Gilat Satellite Networks announced today that it had signed an agreement for the purchase of GE Spacenet of the General Electric group for $225 million. The deal will be executed by the exchange of shares, following which GE will hold 30% of Gilat shares. GE will therefore become Gilat’s largest shareholder.
The deal is expected to be officially signed at the end of ’98. Estimates say that the consolidated company is expected to show sales of $300 million next year, twice the sales Gilat is expected to show at the end of the current year.
Ties between Gilat and GE were created seven years ago when the two companies signed an agreement for strategic cooperation, including joint R&D and a contract according GE exclusivity in purchasing some of Gilat’s products.
Gilat vice president for finance Yoav Leibovitz said today that "Gilat’s purchase of GE Spacenet means we won’t have to get up each day and look for new customers." He added that, with the purchase, Gilat had attained control of all the various sections of the VSAT market. To date, Gilat was engaged in product development, but not in services. "Now we will be able to offer customers a comprehensive package of products and services," says Leibovitz.
Another aspect is that, in effect, Gilat will now receive the GE brand name with all the implications of its reputation. According to the agreement, for three years, Gilat and GE logos will both appear on the consolidated company’s products.
Gilat is most proud of the agreement, and says that after long months of witnessing the sale of Israeli companies overseas (Teledata, Elscint, Memco, Mirabilis), the moment has finally arrived when a deal has been signed in which the Israeli company is the purchaser and not vice versa.
However, there are those who think differently. Yair Lapidot and Kobi Yosef of NC say today that "the headline should be, in fact, the acquisition of control in Gilat by GE, and not vice versa. GE received 30% of a successful and profitable company like Gilat, and in exchange gave it shares in a less successful and less profitable company like Spacenet."
Lapidot and Yosef say the deal changes Gilat beyond recognition, and not necessarily for the better. Gilat, they say, has become a two-headed beast, dealing both in development and services.
They claim the deal was forced on both sides. GE wanted a deal because of Spacenet's less profitable situation. It is estimated that it will end the year on a profit of $13 million, compared with the $23 million Gilat is expected to earn.
Gilat, NC estimates, was compelled to enter into the deal because it feared for the fate of the cooperation agreement with GE, due to expire this year.
Published by Israel's Business Arena September 28, 1998