Babylon Merger Would Leave IronSource’s Four Founders With NIS 2b

Valuation expected to be set at 1:2 ratio in IronSource’s favor, which would give its shareholders 67% of stock in new company.

The merger in the works between Israeli Internet companies Babylon and IronSource is likely to lead to the minting of four new multimillionaires. IronSource founders Itai Milrad, Eyal Milrad, Roy Milrad and Tomer Bar-Zeev each hold 17% of IronSource’s shares, for a total of 68%. Under the merger deal, each would be receiving shares in the new company worth NIS 475 million.

Two other shareholders in IronSource also stand to profit handsomely from the merger with Babylon, which develops translation software but makes most of its money from its browser toolbars. They are Tamir Carmi, former CEO of Volonet, which merged with IronSource, and Carmi’s business partner Arnon Harish. Carmi and Harish each have a 7.5% share in IronSource, which would give them shares worth NIS 220 million in the new company.

IronSource is privately held. Prior estimates have put the company’s worth at hundreds of millions of dollars.

IronSource is one of Israel’s fastest growing and most promising Internet companies. It was founded in 2009 when several programming companies merged, and now has revenues of $150 million to $200 million a year. It employs 200 people at its office on Tel Aviv’s Rothschild Boulevard. Its central product is a download manager used on downloading websites. It offers customers using its products the option of downloading other programs developed by companies such as Babylon, which it charges a fee.

Industry sources believe that Babylon and IronSource will merge at a ratio of 1:2 in IronSource’s favor, meaning that IronSource’s shareholders will be given a total of 67% of the new company’s shares. The remainder will go to Babylon’s current shareholders.

Babylon’s share price gained 4.4% yesterday, bringing its market cap up to NIS 1.4 billion.

This works out to IronSource’s current shareholders receiving shares worth NIS 2.8 billion.

Given this ratio, IronSource’s controlling shareholders are likely to play the dominant role in the new company, as opposed to Babylon’s controlling shareholder Noam Lanir. Lanir, who holds 23% of Babylon’s shares, is likely to have his position diluted considerably.

IronSource’s four founders would hold a total of 45% of the new company’s shares. Including Carmi and Harish, IronSource’s leading shareholders would have a 55% stake, which means they would be able to make fateful decisions for the company.

IronSource CEO Bar-Zeev is likely to be the company’s CEO.

Investment fund Carmel Ventures III, part of the Veolia group, also stands to profit nicely. The fund holds 12% of IronSource’s shares, and is due to receive shares worth NIS 340 million from the new venture.

Market sources have said that the merger would be a preliminary step toward an initial public offering on Nasdaq. Babylon has been the subject of IPO rumors for a while now.

Babylon is one of the leading companies in what’s known as Israel’s “Download Valley,” an industry based on user downloads that is coming under increasing scrutiny as Internet giants such as Google and Microsoft increasingly tighten the restrictions these companies face.

Dror Reich contributed to this report.
 

David Bachar