Ovadia to pay $2m for Babylon translation unit

Noam Lanir

The arbitrator ruled that Amnon Ovadia had to pay the price agreed in 2014 for the unit.

Arbitration proceeding between Internet company Babylon Ltd. (TASE:BBYL) and entrepreneur Amnon Ovadia, who designed Babylon's translation software ended in a ruling that Ovadia would have to pay Babylon $2 million in order to acquire the company's translation business.

Arbitrator Advocate Itamar Anaby's ruling, which came two years after Ovadia demanded the cancelation of the agreement he signed with Babylon for the purchase of his translation software, states that Ovadia must pay Babylon $1.5 million plus VAT, linkage differences, and interest, plus NIS 250,000 in expenses. Advocates Dror Harpaz and Inbar Mackin from the Harpaz, Oren & Co. law firm represented Babylon.

The affair began in September 2014, when Babylon, controlled by Noam Lanir, signed an agreement to sell its translation and enterprise information retrieval business to Babylon Software, a private company founded by Ovadia and his wife Bella for the purpose of the translation. The price of the deal was set at $2.5 million (NIS 9 million), and payment was to have been in three stages during the two years following the deal. In 2015, however, Ovadia notified Babylon that the deal was off, claiming that he had been misled and deceived. Babylon completely rejected his allegations.

The arbitration proceeding focused on the assertion by Ovadia's company that he had been "misled by Babylon… had the company known the true state of affairs, it never would have made the agreement - certainly not at the stipulated price." The purchaser accordingly asserted that it was entitled to "cancelation of the agreement" and reimbursement of the money paid on account for the price, which had been invested in assets transferred to it.

For its part, Babylon argued that during the several months of negotiations between the parties, Ovadia had received all the information he requested, and that "Ovadia received figures for actual revenue from the translation activity during the period from 2011 until mid-2014, and was aware of the consistent downtrend in revenue. He chose to sign the agreement while being aware of the deterioration of the company's business, based on his confidence that he would be able to improve the company's performance."

In his decision, the arbitrator stated, "The claim of deception, based on a situation not included in the agreement, is dismissed," and that Babylon was accordingly entitled to "the balance of the price not paid to it."

Switch to online marketing and advertising

Founded in 1997, Babylon prospered because of its translation software developed by Ovadia, who founded the company with partners. Following its 2007 IPO, the company was sold to a group of investors headed by Lanir, the company chairman.

As time progressed, Babylon's business shifted to online marketing and advertising and the distribution of content and products from various advertisers, which assisted the company's rapid growth until late 2013. At that point, the company's cooperation with Internet giant Google was terminated, and a change in its business with Yahoo! had a substantial effect on its business, after which the company lost most of its value.

Managed by CEO Shanit Pe'er-Tsfoni, Babylon's current market cap is NIS 100 million. The company is looking for digital media investors with a focus on mobile Internet.

Babylon's revenue comes from search services resulting from its cooperation agreements with Yahoo! and other companies, location services, management and supervisions of distributors, sales of advertising space on websites, and distribution of content and products from various Internet advertisers. The company's revenue plummeted 40% to NIS 16 million in 2016, mainly because of a drop in its revenue from cooperation with Yahoo!.

At the same time, Babylon gained nearly NIS 9 million from the revaluation of its investment in MST Travel, a company developing an engine for tourism orders. Its 2016 profit jumped 75% to NIS 13 million as a result.

Published by Globes [online], Israel Business News - www.globes-online.com - on May 23, 2017

© Copyright of Globes Publisher Itonut (1983) Ltd. 2017

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