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The Israel Corporation and the State of Israel are on the verge of a major legal battle. Israel Corp., controlled by the Ofer family, informed the stock exchange yesterday that the Oil Refineries deal was no longer valid, as far as it is concerned. Under the deal, Israel Corp. was to sell its holdings to the state for $140 million.

The company also said it was turning to the courts.

Finance Ministry sources said Israel Corp. was essentially declaring war, and that the state would respond with full force. "As far as we're concerned, it's war," said senior ministry officials, vowing to "fight to the end."

"They agreed with us on the details and signed the deal," the sources added.

Israel Corp. reneged on the deal, which the cabinet approved in July, for one reason - "greed, because of the rise in share prices since then," they said.

"It's true that the government handled things poorly, but the moment we arrived at an agreement with them, six weeks ago, there were no delays on our part. They can't now change their mind."

Because Israel Corp.'s change of heart is already fact, as the letter to the exchange demonstrated, treasury officials are preparing for a legal and business battle with the holding company behemoth.

"We won't turn Oil Refineries into a private monopoly," treasury officials said, adding that "in no way will it end up in the Ofer family's hands. The Ofer family needs to understand that perhaps it's fighting now to save its honor, but the significance of the war will be that the family's current generation won't see any money from Oil Refineries."

Treasury officials added that the government, which is expected to reject National Infrastructures Minister Benjamin Ben-Eliezer's appeal, would give final approval to the break-up Sunday. "Let there be no mistake: If the government doesn't approve the break-up, there won't be any privatization."

The treasury also has no intention of negotiating with the Israel Corp. about raising the price for the company's 26 percent stake. "It's a question of the public's assets, and we have no legal or public justification for reopening negotiations. It won't happen," said the officials.

The treasury officials declared their intention to wage an aggressive legal battle against the Israel Corp. "If the Israel Corporation elects to break the contract, we will reopen all our agreements with them. Turning to the courts means that we demand to get everything. We'll go to the court and recall that, according to the Oil Refineries license from the British Mandate period, all Oil Refineries assets belong to us. Thus, their shares are not worth anything. They should be transfered to our hands for free. We're not playing around here. If it goes to the courts, it will be a war for the whole jackpot.

"It's a matter of serial contract violators," said the officials. "It's another cancellation of contracts, exactly what occurred in the Ramat Hovav and Mishor Rotem tenders, in which the group tried to squeeze out more and more, and when they saw they weren't succeeding, they pulled back. Now, too, with Oil Refineries, the group continues to break agreements."

The officials believe the Israel Corp. will not appeal the break-up decision. Rather, they expect the company to demand more for its shares. The legal dispute will likely whittle down to share value, which could allow privatization despite the dispute.