $16.2 million will be reinvested in Ellern Investment for a 22.8% stake issued to them in a private placement. They will be putting another NIS 15.5 million into exercising options received from companies controlled by Shmuel and Avraham Dankner.

Assuming that the three households exercise all their options, Gineo's heirs will get 18.4% of Ellern Investment's shares, while each of the other two households will also hold 18.4% interests.

Cui bono

The main beneficiaries of the deal are the households of Yitzhak and David Dankner, who will be getting $33 million and $35.7 million respectively, over three years.

Ellern Investment means to finance the deal partly through borrowing $105 million, mostly from

Bank Leumi (TASE:

LUMI

), one of the few institutions left that can handle such large amounts these days.

But the Dankners already owe Bank Leumi over NIS 1.5 billion, borrowed through Salt Industries to buy an 11.6% controlling interest in

Bank Hapoalim (TASE:

POLI

). Why should Leumi lend the family any more?

Assuming that Leumi's credit department isn't playing Santa Claus, especially just after the bank was struck by a credit downgrade, we may assume that Leumi is banking on getting repaid through some of that money sticking to the Dankners from all these convoluted dealings. That is what capital market players surmise.

And, again, what about Ellern's minority shareholders? Their immediate take from the reorganization: zilch. Not only will their holdings be diluted after the private placement to Gineo's heirs, but the conservative company in which they invested, which had held its leverage firmly down, will be turning into a company with a consolidated balance sheet bearing commitments in the billions. Most of those will be from Dankner Investments and Salt Industries.

Are they amused?

We may assume that the holders of Ellern Investment's Series A bonds, issued last February, are not amused either. These days, the bonds are trading at prices reflecting a yield to redemption of 13.6%.

The minority shareholders must also be struck by the prices Ellern Investment is paying for all these companies, which are far beyond their market value. The 13.1 million Dankner Investment shares are worth about $41.3 million on the market, while Ellern is forking over $55.1 million for them a premium of 33%. As for Dor Chemicals, its market cap is at $29.6 million, 22% less than Ellern's check.

Much the same goes for Salt Industries. The market value of the shares Ellern Holdings, the subsidiary, is buying is $94.6 million. But it's cutting a check for $122.7 million, a cool 23% above the marketplace. And note that Salt Industries dropped 22% on the Tel Aviv Stock Exchange today, because of the dwindling share price of its key asset, that 11.6% Bank Hapoalim stake.

On second thought, maybe Ellern's minority shareholders won't go quietly. Maybe they will raise hell at that shareholders' assembly and throw every obstacle they possibly can in the path of the three deals they are slated to vote on come Sunday.