Gilat Satellite Networks is to raise some $275 million in a share issue on Wall Street. This emerges from the draft prospectus the company submitted to the US Securities and Exchange Commission. Gilat is currently trading at a value of $630 million, and, assuming the issue is made at a per share price of $57.6, the price at which the stock closed last night, the company’s value will soar to $865 million.
At the same time as the issue, parties at interest in Gilat will make an offer for sale of shares worth $43 million. The lion’s share of the offering will be the sale of PEC and Discount Investments’ holdings. The two companies intend realizing their investments in the offer for sale, and cashing in to the tune of $29 million, nearly all of which will apparently be capital gain. Discount Investments and PEC bought 52% of the shares in Gilat in 1990, in a private placement the company made at a company value of $6 million, and their holdings have been diluted since then.
The current fund raising exercise will be the fourth Gilat has carried out on Wall Street. The company was first floated in 1993, raising $28 million. Two years later, it returned to the US stock market, this time to raise $50 million - also in a share issue. In May 1997, with the assistance of investment bank Lehman Brothers, Gilat raised $75 million from the issue of a convertible bond redeemable in 2004.
Gilat Satellites is one of the IDB group’s most successful investments, and its share was one of the few to escape the financial crisis on world capital markets, while most Israeli high tech companies were chopped by double-digit percentages. Another IDB company, was Clal Electronics , has already harvested the fruits. It bought 7.6% of the shares in Gilat in January 1998, and sold them in October and November at a capital gain of NIS 86 million - a 100% return on the investment in less than a year.
Gilat’s main area of activity is VSAT - a small satellite ground station that enables two-way transmission of video and sound at high speed and very reliably. Among the advantages of this transmission method is the ability to adapt the bandwidth to the user’s needs, and thus avoid the bottleneck phenomenon characteristic of Internet communications.
This time, the reason for the fund raising exercise is to finance the capital intensive activity of GE Spacenet, of the General Electric group. The US company, merged with Gilat in a $225 million share swap deal, provides high speed satellite communications services. For these purposes, it leases satellite time from its former parent company, GE Americom, which owns eleven high altitude satellites. Gilat, which is keen to continue growing rapidly, in addition to spending more on marketing, needs to increase the amount of satellite time it leases.
Gilat is a favorite of the analysts, and wins Buy recommendations at a dizzying rate. Its most outstanding fan is investment bank Merrill Lynch, one of the lead underwriters in the issue, whose analysts never cease heaping praise on the company, which has had a revenue growth rate of 40% per annum for the past three years. They believe profit per share will grow 25% in 1999, and 22% in the year 2000.
With a 40% share of the VSAT market, Gilat is well placed to bite off a share of the satellite Internet communications market, estimated by Merrill Lynch's economists at $37 billion in 2007, compared with just $90 million in 1997. Its main competitor is Hughes Electronics, the market leader with a 44% market share. Hughes has also won recommendations from Merrill Lynch, which projects 62% net profit growth for it in 1999.
Published by Israel's Business Arena on January 21, 1999