Gov't blocking Rafael-Stolero buying Aeronautics

Aeronautics Orbiter

Israel's Government Companies Authority objects to a private partner owning 50% of UAV manufacturer Aeronautics.

Is the sale of Aeronautics to a private company held in equal shares by Rafael Advanced Defense Systems and businessperson Avichai Stolero for NIS 850 million facing cancellation?

The deal, which was approved by Aeronautics' shareholders in early April and was slated for completion by June 18, has been stalled in the Ministry of Finance and the Government Companies Authority. Aeronautics recently reported to the TASE that the deadline for completing the deal had been extended until August 18.

The reason for the delay in approving the deal is the Government Companies Authority's objections to the combination of Rafael and a private investor. The Government Companies Authority holds that recruiting the private investor has no significant added value for Rafael, while the government company is required to give a partner substantial considerations. Dissatisfaction with the agreement with Stolero comes on top of the Government Companies Authority's dismay about the high price in the deal, although the Government Companies Authority believes that this price is reasonable, so it does not constitute ground for vetoing the deal.

The Government Companies Authority believes, however, that the addition of a private partner casts doubt on whether the deal is worthwhile. Rafael explained that a private investor holding 50% ownership of Aeronautics was needed in order to prevent the Government Companies Law from applying to it; otherwise, Aeronautics will be subject to the constraints and restrictions applying to government companies. The Government Companies Law applies to companies in which the government's holding is over 50%.

Sources inform "Globes," however, that the Government Companies Authority was not convinced by this explanation, and proposed to Rafael a way of exempting Aeronautics from the obligations applying to government companies without the need for a private partner. The Government Companies Authority proposed asked the government for a decision granting Aeronautics an exemption from the tenders obligation and other obligations, thereby enabling Rafael to hold full ownership of Aeronautics.

Aeronautics' shares price was down today, and has fallen 17% in the past two and a half months as a result of the delay in obtaining approval for completion of the deal. The company's market cap is now down to NIS 660 million.

Aeronautics, led by CEO Amos Mathan, develops, manufactures, and markets unmanned aerial vehicles (UAVs), electro-optic systems (through a 50% holding in CONTROP), and communications systems.

Aeronautics is currently controlled by the KCPS, Bereshit and Viola funds, which hold an aggregate 36% of the shares, and businessperson Aaron Frenkel, 61, with 31.7%. Menorah Mivtachim is now the only investment institution with a substantial holding in Aeronautics (9.6%).

Aeronautics became a public company in the summer of 2017, after the funds that control it held an offer of sale for the company in excess of NIS 400 million. Together with the offer of sale, Aeronautics issued NIS 53 million in new shares to Leumi Partners, the concern that led the offering. Trading began in Aeronautics' share at a NIS 1 billion market cap, but the share price plummeted over 60% by the end of 2018, following a decline in the company's results, pushing its market cap below NIS 400 million.

Frenkel came to the share price's rescue by embarking on an aggressive series of purchases that left him with a 31.7% holding. Frenkel, whose main business is in real estate and aviation, began acquiring shares in Aeronautics in the last week of December, when the share was at its lowest point. He spent NIS 165 million on the shares, whose current market value is NIS 215 million, giving him a NIS 50 million profit, despite the recent drop in the share price.

Published by Globes, Israel business news - en.globes.co.il - on July 8, 2019

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

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