Despite avid denials,

Koor Industries

(NYSE:KOR) Vice Chairman and CEO, Jonathan Kolber, is apparently secretly planning the dissolution of the giant conglomerate. Research by TheMarker magazine reveals that in recent months Koor has been preparing for such a move. The preparations include dividing the concern's main holdings among its major shareholders, namely the Claridge Israel group, controlled by Jonathan Kolber and Charles Bronfman.

Koor's stock jumped 9.3% on Monday, on a large NIS 27.6 million volume. One of the main reasons for the leap is speculation, mostly from foreign investors, regarding the conglomerate's upcoming dissolution.

This is how it will happen. The first stage includes an almost immediate halt to the company's investment activities. Stage two involves dividing the concern's holdings among its various shareholders. The problem is that most of the holdings are subsidiaries, created for the sole purpose of becoming a holding. In order to spin-off these holdings, the negotiable holdings must be directly owned by Koor.

Which is exactly what Koor is trying to accomplish these days. Take for example, a chunk of Koor's shares in

ECI Telecom

(Nasdaq:ECIL) which is held indirectly via

Tadiran Wireless Communications Industries


But section 27 on Koor's balance sheet reveals that one month ago Tadiran and Koor signed an agreement according to which all of the Tadiran-owned ECI shares were sold to Koor at their market price on the day of the sale. A similar step was taken by

Makhteshim Chemical Works

, a company founded for the purpose of holding 56% of Makhteshim Agan's share capital. The concern similarly holds 100% of

Elisra Electronic Systems

, one of its most prominent holdings. Elisra's shares were recently transferred from Tadiran to Koor, which holds Elisra directly.

The future scenario is very clear: After ECI exits its current crisis, Koor will move to sell or merge its non-negotiable holdings, with Telrad and Elisra at the top of the list. After those are sold or are made negotiable through the merger, the consortium will begin its process of dissolution. The ECI, Makhteshim Agan, Telrad and Elisra shares will be divided among the concern's shareholders, the Bronfman family, Kolber,

Bank Hapoalim

and others, in kind dividends. At this point, the concern will no longer have a need for a headquarters, so the parent company will then be disbanded.

This will in effect return the Bronfman and Kolber families to the former pattern in which they used to conduct their Israeli investments. Not through an exchange consortium, but through direct ownership of shares, as was done through their Claridge Israel fund three years ago. The advantage of such conduct not only reduces the discount on negotiable holdings, it also enjoys the discretion of being away from the public eye, and spares them from having to consider minority shareholders' views and opinions.

When will this process end? According to section 105 of the Israeli Tax Authority, the transfer of shares from a subsidiary to the parent company is tax exempt provided the company holds the shares for at least two years. It can be reasonably assumed then if there are no dramatic changes in the capital market, the telecommunication market, and in the sentiment towards holding companies, the dissolution of the concern will be completed in two years' time, when the consortium celebrates its 60th birthday.