The $117 million bid made with entrepreneur Avihai Stolero would take the manufacturer of military drones private
Aug 09, 2018 9:30 PM
State-owned arms maker Rafael and entrepreneur Avihai Stolero on Thursday offered to buy Aeronautics Defense Systems, the Israeli maker of military drones now under a police investigation, for 430 million shekels ($116.7 million).
Aeronautics said it was examining the offer, but the news was enough to send its stock 12.2% higher to close at 8.10 shekels on the Tel Aviv Stock Exchange. The Rafael-Stolero offer was 10% higher than Aeronautics’ market value before the offer was made.
The acquisition would take Aeronautics private and end a short but crisis-ridden career as a publicly traded company. Founded in 1997, it went public in an initial public offering in June 2017 at a valuation of 1 billion shekels. But the police probe that was revealed a few months later and poor business performance caused its shares to lose half their value.
Still, Aeronautics’ drone product line should have synergies with Rafael’s offerings, which include the Trophy tank defense system and the David’s Sling and Iron Dome anti-missile systems.
“Rafael’s capabilities in communications, armor protection systems and the like, integrated with Aeronautics’ capabilities, would enable us to offer customers in Israel and abroad advanced systems with proven cost benefits,” the company, whose full name is Rafael Advanced Defense Systems, said in a statement.
Stolero has deep business ties with intelligence agencies abroad through his cybersecurity business that could help Aeronautics. But his main contribution as a 50-50 partner with Rafael would be to prevent Aeronautics from becoming a state-owned company like Rafael and subject to the same onerous regulations.
Aeronautics has been under a cloud for a year after the Defense Ministry froze some of its export licenses in the wake of complaints that Aeronautics representatives demonstrated a kamikaze drone in Azerbaijan by attacking a manned position of the Armenian army.
Last November, the police said they were opening an investigation into Aeronautics in connection with a “deal with a key client,” but details of the probe have been subject to a gag order. The Defense Ministry is taking part in the investigation.
Aeronautics said Rafael and Stolero had conditioned the offer on a shortened due diligence process and evidence that the company’s situation had not changed significantly since its first-quarter results, which were reported in May. The offer is valid for 18 days.
In the first quarter, Aeronautics lost $1.8 million, turning around from a $180,00 profit a year ago, as sales dropped 5% to $31 million, mostly due to lower sales of drones. Electro-optic sales rose.
More recently, the company has shown some signs of a turnaround. In recent weeks it has announced three major contracts including a $31 million order from an unnamed Asian country, another for $6 million from a European government and a $27 million deal from Thailand.
The company’s chairman, Maj. Gen. (res.) Eitan Ben-Eliyahu, resigned in April after six years and was replaced by another air force veteran, Maj. Gen. (res.) Yedidya Yaari.