Elbit parent unfazed by rumors of pending government investigation

March 31, 1999

Company denies difficulty in closing Elbit saleElron Electronic Industries of Haifa, Israel, may be encountering difficulty in its effort to sell its subsidiary, Elbit Medical Imaging, also of Haifa. According to a March 10 Reuters article, the

Company denies difficulty in closing Elbit sale

Elron Electronic Industries of Haifa, Israel, may be encountering difficulty in its effort to sell its subsidiary, Elbit Medical Imaging, also of Haifa. According to a March 10 Reuters article, the Israeli government's Office of the Chief Scientist hinted earlier this month that it would not approve the sale until it had completed an investigation, and cautioned that Elron's ability to obtain future research aid could be threatened. The office also said that if Elbit were no longer a high-tech concern, it might have to reimburse the government for past loans.

Elron moved to divest Elbit on Feb. 25, when it announced the sale of its 37.3% stake in the company to Europe Israel, a Tel Aviv company that operates commercial hotels, shopping and entertainment centers, and high-tech ventures (SCAN 3/17/99).

What may have aroused the Israeli government's ire is the disposition of millions of state loans Elscint received over the years to fund its R&D work. The government may not have been pleased that technology developed with its funds was eventually sold to foreign companies. Elbit in December divested its subsidiary Elscint's CT, nuclear medicine, and MRI businesses to Picker International and GE Medical Systems, respectively (SCAN 12/16/98).

An Elron spokesperson denied any conflict between the company and the government, stating that Elron has not received official notice from the Office of the Chief Scientist outlining concerns, although the company is in discussions with the office. The government would like Israeli companies to reinvest their resources within the country rather than selling them abroad, according to Doron Birger, Elron's vice president of finance.

"(The office) believes that the cash Elbit received from the sales of its MRI, CT, (and nuclear medicine) businesses should be invested as much as possible in other high-tech activities in Israel," Birger said. "The reasoning is that the government of Israel, through the Office of the Chief Scientist, has helped Elscint during the years to develop its activities."

But Elron has built high-tech investment into its deal with Europe Israel, according to Birger. Elbit plans to begin development of medical diagnostic products for image-guided therapy, an effort that will be led by Jacob Vortman, the company's president. As part of its sale of Elbit, Elron has stipulated that Elbit's buyer is obliged to continue to invest in the development of these products, contributing half of a projected $25 million in R&D funding.

Elron anticipated that the Europe Israel deal would close by March 30, and that Elbit's current management, including Vortman and Emmanuel Gill, Elscint CEO, will continue in their posts. Elron believes the government's concern that more and more Israeli companies will take their high-tech knowledge out of the country is unfounded.

"Elron expects $145 million from the sale of Elbit Medical Imaging, and we don't have any other plan than to continue to invest in high-tech," Birger said.