Elbit Medical Technologies Ltd. (TASE: EMTC), which has holdings in biotech companies Gamida Cell and Insightec, announced yesterday that it had signed a memorandum of understanding (MOU) to sell most of its shares in Insightec. The company previous reported negotiations for the sale. With the signing of the MOU, more details of the agreement are coming to light.
According to the current report, the negotiations for the sale of Elbit Medical's 18% stake (fully diluted) in Insightec will be at a price of $128.4 million.
Insightec developed and markets a system for using focused MRI-guided ultrasound waves to destroy tissue, for treatment of non-Parkinson tremors, and to clear the "blood-brain blockage." The proposed deal represents a company valuation of $720 million. Because of the deal's structure, however, it is possible that the eventual valuation may be slightly less.
Koch family holds 17% of Insightec
Elbit Medical previously reported the emerging deal, saying that the sales would be at a higher valuation than the one in Insightec's most recent financing round, in which the company raised $150 million at a $610 million valuation. The Koch family from the US led the round, while the current deal is a sale of ordinary shares. The Koch family made its investment in Insightec through Koch Industries, a leading US oil, gas, and commodities corporation with an annual turnover of $100 billion. That deal left Koch Industries with its current 17% stake in Insightec.
If the current deal goes through, it will enable Elbit Medical to repay a NIS 185 million debt to holders of its Series 3 bonds. It is also very likely that if the deal is carried out, it will enable Elbit Medical to help Elbit Imaging to repay its debt to holders of Series 9 bonds.
The designated buyer, whose identity was not disclosed, is simultaneously negotiating an investment in Insightec and the purchase of the stakes of other shareholders, but the deals are not dependent on each other. In addition to Elbit Medical and the Koch family, the York Capital Management fund is also a large shareholder in Insightec.
At the same time, Elbit Imaging, Elbit Medical's parent company, also signed a non-binding MOU for a separate deal in which an investor will buy its entire direct holding of less than 1% in Insightec for $1.2 million (NIS 4.2 million). Elbit Imaging holds 61.8% of Elbit Medical's shares, and has to repay NIS 139 million in outstanding debt to holders of its Series 9 bonds. The debt was due for repayment last month, but was postponed by consent to the end of February 2020.
Following the announcement of the MOU signing, Elbit Imaging's Series 9 bonds are up 4.2% today, while Elbit Medical's Series 3 bonds are up 3.8%. Elbit Imaging's share price zoomed 70%, pushing its market cap up to NIS 42 million, while Elbit Medical's share price was up 14%, boosting its market cap to NIS 250 million.
Insightec CEO Maurice Ferre previously said that the likely exit in the company would be much bigger than that of Mazor Robotics, which was sold for $1.64 billion, and said that the company's potential value was $50-60 billion. Elbit Imaging representatives said at the time that they would not necessarily wait for a "dream" exit, and were likely to part from their shares earlier in one way or another. It appears that this is now indeed their intention.
Insightec, a veteran company, was founded as part of the original Elbit Imaging when the latter was a medical imaging company. When late real estate developer Motti Zisser took over Elbit Imaging, he turned it into a real estate company operating in Eastern Europe. Elbit Imaging's corporate bylaws contained a poison pill requiring any buyer to maintain Insightec. Zisser did this initially because he had to, but then fell in love with the company and made it one of the leading companies in his portfolio.
Later, under Zisser's control, Elbit Imaging's real estate activity suffered setbacks. The company went into debt, and reached a huge debt settlement in 2014, in which York Capital entered the company. Before that, in 2010, Elbit Imaging's holdings in medical companies Insightec and Gamida Cell were split off into Elbit Medical a separate stock exchange-listed entity, in which Elbit Imaging's current holding is 61%.
Insightec finished the third quarter of 2019 with $7.3 million in revenue, 10% less than in the corresponding quarter in 2018, after many consecutive quarters of growth. The company's revenue grew 10% to $22 million in the first three quarters of 2019. Its third quarter net loss was $14 million, compared with a $9 million loss in the third quarter of last year, while its net loss in the first nine months of this year was $37 million, compared with $31 million in the corresponding period last year.
Insightec had $77 million in cash as of the end of the third quarter of 2019, after burning 40 million in the first three quarters of the year. At this rate, the company's cash will be used up in another 18 months.
Published by Globes, Israel business news - en.globes.co.il - on December 16, 2019
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