Elbit moves to purchase remaining Elscint shares

Deal would end Elscint’s independence

After months of uncertainty as to its future, the fate of Elscint of Haifa, Israel, may soon be decided. The firm received an offer last month from its parent company, Elbit Medical Imaging, also of Haifa, for the purchase of Elscint’s remaining shares for about $100 million. The transaction would bring Elscint completely into Elbit’s fold, effectively ending the company’s 29-year history as an independent medical imaging company.

The proposed deal would cap a tumultuous 1998 for Elscint. Elbit in November sold Elscint’s nuclear medicine and MRI businesses to GE Medical Systems and its CT business to Picker International for a total of $366 million (SCAN 12/16/98). The sales boosted Picker’s position in CT and gave GE added R&D brainpower in nuclear medicine and MRI. But the divestitures also left market watchers wondering whether Elscint would continue as an ongoing business.

Elbit’s involvement in Elscint goes back to 1989, when it acquired a controlling interest in the medical imaging company. At the time, Elscint was experiencing cash-flow problems due to a heavy debt load (SCAN 9/16/87).

Elbit pumped much-needed cash into Elscint and helped it get back on its feet. But Elscint’s R&D prowess couldn’t offset the strength of the multinational giants that were its primary competitors. The company began experiencing profitability problems in the mid-1990s that most likely led Elbit to divest the MRI, CT, and nuclear medicine operations.

In a letter to Elscint’s board of directors last month, Elbit president Jacob Vortman offered Elscint $14 a share for the 43% of shares outstanding that Elbit doesn’t already own. Coming up with cash for the buyout won’t be a problem, as Elbit will be able to use the funds it gained from the GE and Picker deals.

Cutting administrative costs is a major factor behind the buyout, according to Vortman.

“After the sale of most of Elscint’s operations to Picker and GE, it’s illogical to keep two public companies with all the related expenses,” Vortman said. “Combining the two will reduce (those expenses, such as) general accounting.”

Elscint still boasts attractive assets. It holds a small mammography equipment business and owns 50% of ELGEMS, a partnership with GE that develops and produces nuclear medicine systems. It also has a production division that does contract work for both Picker and GE. The bulk of Elscint’s assets—85%—is cash, according to Vortman.

The company employs 400 workers, not including those at ELGEMS. Its executive lineup includes CEO and board chairman Emanuel Gill (also chief executive of Elbit) and CFO Gabi Yankovitz. By rolling Elscint into its core business, Elbit can hold onto Elscint’s people and technology, thereby strengthening its own organization. Elbit’s proposed bid is before Elscint’s board of directors and is subject to governmental and shareholder approval.