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Controlling shareholders of irrigation systems firm Netafim are holding preliminary talks to sell the company to a large American investment firm at a valuation of $600 million to $700 million.

If the deal is signed it will be a particularly lucrative exit for the Markstone and Tene investment funds, which acquired 22.5 percent of the company two years ago for about $40 million. The shareholders have stipulated that the company must remain Israeli, with its center of activity here. Netafim has received a number of offers over the past six months.

Netafim is controlled by three kibbutzim, Hatzerim (42 percent), Magal (26 percent) and Yiftah (about 9 percent). Other shareholders include Markstone - under the management of Ron Lubash, Amir Kess and Elliot Brodi - with a 15 percent holding, and Tene Investments, managed by Ariel Halperin. Earlier plans to float Netafim at a valuation of $500 million following the funds' investments were not implemented.

Netafim, which is considered one of the world's leading firms in the field of sophisticated irrigation systems, has not done well in recent years, and was forced to implement a recovery plan to regain profitability. The company's investments abroad, which began with a $75 million acquisition of a Dutch company, have gained momentum.

The market for Israeli irrigation products has seen dramatic changes in recent months. India's Jain Irrigation Systems is currently in talks to buy Israel's Na'an-Dan based on a valuation of $32.5 million, and U.S. company John Deere is seeking to buy Israel's Plastro based on a valuation of $60 million to $70 million.

Some observers expect that if these transactions go through the foreign companies will transfer activities to countries with relatively low-cost labor costs such as India.