Elco Holdings (TASE: ELCO), controlled by chairman and CEO Gershon Salkind, announced today that it had completed the sale of French white goods company Elco Brandt to Spanish concern Fagor for NIS 891 million.
Elco Holdings announced that, following the completion of the deal, it would post a NIS 534 million pre-tax profit in its financial statements.
Elco Holdings acquired Elco Brandt from a receiver three years ago. The sale is a dramatic measure that will cut Elco Holding’s revenue by 45%.
Two weeks ago, Elco Holdings sold its stake in real estate company Liberty Properties Ltd. (TASE: LBRT) for NIS 83.75 million, reflecting a company value of NIS 100 million. Elco Holdings and Fagor acquired full ownership of Elco Brandt’s assets in January 2002 in a pricing procedure conducted by the receiver for electrical appliance company Brandt Moulinex. The acquired activity involved manufacturing and marketing of white consumer electrical goods under leading international brand names, such as Sauter, Thomson, Ocean, and De-Dietrich.
Elco Holdings won a tender to acquire seven plants and marketing companies in France and other European and Asian countries for €108 million. Half of the acquisition, €54 million, was financed from equity, of which Elco Holdings itself invested €48.6 million, and the rest from money withdrawn from the acquired companies. In addition, Elco Holdings and Fagor granted a €30 million owners’ loan to Elco Brandt, according to the proportion of their holdings. Elco Holdings’ relative share of this loan, amounting to €27.8 million, has been repaid.
The acquisition of Elco Brandt was to have signaled the transformation of the Elco group into one of the leading players in the European white goods market, but factors, such as rising prices for raw materials and intensifying competition, eroded Elco Brandt’s operating profit, and Elco Holdings had to implement a large-scale streamlining plan, including the closure of some factories and lay-offs, in order to achieve its profit targets.
The business forecast for Elco Brandt was not fulfilled, and its sale, despite the resulting capital gain, leaves a large hole in Elco Holdings’ business. The question is whether the company’s leadership, headed by Gershon Salkind, will be able to channel the capital gains from the Elco Brandt deal into new investment instruments. Another question is what added value has been created for investors in the Elco Holdings share. Up until now, investors in Elco Holdings obtained exposure to private company Elco Brandt, and also benefited from Elco Holdings’ stakes in two public companies: Electra Consumer Products (TASE: ELEK) and Electra (TASE: ELTR). Now that Elco Holdings has sold Elco Brandt, investors in Elco Holdings have no advantage, because they can obtain exposure to Electra Consumer products and Electra by buying their shares directly on the TASE.
Published by Globes [online] - www.globes.co.il - on June 16, 2005