The Elbit Systems Board of Directors decided at the end of the week to launch negotiations for a merger with El-Op. El-Op is a private company owned by Mickey Federman and his family. The plan calls for the deal to be effected through a share swap: Elbit will acquire El-Op from the Federman family, in exchange for a private placement of Elbit shares.
The value of the deal has not yet been determined. Analyst Toby Fishbein of the Ilanot Batucha brokerage firm says, in an initial evaluation, that the merger will take place at a value of $250-350 million for El-Op. According to Fishbein, his evaluation is based only on the two companies’ sales volume, and on the assessment that El-Op is profitable and operates efficiently.
"El-Op posted a 30% increase in sales in each of the past four years", he notes.
Sources in both companies today did not rule out an external evaluation for the purpose of the deal. It is not very likely though, since it involves a long-drawn-out process, and the parties intend to conduct relatively brief negotiations. They expect to conclude the negotiations within 3-4 months, and another 3-4 months will be needed for obtaining the necessary approvals from the Ministry of Defence and the Anti-Trust Authority director general, among others.
Elbit and El-Op commenced negotiations following the failure of contacts between the Federman family and Tadiran. In those contacts, the possibility was examined of merging El-Op’s activity into Tadiran’s military activity.
Elbit Systems is listed on the stock exchanges of Tel-Aviv and Wall Street, and its market value stood, at the end of the week, at $435 million. After it served the stock exchange notice of the commencement of the negotiations, its shares posted a 4% rise.
The controlling shareholder in Elbit Systems is Elron, with a 33.9% holding. A series of institutional bodies also have holdings: Discount Bank’s provident funds hold 5.5%, Bank Leumi’s mutual funds hold 4.4%, the First International Bank’s provident funds hold 4.1% and so on.
Fishbein told "Globes" today that the merger of the two companies was the first stage in the consolidation process of Israel's defence industries. Elbit Systems general manager Yossi Ackerman also noted the global trend of industrial consolidation in general, and of defence industries in particular, as the background to the decision. According to Ackerman, the main advantages in the merger will be improved competitiveness and a more effective focus on research and development.
Elbit Systems and El Op already have ramified business ties. For one thing, they bid jointly in some upgrading tenders, and jointly hold the Silver Arrow company, that operates in the field of pilotless planes and drones.
Published by Israel's Business Arena June 20, 1999