Elbit Imaging Ltd. (TASE: EMITF; OTC: EMITF) and its subsidiary Elbit Medical Technologies Ltd. (TASE: EMTC) announced today that MRI guided ultrasound company Insightec has signed a non-binding memorandum of understanding (MOU) with one of the existing shareholders in the company for an additional investment of $100-150 million in Insightec.
The report indicates that the existing shareholder and others will inject money into Insightec in return for the allocation of all the new Series F preferred shares at $3.66 per share. As part of this investment deal, the extra rights granted to holders of Series C, D, and E preferred shares in the event of an exit will be canceled, and the holders of these shares will receive 52 million more preferred shares.
Elbit Imaging and Elbit Medical did not disclose the name of the investor that will lead the additional investment. In view of the past statements by Insightec CEO Maurice Ferre, however, the investor involved is probably Koch Industries, controlled by the US-based Koch family. Koch Industries, led by Charles Koch, previously led a $150 million investment in Insightec at a company valuation of $610 million. As a result of that investment, Koch Industries currently holds 17% of the shares in Insightec.
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 "blood-brain blockage." The company reported a 10% increase in revenue to $22 million and a 19% increase in its net loss to $37 million in the first nine months of 2019.
As of the end of September 2019, Insightec had $77 million in cash, while its burn rate in the first nine months of 2019 was $40 million, meaning that the company is liable to run out of cash in 2021.
Repaying bond debt
Elbit Medical currently holds 18% of Insightec and 7% of the shares in biotech company Gamida Cell. Parent company Elbit Imaging is led by chairman and CEO Ron Hadassi, who is also chairman of Elbit Medical. The two companies recently reported signing a non-binding MOU for the sale of their investment in Insightec as a price reflecting a $710-720 million valuation for the company for the purpose of repaying their full debt to their bondholders.
The agreement is for the sale of 14.3% of Insightec's shares for $102.2 million to an investor whose name was not disclosed. In view of the new investment reported today, Elbit Medical's stake is set to fall to 3.1% (2.5% fully diluted).
Elbit Medical is earmarking the proceeds from the sale for early repayment of its entire NIS 185 million debt ($53 million) to holders of its Series C bonds. Another $38 million will be set aside by Elbit Medical for distribution to its shareholders.
This distribution will not take place through a dividend for the shareholders of Elbit Medical; it will be through an offer to buy back the company's shares at $0.302 per share (NIS 1.05 per share). Elbit Imaging, which holds 61.6% of the shares in Elbit Medical, making it the controlling shareholder in the company, has already reported its intention of accepting the offer to purchase.
Elbit Imaging has a NIS 139 million debt ($40 million) to holders of its Series 9 bonds, which it wants to repay using proceeds for the offer to purchase for shares in Elbit Medical. The company also holds bonds issued by Elbit Medical with a nominal value of NIS 2 million due for redemption and 0.2% of Insightec's shares, which it is due to sell to the investor for $1.2 million (NIS 4.2 million).
Published by Globes, Israel business news - en.globes.co.il - on January 5, 2020
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