It took a two week-long cottage cheese rebellion to get Israelis to question the power of the country's tycoons.

Angry about high prices, consumers boycotted the beloved dairy product last month. As containers of cheese piled up on supermarket shelves, the country's richest people became the focus of the sort of media attention normally given to politics and homeland security.

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Newspapers and television stations, which civic groups have long criticized for ignoring the massive concentration of corporate power in a small group of Israeli business groups and families, made the boycott a top story for days.

"I woke up this morning smeared in cottage cheese," Muzi Wertheim, a business magnate who controls one of the country's largest dairy producers, said during a speech at a Tel Aviv university at the peak of the protest.

Cottage cheese might be just the beginning. Last October the Israeli government set up a committee to explore the level of competition in the economy. The committee is expected to present its findings in several weeks.

The Bank of Israel already says the country has one of the highest concentrations of corporate power in the developed world. A scathing parliamentary report from June last year found that 10 large business groups control 30% of the market value of public companies, while 16 control half the money in the entire country.

That's far more than in western economies such as the UK, Spain or Germany. The Organisation for Economic Cooperation and Development, which last year admitted Israel as a member, said Israel's level of corporate concentration is problematic.

If the government committee agrees with those assessments it could recommend breaking up the biggest oligopolies and opening Israel's market to new competition and investment, both foreign and local. Though nothing has been decided, change looks increasingly likely.

"These large business groups may have helped Israel's economy when it was younger, but it's now a developed market, and it will be hard to keep up the current rate of growth in this situation," said one official familiar with the deliberations. "The committee members are aware of this. Breaking them up will help competition and growth."

Such a move would have huge implications for tycoons such as Wertheim, whose dairy business is just one part of an empire that includes the country's fourth-largest bank, Coca Cola bottling company and a primary share in one of its largest real estate firms. Like many of Israel's other magnates Wertheim also owns a large stake in a popular media organization.

A number of the larger holding companies have fought back, arguing to the commission, Reuters has learned, that regulations are already so strict that they have forced Israel Inc. to invest abroad rather than locally.

In a rare public comment Nochi Dankner, chairman and controlling shareholder of IDB Holding which owns everything from a mobile phone operator to an insurance firm, told Reuters that Israel's "robust financial system" was a result of "clever and strict" regulation.

"I cannot find any rationale to shake it," Dankner said in his emailed comments. "The most important mission of the regulation is to keep and augment the stability, beyond any other consideration. Separation of financial holdings and real holdings definitely rocks the financial system, not stabilizes it."

Israel's pyramids

Concentration in Hebrew is often called "hon v'shilton", which means "fortune and governance", but refers more to the close relationship between the two.

"We see the 'fortune' walking through the halls of parliament," parliamentary speaker Reuben Rivlin said in a radio interview last month. "'Fortune' is more and more taking control of the judgment of the people sent by the public to safeguard the state of Israel and its interests."

One of the problems, according to the OECD, is that Israel's big business houses exert control through "cascading ownerships, pyramidal structures and cross-holdings".

In a pyramid structure, a holding company controls a subsidiary, which then controls its own subsidiaries, and so on until the top of the pyramid can technically control a company at the bottom with less than 10% of the capital.

Dankner's IDB is a classic pyramid, though he and his partners have stakes of at least 30% in all of the company's major holdings. At the top sits IDB Holding which controls IDB Development which in turn controls several other holding companies. Consumers may not know it but they come into contact with the bottom of the pyramid when they do something as simple as walking into a shopping mall. They might visit Super-Sol, Israel's largest supermarket chain, shop at Golf and Co., one of the biggest fashion and homeware chains, or buy a mobile phone from Cellcom, Israel's largest mobile operator.

After that, they might visit an Internet café and go online using one of Israel's top Internet providers Netvision, or stop by a branch of travel agency Diesenhaus to book a flight on Israir. The floor they walk on is likely to be built with cement from Nesher, Israel's only cement producer.

Every one of those companies and products are ultimately controlled by IDB.

And IDB is not the only such company. The Delek Group, controlled by billionaire Yitzhak Tshuva, boasts an impressive array of assets from several giant natural gas fields to automotive, cable TV, biochemical and insurance companies.

Israel's richest family, the Ofers, control through their holding firm Israel Corp the world's sixth-largest potash firm, Israel's largest shipping company and oil refinery. They are also the biggest investor in the Better Place electric car venture.

Israel's richest woman, Shari Arison, through the Arison group controls the country's second largest bank and largest construction company, which is in talks to buy geothermal energy producer Ormat Industries.

Besides IDB's Dankner, none of these groups agreed to talk to Reuters.

'People make mistakes'

Last year's parliamentary report pointed out that most of Israel's banks are also controlled by such groups, offering the conglomerates access to easy credit, often at the expense of smaller businesses. This is a recipe for risky decision-making, the Bank of Israel said in its 2009 annual report, and because it is difficult to regulate these powerful groups with their complex structures, they pose a systemic risk.

A survey by the Calcalist financial news website showed that 10 of the biggest tycoons will have to pay back bondholders 24 billion shekels ($6.9 billion) in the next two years, raising concern that they may not be able to meet all of their obligations.

"People make mistakes, and if you don't create a distribution of power and you allow one person to make mistakes for all of us, the likelihood is that when a mistake occurs it will be huge and very costly," said Daniel Doron, founder of the Israel Center for Social and Economic Progress (ICSEP).

That could now change. According to one source with knowledge of the competition committee's deliberations, the committee is likely to take aim at both the pyramid structures as well as the close links between financial institutions – banks and insurance companies – and "real" businesses such as supermarkets or refineries.

Independent media?

Israel is well known for its raucous free press. Its newspapers and news broadcasts swing freely and mercilessly at politicians, and no one, not even the prime minister, is spared. But in the past decade newspapers and television news channels have become a popular investment for the country's business elite, despite, or perhaps because of, the media industry's financial woes.

Most Israeli media companies are now controlled on some level by one of the large business houses. Has that stifled debate about the concentration of power in the Israeli economy?

In a rare interview last September, Dankner dismissed the issue as part of the "populist agenda". Asked by newspaper Yedioth Ahronoth whether he, as head of one of Israel's largest holding companies, had too much power, Dankner replied: "Unequivocally no. There are dozens of other people in Israel with more power."

Nine months later, Dankner bought one of Israel's largest-circulating newspapers, Maariv. To assuage concerns about potential conflicts of interest in coverage, he wrote a letter to the paper's staff urging them to, "please maintain your integrity, professionalism, independence and freedom of expression – including critical coverage of the IDB group, its subsidiaries and its managers, including myself."

Just a few weeks after that, Russian oil tycoon Leonid Nevzlin bought a 20% stake in Haaretz, another leading newspaper. The two new media magnates joined Eliezer Fishman, who made his fortune in real estate and runs the financial newspaper Globes, and American casino mogul Sheldon Adelson, who founded the popular, free daily Yisrael Hayom.

Some of Israel's main television stations are also controlled in one form or other by the business elite. Yossi Maimon, primary shareholder of energy companies Ampal and Merhav, is chairman of Channel 10 television. Its main competitor Channel 2 is partly owned by dairy king Wertheim, the Tshuva family, and the Ofers. Israel's Russian-language TV station is run by billionaire Lev Leviev, owner of holding company Africa Israel Investments.

While it is not unusual in other parts of the world for media companies to be part of much bigger conglomerates, critics in Israel say the tremendous influence wielded by a handful of business groups has weakened the country's media in recent years.

"Israel needs today, more than ever, an independent, professional press that will protect the free market and meritocracy, and will not bow to the interests of a handful of groups," said Guy Rolnik, founder and editor in chief of TheMarker, one of Israel's most influential financial newspapers, and a leading critic of the concentration of economic power. "Without an independent press, Israel will become a sad version of the crony-capitalism that we see in many lagging countries in the world."

Well-known Israeli reporter Micky Rosenthal said he faced intimidation and harassment while working on a 2008 documentary "The Shakshuka System" that investigated the connection between money, governance and media in Israel.

"The commercial television stations, which are controlled by the business magnates, refused to broadcast the movie," the filmmakers wrote on their website. The documentary was eventually aired on a less popular state-run channel.

The major newspapers and television stations all argue that their news operations are unaffected by corporate stakeholders, old or new. Maariv said its editorial staff is "independent and enjoys total journalistic freedom". Haaretz, Channel 2 and Channel 10 offered similar comments.

Push back

Not every Israeli company is part of a pyramid or conglomerate, of course. Pharmaceutical giant Teva, Israel's most actively traded company, has no controlling shareholder and is not connected to any holding company. Much of Israel's fast-growing high-tech and biotech sectors are backed by foreign and Israeli venture capital rather than local tycoons.

And some see benefits in Israel's top-heavy economy. Colin Mayer, a professor at Said Business School at the University of Oxford, says that a concentration of power in a few holding companies can lead to poor corporate governance. But he also believes that such groups emphasize long-term goals and encourage economic stability, in contrast to the focus on short-term gains in places such as the United States and Britain.

For their part, Israel's big holding companies argue that regulations already discourage investment in the country and hope any reform is minimal.

Dankner told Reuters that the government should "look abroad" before it breaks up Israel's holding companies. "There is no such separation in Europe, and also the US leading business groups – such as Berkshire Hathaway and GE – hold financial and real holdings side by side," he said.

The government has hinted that it will take such facts into account. Finance Minister Yuval Steinitz told Reuters earlier this month that while the government wants to increase competition, "we have to be very careful, very calculated, in order not to cause any damage in this process. Not every proposal that seems rational at the outset is really positive."

If there is a move to break up some companies, there could be opportunities for foreign investors wary of the complex structure of holding companies, according to Deutsche Bank analyst Richard Gussow.

And if not, expect more consumer boycotts. In late June, aware that public opinion was moving against them, Israel's three big dairy companies simultaneously dropped the price of cottage cheese. But rather than appease consumers, the move fueled public distrust that the prices had been bloated.

A popular public advocacy group called the Civic Action Forum is now running a campaign against concentration in the economy. Its slogan: "It's not the cheese, it's the system!"