Elbit Systems (NASDAQ:ESLT) announced today the acquisition of the three defense companies owned by the Israel based Mikal group for a net payment of $69 million. These companies include artillery and mortar producer Soltam, armored vehicle refurbishing expert Saymar and EO specialist ITL.
Following a significant setback over a major export program, striving for cash, Mikal sold 19% of its share to Elbit for $18 million. This was only the first step, Mikal expected Elbit to further raise its ownership ownership of the entire group. However, after long discussions that lasted about a year the two sides agreed on Elbit acquiring Mikal’s interests in its main subsidiaries rather then the whole group, for $87 million. Mikal could receive more payments in the future, subject to the acquired subsidiaries achieving certain business goals.
Elbit picked the three companies considered to be synergetic to its activities, rather than acquiring the group as a whole. As Elbit Systems already holds about 19% of Mikal, it will transfer its shares the other Mikal shareholders for $18 million.Upon completion of the acquisition, Elbit Systems will hold, a 100% interest in Soltam and Saymar. As for ITL, which was a bitter competitor for the company’s electro-optical systems, Elbit will increase its ownership from 19% to 87.85%. Elbit has increased its holdings in ITL in the recent days, buying over 2% of ITL floating shares. The balance of ITL’s shares are traded on the Tel Aviv Stock Exchange. Last month Elbit failed to buy out all ITL’s outstanding shares, offering over $3 million for the acquisition of 14.35%. The recent announcement will probably renew this buyout momentum.
Welcoming the new companies and their employees to Elbit Systems, Joseph Ackerman, Elbit Systems’ President and CEO acknowledged the acquisition is synergetic to Elbit Systems, saying: “the combination of Elbit Systems’ existing capabilities with the technologies of Soltam, Saymar and ITL in platforms, propulsion and electro-optics, will enable us to further enhance our portfolio of solutions to both the Israeli and the global defense market”.
What are the benefits for Elbit Systems?
The synergies gained by this acquisition are significant to Elbit, particularly in the case of Soltam, where the company gains access to the market of main weapon systems. In contrast to past years, artillery and mortars are sold today as integrated systems, combined with command, control, communications, target acquisition and means battle damage assessment, opening new opportunities for the entire group capability – observation systems, data communications, EO payloads and unmanned aerial vehicles. In the past Elbit was working with Soltam as a subcontractor, offering mortar fire control computers but did not have the benefit and advantages available to a prime contractor.
The ability to perform projects a platform prime-contractor open the full potential for Elbit to exploit other opportunities, domestic and international markets and increase profitability, management and control of the entire program. Another new activity for Elbit is ammunition (also produced by Soltam) – sofar Elbit avoided this field and focused on enhancing weapons produced by other manufacturers into ‘smart weapons’.
The synergies with ITL are more complex, as ITL has recently expanded into many of Elbit Systems’ fields of activities, including thermal imagers, enhanced Night Vision Devices, target acquisition and situational awareness systems. The two companies are offering competing product lines of weapon sights, target acquisition systems, etc. Yet, Elbit considers part of ITL’s legacy specialization in image intensifiers (I2), laser markers and range-finding as synergetic to its activity. Besides their fierce competition, the two companies have also worked together – in Israel ITL’s eyepiece is operationally used as part of the Elbit Systems Dominator solution for the IDF’s future soldier program.