July 07, 2005, Ora Coren (Haaretz)

Elbit Systems has signed an agreement to buy Koor Industries' 70-percent interest in defense company Elisra Electronic Systems according to a company valuation of $100 million. This is less than one third the value of Elisra set three years ago, when Israel Aircraft Industries (IAI) bought the other 30 percent of the defense firm according to a company valuation of $330 million.

Once the current deal is completed, Elbit will be the country's largest non-state-owned defense firm, while Koor will have almost completely exited the security sector. Under the deal, Koor will buy 2.3 percent of Elbit, bringing its holdings in the company to 7.6 percent. However, Koor will not be involved in its management.

Elbit also is buying 5 percent of Tadiran Communications from Koor, thereby increasing its holdings in Tadiran to 26 percent.

Once the antitrust commissioner approves Elbit's acquisition of Elisra, Elbit will buy all of Koor's holdings in Tadiran, bringing its holdings in the company to 38 percent.

Under the deal, Elbit President Joseph Ackerman will become chairman of Tadiran. Until the acquisition is approved, which is expected to take several months, Koor and Elbit will appoint equal numbers of representatives to Tadiran's board, and the company will function under a joint operating agreement.

After the deal is completed, Elbit will control Tadiran and Elisra, as well as El-Op, which it bought in 2000. El-Op designs, engineers, manufactures and supports a wide range of advanced electro-optic, combat vehicle, airborne, naval and space systems and products.

Officials at Koor are saying they will remain involved in the defense industry by sharing controlling interest in Elbit with chairman Michael Federmann, who has controled the company since the El-Op merger. However, the officials said they are happy to hand over the reins to Federmann and Ackerman. Tadiran apparently will choose Elbit's deputy chairman, who will likely be Koor President Danny Biran, who has been in charge of Tadiran's security activities until now.

Antitrust Commissioner Dror Strum has expressed dissatisfaction with the defense industry merger, since it creates cooperation between Elbit Systems and IAI through their joint holdings in Elisra. Strum has said that he views such collaboration as anti-competitive. Sources involved in yesterday's transaction said that based on preliminary discussions, Strum may approve the deal after placing certain restrictions. For example, he may require Elbit to end its cooperation with IAI.

The Defense Ministry, meanwhile, supports the three-way deal.

The parties plan to draw up draft terms under which the deal can be completed.

Koor originally had envisioned Tadiran's purchasing its stake in Elisra in a cash deal, but Tadiran management and minority shareholders balked, and the plan failed to take place.