El Al, Israir near agreement on merger terms

Israir

IDB Development will receive $45 million in cash for Israir and a 25% stake in El Al unit Sun d'Or.

Progress has been made towards a deal for merging Israir Airlines and Tourism Ltd. into El Al Israel Airlines Ltd. (TASE: ELAL) -owned charter flight company Sun d'Or Airlines. IDB Development Corporation Ltd. (TASE:IDBD), which owns Israir, today reported that it was in advanced negotiations with El Al for a deal in which IDB Development will sell all of Israir's shares to Sun d'Or for $45 million in cash and a 25% stake in Sun d'Or.

This would be IDB Development controlling shareholder Eduardo Elsztain's second exit, after selling the company's 40% stake in Adama Agricultural Solutions Ltd. (TASE: ADAMA) to Chinese company ChemChina at a company value of $3.5 billion. As part of the deal, El Al will receive a call option for IDB Development's Sun d'Or shares at a price and conditions yet to be determined, while IDB Development will receive a put option for selling the shares to El Al.

At the same time, a shareholders agreement between El Al and IDB Development will be signed, and the two companies will receive an annual payment from Sun d'Or for various services each of them will provide to the merged company. Following the agreement on the deal format, IDB Development announced it would list its investment in IDB Tourism in its fourth quarter financial reports as an asset held for sale as part of its current assets. This measure is expected to result in IDB Development posting a NIS 110 million capital loss, and its decision to recognize this before the deal is signed could indicate Elsztain's determination to complete the deal.

Will the Antitrust Authority director general approve the merger?

While the negotiations between the parties have not yet been completed, any agreement signed will require certain approvals, including from the Antitrust Authority director general. Market sources predicted that the deal would be signed within a few months, and would be carried out towards the end of 2017. At the same time, as of now, the protest measures taken by pilots of the two companies in order to prevent any negative impact on their employment terms are threatening the completion of the deal.

IDB Development added that subject to the signing of a binding agreement and close to the date for completion of the deal, Israir is expected to sell the airplanes it owns and sign an agreement with the purchaser to lease them back. Proceeds from this deal are slated to total $70 million, which will be used above all to repay a $35 million loan to Bank Leumi (TASE: LUMI). The remainder of this amount will pay for most of the payment in cash to IDB for the sale of Israir. According to a valuation published in late November, Israir is due to finish 2016 with $317 million in revenue, and its 2017 revenue will total $327 million. According to various estimates, Israir made a $6-7 million net profit in 2016, projected to rise to over $8 million in 2017.

Israir's CEO is Uri Sirkis, who led the change in the company that resulted in its making a profit after years of losses. The company currently has two divisions. The first and most important one is the overseas tourism division, which according to the valuations finished 2016 with $264 million in revenue. Israir also has an incoming tourism division, which until last year was part of the Diesenhaus Unitours Incoming Tourism agency. The incoming tourism agency organizes tours in Israel for overseas tourist groups. According to the same valuation, it had $53 million in revenue in 2016.

Published by Globes [online], Israel Business News - www.globes-online.com - on February 9, 2017

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

Twitter Facebook Linkedin RSS Newsletters גלובס Israel Business Conference 2018