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The giant Strauss-Elite merger is a far cry from the Ellern deal. The giant deal between the controlling shareholders, led by the Strauss family, in which privately owned Strauss Industries is to merge with publicly traded Elite Industries, has a dramatic affect on dozens of institutional bodies that own hundreds of millions of Elite shares.

After senior executives in these institutions had finished being impressed by the interesting figures from one of the largest and most secretive companies in the economy, and after they sat down to analyze the prospectus Elite published this week, the discovered there are some important factors not working in their favor.

Many of Elite's minority shareholders feel that although the merger is positive for Elite shareholders the merger ratio - the price Elite shareholders are paying to buy Strauss - benefits the Strauss family at Elite the shareholders' expense.

Most of the senior sources who spoke to Haaretz on Wednesday said they had not finished learning all the details, and had not spoken with representatives of Strauss. Hence they have not decided how to act, but their initial feelings are not positive.

Before the vote at the meeting of Elite shareholders in three weeks, its executives will have to work hard if they are to convince their partners from the public that the merger is worthwhile for them.

Elite's management seems intent on putting in the required effort, which began earlier this week with a big conference to mark the publication of the prospectus. Elite executives have already invited themselves to the offices of many institutional bodies in order to try to explain and convince.

In the meantime it is hard to say that there is sweeping opposition to the deal. On the one hand senior sources at the mutual funds, provident funds and insurance companies claim that the prices they will be required to pay for Strauss seems too high, while on the other they recall that the merger is the main reason for increased interest in Elite's shares and the rises in the share price in recent months.

A leg up

It is difficult to find anyone who is willing to forgo the merger even at the current price. This deal holds two advantages for institutional investors. The merger itself - they call it "synergy" - will still contribute something to Elite, even if it does not lead to the optimistic results promised by the Strauss family.

The merger will push the share share into a good position in the middle of the Tel Aviv 25 Index - something that will increase new investor interest in the company and broaden coverage by analysts and the media. This in turn will contribute to the company's value in both the near and long term.

"The failure of the merger would bring the share down immediately," said one fund manager. He said there is a feeling the Strauss family will be adopting these two significant advantages that Elite will gain from the merger.

The most militant of the objectors to the merger was the manager of the provident fund at one of the large banks, who said that without a 20-30 percent improvement in the merger ratio, the fund managers will vote against it.

"We have no argument with any of the owners of Strauss, nor any reason to annoy them, but we are not managing investments to lose money," he said. Others said they felt trapped. "We know we should be demanding at least 10-15 percent more," said another fund manager, "but if Michael Strauss says, `all or nothing,' we will vote for the merger. He is playing poker with us."

What particularly bothered investors was the assumption in the valuation of Prof. Itzhak Swary that in the long term Strauss will grow by 0.75 percent more than Elite, creating a value differential of 12-13 percent in Strauss' favor.

"Had I sent [Struass-Elite president] Erez Vigodman a study that included a similar assumption on the growth of Osem compared to Elite, I would have heard from the owners within the hour," said an analyst at one of the companies.

Nevertheless, there are some who already figure they will support the merger. These include the Dikla funds of the First International Bank of Israel, whose CEO feels the merger prices are fair and is not troubled by the 9-percent decline in Elite's share price, which he says is natural.

"Elite has not been profitable for some time, and if Strauss' results are good, even if the company has not grown in this past year of recession," said Nisim Cohen, the CEO of Dikla. Suddenly, however, there are people at Elite saying not very nice things about their own company.

Financial vice president Avi Ben Assayag says Strauss is doing much better than Elite. "It was hard for me to watch [Strauss] getting much better results than us, but that's the fact," said Ben Assayag. As for the slide in Elite's share price in recent days, Ben Assayag said these have been caused mainly by day traders and speculators.

"I know that large investors are actually increasing their holdings in the share," he said.