The controlling shareholders in Formula, brothers Dan and Gad Goldstein, have apparently already decided to acquire controlling interest in the Mashov group. In the meantime, until 45 days pass from the decision to reject the Mashov-Shamrock deal, Formula has decided to take a first step by investing in the Magic subsidiary.
Magic’s board of directors decided to respond favourably to Formula’s proposal to invest $11 million in the company in exchange for an allocation of shares that will eventually put Formula in control of the company. Initially, Formula will invest $4 million in Magic in exchange for 800,000 shares, 14.1% of capital.
Formula will also receive options to acquire 1.4 million shares at $5 per share, 5% above Friday’s market price, at an overall investment of $7 million. Exercising the options will enable Formula to reach a holding of 31.2% in Magic. Mashov’s 44.3% holding in Magic will be diluted after the options are exercised to 30.5%.
In addition to the announcement of investment in Formula, Magic announced that it expects to post a loss of $4 million for Q4 ’97. Most of the loss, about $3 million, stems from one-time expenses, primarily capital write-offs for software development costs.
Dan Goldstein, president of Formula, today told "Globes" that the investment in Magic fits well into plans to acquire controlling interest in Mashov itself. The sides are prevented from negotiating the matter until 45 days after the rejection of the deal with Shamrock.
Goldstein stated, "From our point of view, this is a friendly takeover of Magic, as are all the takeovers Formula is accustomed to conducting. We are interested in Dunitz and Assia remaining in their positions, which is the spirit in which the deal was closed."
Goldstein added, "We think Magic’s application development tools are good, but company focus could be improved, both in terms of products and in terms of marketing. Joining the Formula group could open new markets and new connections for Magic.
"We are also satisfied with the one-time write-off for software expenses in Q4, since that means we will be getting a clean slate for 1998. Overall, we believe this is a good deal. We aren’t known for making bad deals."
Published by Israel's Business Arena February 8, 1998