One Winner, One Loser in Ofer Brothers’ Billionaire Lottery
(Bloomberg) -- When Israel’s richest man died in 2011, the task of splitting his vast fortune came down to a simple lottery with just two tickets -- both jackpots with billion-dollar payouts. After outside managers divvied up shipping magnate Sammy Ofer’s hundreds of tankers, container carriers, and other cargo vessels into two groups of equal value, sons Idan and Eyal each picked one out of a hat as their mother looked on.
"We literally reached in and grabbed an envelope," says the younger brother, Idan, 61. "And that’s it. It was peaceful, no drama."
They did something similar with paintings by Picasso and Van Gogh and the rest of their father’s art collection. Other family assets -- real estate, bank shares, a stake in Israel’s biggest chemical company -- were evenly divided based on the brothers’ involvement in the various businesses. Eyal, 66, took over Sammy’s stakes in Israel’s Mizrahi Tefahot Bank Ltd., property developer Melisron Ltd., real estate around the world, and a stake in Royal Caribbean Cruises Ltd. Idan got control of Israel’s largest public holding company and various tech investments.
In terms of carving up colossal wealth, the Ofers did things as smoothly as possible. The brothers need look no further than their cousins Liora and Doron Ofer, the children of Sammy’s brother Yuli, to see how inheritance disputes can tear a family asunder. Those siblings are no longer on speaking terms after a legal squabble over Yuli’s stake in an investment company. Liora today controls assets valued at $2.3 billion, while Doron’s share is $675 million, according to Bloomberg index calculations.
Liora Ofer declined to comment for the story and Doron Ofer didn’t respond to requests for comment. Eyal declined to be interviewed.
Bad luck and differing appetites for risk, though, have turned Idan and Eyal’s equitable split into fortunes as lopsided as their cousins’. Idan’s bank balance has been battered by a commodities slump, ill-timed investment bets, and increased scrutiny in Israel. Eyal, by contrast, has added to his wealth with office buildings and hotels across the U.S. and Europe. When the split was finalized in 2013, both brothers were worth more than $6 billion. Idan’s stash has since dropped to $3 billion while the fortune of Eyal has grown to $8.6 billion, according to the Bloomberg Billionaires Index.
Tracking the value of his portfolio “doesn’t make me happy,” Idan says, munching chocolate-covered rice cakes in his bright corner office in London’s Mayfair neighborhood, where a large black-and-white photo of his bespectacled father peers over his shoulder. “But I’m used to it. And I’m not a speculator. Having a background in shipping makes me comfortable with cyclical things.”
The brothers were born in Israel, then attended boarding school in Britain before returning home to fulfill their military service. After studying maritime law in London, Eyal worked alongside his father to expand the family’s cargo shipping business. Idan, a 1982 graduate of the University of Haifa, chafed at the idea of sharing what he calls the “same small office” with his dad. He instead moved to Hong Kong and expanded the group into tankers.
After a decade in Asia and a couple of years in New York, Idan was drawn back home. The family that owned a giant holding group called Israel Corp. Ltd. was feuding and wanted to cash out. In 1999, the Ofers paid $330 million for a controlling interest in the company and Idan was appointed chairman. His homecoming was a coronation for the new prince of Israeli industry.
That investment stands at the root of Idan’s declines. He now controls Israel Corp., whose primary asset is fertilizer giant Israel Chemicals Ltd. In 2008, filmmaker Miki Rosenthal released a documentary called “The Shakshuka System,” a reference to an Israeli dish of eggs and tomato sauce, which Rosenthal used as a metaphor for the Ofers’ relationship with politicians. The film says the Ofers used their close ties to government officials to buy state-owned companies on the cheap.
Idan sued Rosenthal for libel in 2009 and the two parties settled out-of-court. Idan says he got no bargain on the companies, and that his restructuring netted the government more than $2 billion. Rosenthal, now a member of parliament with the Labor party, says Idan “tried using false claims to scare and dissuade me from completing the film.” Those efforts to “prevent the movie from being shown aroused considerable curiosity,” Rosenthal said in a statement.
In 2011, middle-class Israelis took to the streets of Tel Aviv and other cities to protest the rising cost of living, often blaming the country’s business elite -- sometimes singling out Idan -- for their woes. In turn, the government hiked taxes on ICL’s domestic profits and considered stripping the company of potash mines it operates near the Dead Sea.
When Idan in 2012 sought to sell ICL to Potash Corp. for $13.5 billion, Israeli lawmakers torpedoed the deal, saying it was against the national interest. As the price of potash, ICL’s most profitable product, has tumbled about 75 percent in the past eight years, the family’s stake in Israel Corp. -- now controlled by Idan -- has fallen below $1 billion, from $6.5 billion in 2008.
Though Idan has since moved to London, where he oversees his empire, he doesn’t link his move to the rising tensions in Israel. “I’m a citizen of the world,” Idan says. “It was time for a change.”
Eyal, meanwhile, has lived abroad since the 1970s and long ago minimized his role in Israel Corp., thereby skirting the tumult Idan faced. Over the years, he quietly assembled a real estate empire, starting with distressed properties on Park Avenue South in Manhattan. His deep knowledge of ships meant he was comfortable with similarly tangible (if less moveable) assets like buildings. By 1990, he’d bought and sold more than 30 of them.
Today, his portfolio includes more than 50 properties in four countries, ranging from a Travelodge hotel in London to splashy projects like a 43-story limestone tower on Manhattan’s Central Park West, where Goldman Sachs Chief Executive Officer Lloyd Blankfein and rock star Sting live in palatial apartments that cost as much as $88 million apiece.
Even as Eyal has gotten more ambitious as a developer, he has kept “a remarkably low profile,’’ says Richard Fain, chairman of Royal Caribbean Cruises, who has known Ofer for decades. “He’s very focused on doing things that are right and will enhance the reputation of his family.”
Partners who work with Eyal describe him as disciplined and highly-involved, actively grooming his four children to take over the family business, much as his father did. William Rudin, CEO of New York developer Rudin Management Co. Inc., who teamed up with Eyal on a luxury condo project in Greenwich Village, says the next generation frequently attend meetings.
“It’s a generational thing. Eyal’s kids refer to their father as chairman,” says Richard Meade, managing editor at Lloyd’s List, a shipping industry journal. “Discipline is very much his watchword.”
If Eyal’s side resembles a classic, patriarchal family business, Idan’s is more an assemblage of bold moonshots. Scott Borgerson, CEO of Boston-based investment firm CargoMetrics Technologies LLC, says that’s what happens when one combines extreme wealth with an erudite man of disparate interests. Surrounded by society A-listers at a glitzy party in Saint-Tropez in August, the two sat late into the evening debating 18th-century British and American colonial history.
“I have a PhD on this and Idan was teaching me stuff,” says Borgerson, whose company counts Idan as an investor. “But under his intellectual curiosity he has a hard edge.”
Idan says real estate doesn’t interest him and he avoids mature markets for their slow growth. He has backed power stations in Africa and Peru, a Chinese automaker, and a startup that makes home-testing kits for urine. In 2007 he invested in Better Place, an electric-car charging station operator that soared to a valuation of $2 billion in 2011 but went bankrupt two years later.
About the time Better Place was peaking, Idan gambled on an industry few but a risk-loving billionaire could afford: deepwater oil-drilling rigs. In late 2011 he listed Pacific Drilling SA on the New York Stock Exchange, which valued his 69 percent stake at $1.2 billion. The oil rout has since driven the stock price down 95 percent.
Neither brother has been spared shipping’s historic bust. Since January, both brothers’ fleets have lost about $1 billion in value, according to researcher Vessels Value. That plunge, thanks to oversupply and anemic trade, might crush a smaller operator. But Eyal and Idan -- who control the 20th and 25th biggest fleets in the world, Zodiac Group and Quantum Pacific Shipping -- have the cash to withstand it, according to Vessels Value analyst William Bennett.
“Your survival in this market is your luck and having very deep pockets,” Bennett says.
The only thing riskier than dividing up their late father’s empire may have been running it together. Idan and Eyal say they are close, but they don’t discuss business. Eyal sees himself as the custodian of a treasure he intends to pass on to his children. Idan, whose eldest son is a student at Harvard University, says he’s unsure what role -- if any -- his children will play in his businesses. He says only lawyers win when families stay together and eventually start fighting.
“How many rich brothers can you think of have stayed together and still work together?” he asks. “My brother and I were very peaceful about it. He’s living happily ever after and so am I.”