Israeli companies' Wall Street issues continue as regularly as clockwork. The market may plunge, surge, bumble - who cares? Just watch the huge sums making the rounds over there. We in Israel get all worked up over some tiny $10 million issue by an Internet company, but when it comes to Wall Street, each issue involves at least $100 million.
Three Israeli companies held public offerings yesterday, raising a total of $635 million. The waiting list of Israeli companies planning a Wall Street issue is still long, including TTI (a second offering next week); Vyyo (Davidi Gilo), Click Service, CommTouch (second offering), Ulticom (Comverse's) Comtech (PCB's), Noga-Tech, and Nova.
So what happened yesterday? Let's start with BreezeCOM, the new Israeli kid on Wall Street. The company issued 5 million new shares at $20 per share, and raised $100 million gross. If what happened in the course of the issue is any indication of what is about to happen today as trading begins, shares are bound to soar.
BreezeCOM develops wireless comminations products for local networks (LAN), and provides wireless Internet access solutions. The issue was held at a company value of more than $400 million. With full dilution, however, and taking into account the options of some shareholders and options offered employees at the low exercise price of $2.5-4.5 per share, BreezeCOM's value is close to $600 million, after money.
BreezeCOM's (pre-issue) owners included Clal (7.7%), Star funds (25.5%), HM Investments (17%), Warburg Pincus (9.1%), and the Weiss Peck and Greer fund. Listed venture capital fund Mofet, which holds 4.3% (970,000) and Wall Street-traded Ampal, whose stake is similar to that of Mofet, will make handsome capital gains from BreezeCOM's issue.
Four months after its IPO at $12 per share, Metalink yesterday completed its second offering, with the share price closing at $45 - 5.5% less than yesterday's closing price of $47.6 per share, yet nearly four times as much as the share price in the previous offering. The company issued 1.5 million new shares, and a similar amount was sold by shareholders. In all, the company raised $67.5 million gross, and the whole financing round (including the offer for sale) amounted to $135 million.
Metalink, whose post-issue company value is around $850 million, develops modem chips enabling high-speed symmetrical Internet communications over ordinary telephone lines. It's two founders, Zvi Shukhman and Uzi Rosenberg, sold $25 million worth of shares in the financing round.
The largest amount raised yesterday was by Mercury - $400 million in a convertible bond issue. Mercury thus joined Gilat and Orckit, which this year have chosen to raise money through bonds. The company is the world leader in development of automatic software testing systems. Mercury also gave investors options to buy more bonds for a total of $100 million. The bonds will be convertible into Mercury stock by 2007.
Mercury shares have been weak recently, and suffered from downward pressure yesterday, as did Gilat shares after that company’s bond issue. Mercury lost 5% yesterday, and is 23% off its peak price of $134. Even so, the company is still traded at a value of over $8 billion.
Uri Agmon, general manager of Mercury Israel, why issue bonds rather than shares?
Agmon "It’s more convenient. It doesn’t dilute existing shareholdings. True, in the future there will be considerable dilution, but by conversion time we will not have diluted earnings per share."
What will you use the money for?
"Mercury has gone from being a testing company to an Internet infrastructure company. We are currently developing a series of testing products for the Internet. They include active and passive monitors which know what’s happening everywhere. The customer who buys the product can classify and manage network traffic with precision. It takes expertise to develop these products, and the costs are high. We are doing the development ourselves, but sometimes it’s worth saving a few months and buying existing technology."
And do you have in mind a technology or company you plan to buy?
"There are several. We were involved in negotiations in the US recently, but broke them off. Anyhow, there’s still nothing concrete."
Published by Israel's Business Arena on 23 March, 2000