Quite a few entrepreneurs, underwriters, employees, and investors now reading the story of Empire Online find it hard to believe their eyes. Within a short time, an unknown company (at least in the media) has held a giant IPO, creating value for its shareholders that they probably never dreamed of when the company was founded in 1998. A month ago, almost no one had ever heard of Empire Online, and no venture capital fund had invested in it. The company is not actually registered in Israel, and most of its employees are not Israelis, but Israeli entrepreneurs founded it, so Empire Online is identified more as an Israeli company than anything else.
Last Friday, the company’s Israeli entrepreneurs became multimillionaires. Empire Online completed a £123.5 million ($223 million) IPO at a company value of £512 million ($926 million) on the Alternative Investment Market (AIM) stock exchange in London. Trading in the company share is slated to begin tomorrow, and the initial share price will be £0.175.
Empire Online also planned to sell shares to Israeli investors, but sources inform "Globes" that British investment house Numis Securities, which was both a broker and an appointed advisor for the issue, canceled the allocation for Israeli investors at the last minute. Numis had planned to distribute 10-20% of the shares in the IPO to Israel investors (for $25-50 million) through the Tamir Fishman investment house. The official explanation for canceling the issue to Israeli investors was British underwriting regulations, which grants the underwriter an absolute right to sell shares to whomever it pleases. Sources close to the issue say that the underwriter chose to allocate shares to British entities with which it had close ties, leaving Israeli entities empty-handed. Tamir Fishman says that a wide range of Israeli institutional investors wanted to invest, including one pension fund and a number of mutual funds. Some capital market sources, however, believe that Israeli investors were not really enthusiastic about the company.
Empire Online itself raised only $34.3 million in its IPO, while its shareholders sold shares for $189 million. In other words, only 15% of the total amount raised went to the company, whose cash reserves will increase to $48 million.
The Empire Online IPO is the leading Israeli IPO of all time on a European stock exchange. The next largest, that of BATM Advanced Communications (LSE: BVC) in November 1999, raised $218 million for the company and its shareholders. Bank Hapoalim (LSE: BKHD; TASE: POLI) raised $184 million in July 1999 for the bank and the state (the main shareholder). It is worth mentioning that both BATM and Bank Hapoalim held their issues on the main London Stock Exchange, not the AIM, which still further highlights the phenomenal success of Empire Online’s IPO.
Empire Online pays absolutely no taxes in Israel. It is registered in the Virgin Islands, one of the world’s most popular tax havens. Empire Online was founded by an Israeli, and it is widely assumed that most of its shareholders are Israelis or expatriate Israelis, but it is not registered in Israel, has no offices in Israel, and its employees, it is reasonable to assume, are not Israeli.
Published by Globes [online] - www.globes.co.il - on June 14, 2005