Tnuva: Don't wait for the milk to spill

The Blue Square fiasco may induce other co-op members to organize
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Good news.

It's rare enough these days, especially in the economic arena. But we got some the other day, from ¿ of all people ¿ Israel's labor minister, Shlomo Benizri, more known for his dire forecasts for unemployment and poverty.

What was Benizri's happy information? That he's going to do with politicians should do, but usually don't. He said he gives up and won't interfere.

Benizri acquiesced to a gathering of the members of the Co-Op Blue Square Consumers' Cooperative Society. The assembly will vote on a proposal to sell the co-op's assets and divvy up the proceeds among the members.

For the minister, this was a retreat, after months of battle to keep the co-op from dissolving.

In practice, Benizri's decision is that the managerial panel appointed to run the co-op two years ago will summon the shareholders for the vote. Estimates put the number of shareholders, and heirs of deceased shareholders, at around 8,000. Most are expected to support the motion to sell.

For good reason: Selling the assets would bring each shareholder around $20,000 to $30,000. Twenty years after Israel's socialist cooperative structure began to fall apart, the shareholders will finally be getting some real value for their Blue Square shares.

Living, breathing relic of the past
One has to wonder, though, why Benizri fought so long to keep the co-op alive. The minister himself offered a few bizarre explanations, claiming for one that "protecting" the society would benefit its members. Heaven knows how. But it is certainly clear that whoever ran the co-op had free rein to appoint cronies to creamy positions.

Just one example is the allocation of options to top people five years ago. That is when then co-op chairman Benny Gaon got stock options worth $2.6 million, even though he never held any position at Blue Square itself.

The co-operative structure of Blue Square, a remnant of Israel's nationalist days, has created an anomaly. It has tremendous wealth built up over years, but its founding shareholders are not eligible for a sou of its assets or riches. The Blue Square co-op controls Blue Square Israel (NYSE:BSI), which is traded on Wall Street at a company value of $500 million.

The scheme boomerangs
The first people to notice the potential inherent in the situation were the company's managers and their cronies. In the mid-1990s rumors began to circulate in the capital market of groups organizing to take over the co-operative, led by the co-op's own managers.

But moves to organize a takeover boomeranged. Veteran shareholders got organized instead. One of them, represented by advocate Eliezer Levitt, went to war with the aim of dissolving the co-op.

The first consequence was a blistering report on the way the co-op was being managed. The second consequence was the ouster of chairman Benny Gaon. A third result was the decision of the labor minister, who is in charge of all such co-operative societies, to act toward selling the co-op's assets.

Now all that remains is to see how long it takes to sell the co-op's assets and hand out the proceeds to its shareholders, hopefully without delays that serve nobody but the co-op's managers and the others on its payroll.

Actually, something else remains: We may expect shareholders of other co-operatives to stir as they learn the extent to which the co-op managers rule the roost as though it were their own barnyard.


The biggest co-operative of them all is the daily empire of Tnuva. Its chief executive, Arik Raichman, has often stated that he means to examine ways to dissolve the co-operative and turn Tnuva into a company in which shareholders get a share in profits or dividends.

Raichman, take note ¿ Blue Square's chiefs also used to talk about making moves for the greater benefit of their shareholders. But they didn't, all they did was drag things out while perpetuating their reign.

The success of Blue Square's shareholders in their fight for rights should serve as a warning for Israel's other doddering co-ops. Long-disgruntled shareholders could well start organizing and thumping on the table for their rights.