True to the strategy it has adopted in the past year, which includes, among other things, identifying investment opportunities in listed companies, Clal Electronic Industries has bought 10.3% of the shares in Orckit in the last few days. The overall investment is NIS 119 million. Clal Electronic Industries made half the investment (some NIS 60 million) through purchases on the market, and the other half in Orckit’s second issue, which was completed on Monday. Orckit's issue was at a price of $18 per share, and, including an offer for sale by the company’s founders, was worth $47 million.
Clal Electronics Industries chairman Rimon Ben Shaul said the company’s purchases were made over the last few days, and at an average price of $18.8 per Orckit share. The quantity of shares Clal Electronic Industries bought should give it the right to appoint a representative to the Orckit board.
The purchase of shares in Orckit, like the purchase of 8% of the shares in Gilat Satellite Networks four months ago (for NIS 70 million), represents a change in direction in terms of Clal Electronics Industries’ concept of itself as an investment company. The change is part of a more general concept in the parent company, Clal Industries, which has also begun investing in listed companies in the past year.
At present, Clal Industries holds 15% of the shares in BVR, 14% of Nexus, 15% of Ormat (with an option to reach 24.5%), and 10% of the shares in Mivtach Shamir (with an option to reach 15%). According to Ben Shaul, the Clal Industries and Clal Electronic Industries’ strategy seeks to combine investment in young technology companies, where Clal intends to enhance the investment through active intervention in management, and more passive investments in mature companies.
"Until a year ago," Ben Shaul explained, "Clal Electronic Industries’ value was derived from its holdings in the two largest companies in its portfolio, ECI, and Scitex. The decision we took a year ago was to realise 10% of ECI, 5% this year and another 5% next, and to use the proceeds to invest in two or three other mature companies, like Gilat and Orckit, which are not defined as venture capital investments."
Globes: In the past, Clal Electronics Industries was strict about investing in non-traded companies, with the intention of enhancing them. What added value does it have in investment in listed companies? What distinguishes it from a regular mutual fund?
Ben Shaul: "The investments in Orckit and Gilat were made after a thorough examination and in depth study of the companies and the area in which they operate. The examination included consultation with analysts and people deeply involved in the sector.
"The investments in the stock exchange companies were made in such a way as to attain a holding of over 10%, and to be able to appoint a representative to the board. In this way, we can monitor the company closely and get to know it in depth.
The investment in Orckit is not coincidental. Orckit and ECI have many similar products aimed at the same markets. That’s how you create specialisation."
May we take it from Clal Electronics Industries’ move that it intends merging ECI with Orckit?
"Although such a possibility has been raised in the past, the current move is unconnected with it. This is an independent step by Clal Electronics Industries unconnected to its holding in ECI."
In Gilat’s case, you have only an 8% holding and no representative on the board.
"That’s true. It’s because we stopped buying when the share price began to shoot upwards."
In Clal and Clal Electronics Industries’ latest purchases, you decided to forego control. How does this fit in with the company’s overall strategy?
"There is a certain ignorance in Israel about control in high-tech companies. In fact, in high-tech companies, control has no significance. This is first of all because there is no possibility of leveraging the company and thus increasing the return on capital. In addition, there is no possibility of drawing dividends, because the companies reinvest most of their money in R&D and marketing.
"The main shareholder in a high-tech company basically has no advantage. What is important is that those who promoted the company should remain in control of it, because they are the ones who understand the market and the technology best."
Published by Israel's Business Arena on June 17, 1998