A year after Elbit Systems Ltd. (Nasdaq: ESLT; TASE: ESLT) and NICE Systems Ltd. (Nasdaq: NICE; TASE: NICE), two of the largest technology companies listed on the Tel Aviv Stock Exchange (TASE), announced that Elbit Systems had acquired NICE Systems' cyber division, a dispute between the two companies about the acquisition has emerged. Elbit Systems paid NICE Systems $114 million for the division, and was due to pay $40 million more, subject to the acquired division's business performance.
Now, however, Elbit Systems is demanding $15 million in compensation from NICE Systems, alleging that inaccurate presentations were made to it in the due diligence it conducted. In NICE Systems' full financial statements for 2015, published in late March, it stated, "Following the divestiture of one of the Company business units, the buyer of such business unit made certain demands and allegations, claiming indemnification pursuant to the sale agreement between the Company and such buyer. The parties corresponded regarding these claims, and the Company has denied all demands and allegations made by the buyer." Nice Systems said that if the parties do not reach agreement, the purchaser was likely to institute legal proceedings liable to lower the value of the deal.
"At this preliminary stage, the Company cannot estimate the probability of a favorable or unfavorable outcome in this dispute," Nice Systems concluded.
The two companies are currently keeping the dispute low-key, noting that they are discussing the issues. Elbit Systems stated, "The company is in a dialogue with NICE Systems in order to clarify various issues pertaining to the acquisition," while NICE Systems stated, "NICE Systems is currently holding talks with Elbit Systems on a small number of business topics that have arisen following the sale of the intelligence division. These discussions are typical of a complex acquisition of this type.
"NICE Systems reported the disputes two months ago. The parties are conducting a businesslike dialogue on the matter, and hope that it will be solved to the satisfaction of both parties."
Elbit Systems found a growth engine, NICE Systems liquidated the activity
Elbit Systems, which manufactures electronic military systems, has marked the cyber field as one of its possible growth engines. Following the acquisition of the division from NICE Systems, Elbit Systems turned the division into CYBERBIT, a subsidiary providing intelligence systems and cyber analysis and research solutions. The cyber and intelligence division acquired from NICE Systems offers solutions that provide law enforcement forces and intelligence agencies with tools for creating communications-based intelligence.
"For Elbit Systems, this is a major strategic move," Elbit Systems CEO Bezhalel Machlis said at the time of the acquisition. "The intelligence and cyber field is a significant growth engine, and we want to be a global leader in it, as in all our business fields. The assets of NICE Systems and Elbit Systems are completely complementary in both solutions and market positions, and with the quality of the people, there is no doubt that the combination will succeed."
NICE Systems followed the sale of this division with another, selling its physical security division to Battery Ventures for $100 million. NICE Systems thereby liquidated its defense business, and was left with an exclusive focus on the enterprise sector. The sale of the two defense divisions increased its store of cash, enabling it to announce two substantial acquisitions starting in early 2016. The first was Nexidia, acquired for $135 million. NICE Systems recently announced its largest-ever acquisition: US company inContact for $940 million (including debt).
Elbit Systems has also continued its mergers and acquisitions, and is currently the sole bidder in the Israel Military Industries Ltd. (IMI) privatization tender. Elbit Systems' current market cap is $3.8 billion.
Published by Globes [online], Israel business news - www.globes-online.com - on May 26, 2016
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