Rafael, Stolero sign NIS 850m Aeronautics acquisition deal

Aeronautics UAV Photo: PR

Aaron Frenkel, who has a 30% stake in the UAV developer, will be unable to block the deal, market sources believe.

An agreement has been signed for the acquisition of unmanned aerial vehicles (UAVs) company Aeronautics Ltd. (TASE:ARCS) by government owned Rafael Advanced Defense Systems Ltd. and businessman Avichai Stolero. After completing due diligence for Aeronautics, Rafael and Stolero decided to go ahead with the acquisition at a company value of NIS 850 million. They will own the company in equal shares. The deal will soon be brought before a general meeting of Aeronautics's shareholders for approval.

The parties in the deal believe that Aaron Frenkel, who bought 30% of Aeronautics's shares and is believed to be seeking a higher price for his holdings, will be unable to muster the votes needed to block the deal with Rafael and Stolero.

Aeronautics's share price responded to the new with a 3% jump, and has gained 130% since Frenkel began buying shares in the company in late December. The company's market cap is now at NIS 800 million.

The deal is a triple reverse merger, in which Aeronautics will become a private company and its shares will be delisted from the Tel Aviv Stock Exchange (TASE). The deal was signed after approval by the boards of directors of Aeronautics and Rafael. Completion of the deal is subject to the fulfillment of suspending conditions and various regulatory approvals. Adv. Sharon Amir, Adv. Idan Lidor, and Adv. Adi Lahat from the Naschitz Brandes Amir law firm represented Aeronautics in the deal, and Adv. Avraham Well, Adv. Nitzan Sandor, and Adv. Yarden Yftach from the Fischer Behar Chen Well Orion & Co. law firm represented Rafael.

Frenkel recently bought 5.3% more of Aeronautics's shares at a company value of NIS 800 million from Bank Leumi, giving him a 30.3% stake in Aeronautics. Frenkel, 61, whose main business activities are in real estate and aviation, agreed that if Aeronautics is sold in the next six months for more than NIS 800 million, he will pay an amount based on the difference between the acquisition price and NIS 800 million.

Although Frenkel stands to make a quick NIS 80 million profit on his investment from the sale of Aeronautics to Rafael and Stolero at the agreement price, market sources believe that he intends to demand a higher price that the one that they are offering for his holdings.

The only investment institution that still has substantial holdings in Aeronautics is Menorah Mivtachim. Rafael and Stolero need support for the deal from a majority of over 50% of the shareholders at the Aeronautics general shareholders meeting, and are confident that it will be forthcoming. It remains to be seen whether Frenkel will try to buy more shares in Aeronautics in order to prevent the deal, or whether he will settle for the handsome profit he will receive from the company's sale to Rafael and Stolero.

Aeronautics, led by CEO Amos Matan, develops, manufactures, and markets unmanned airborne, electro-optical, and communications systems. The next stage in the deal is approval by Aeronautics's shareholders, led by investment funds KCPS, Bereshit, and Viola, which jointly own 36% of the Aeronautics's shares.

Aeronautics became a public company in the summer of 2017, after the investment funds holding a controlling interest in it made a huge offer for sale amounting to over NIS 400 million. Aeronautics also issued new shares for NIS 53 million to Leumi Partners, the concern that led the offering, and trading in Aeronautics's shares began at a company value of over NIS 1 billion.

Later, before Frenkel's purchases of shares and the acquisition bid by Rafael and Stolero, Aeronautics's share price plummeted over 60% in response to disappointing business results, combined with an affair in a foreign country involving Aeronautics. Following this affair, the Ministry of Defense suspended Aeronautics's license to market and export its UAVs to an important customer in that country.

In early January 2019, Aeronautics reported that the Ministry of Defense had reversed its suspension of the company's license to market and export its Orbiter K1 UAVS to the important overseas customer (the suspension occurred because of a deal with the customer that led to the opening of a criminal investigation against the company in August 2017).

Published by Globes, Israel business news - en.globes.co.il - on February 20, 2019

© Copyright of Globes Publisher Itonut (1983) Ltd. 2019

Aeronautics UAV Photo: PR
Aeronautics UAV Photo: PR
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