El Al Israel Airlines Ltd. (TASE: ELAL) today announced that it is in advanced talks on a draft investment agreement with First Israel Mezzanine Investors Fund (FIMI), run by CEO Ishai Davidi, after FIMI carried out due diligence on the airline over the past two months. The deadline for signing a deal has been pushed back to April 14, but the airline listed the changes in the agreement compared with the first draft, announced in late January.
Under the new draft, FIMI has consolidated the first two stages of the deal into a single investment after all the permits are obtained, especially with regard to El Al's new labor contract. Under the original proposal, FIMI would transfer $10 million in El Al when the deal was signed. Half the money would go to El Al, and half to its controlling shareholder, Knafaim Holdings Ltd. (TASE: KNFM), controlled by the Borovich family.
Under the new proposal, the closing of the deal has been brought forward by one month, to July. FIMI can extend the closing by 90 days, in two 45-day periods. FIMI will invest $40-50 million in El Al in the first stage, of which $5 million may be used to buy El Al shares from Knafaim, at the latter's discretion. The investment will be made at NIS 0.625 per share for El Al, 7% higher than today's opening price.
In addition, the two series of options that FIMI will receive will be expanded. One option will be exercisable for El Al shares at NIS 0.65 per share through June 30, 2014, and the second option will be exercisable at NIS 1 per share through June 30, 2016.
If El Al signs a new collective agreement that satisfies FIMI, and the deal is closed, FIMI will own 38% of the airline in the first stage. If FIMI exercises its options, the investment will increase to $75 million, and it will own 46-48% of the airline. The stake of Knafaim, which will continue to be part of El Al's controlling core, will fall to 15-18%, if FIMI exercises the options.
The closing of FIMI's investment in El Al is subject to the airline signing a new collective agreement with its employees, after the previous agreement expired at the end of 2012. El Al CEO Elyezer Shkedy will keep his job after the change in ownership.
El Al had 5,800 employees at the end of 2012, and its salary expense was $299 million, 7.9% less than in 2011. Management is seeking to worsen the employees' salary terms under the new collective agreement, but they are will to agree only if executive salaries are also cut. The Histadrut (General Federation of Labor in Israel) oversaw negotiations last year, but the parties have so far failed to reach a deal. FIMI's investment and the deadline are now hanging over the talks. It is clear to the parties that if FIMI does not invest in El Al, it liable to face a real threat to its survival. FIMI may be relying on this pressure to make it possible for El Al to make the changes it wants to survive in the tough aviation market.
Published by Globes [online], Israel business news - www.globes-online.com - on April 9, 2013
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