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 Aeronauticsâ€™ 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, Aeronauticsâ€™ drone product line should have synergies with Rafaelâ€™s offerings, which include the Trophy tank defense system and the Davidâ€™s Sling and Iron Dome anti-missile systems.
â€śRafaelâ€™s capabilities in communications, armor protection systems and the like, integrated with Aeronauticsâ€™ capabilities, would enable us to offer customers in Israel and abroad advanced systems with proven cost benefits,â€ť 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 â€śdeal with a key client,â€ť but details of the probe have been subject to a gag order. The Defense Ministry is taking part in the investigation.
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Aeronautics said Rafael and Stolero had conditioned the offer on a shortened due diligence process and evidence that the companyâ€™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 companyâ€™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.