Shares of Gilat Satellite Networks soared on Sunday in Tel Aviv Stock Exchange trading amid reports that the Israeli maker of satellite communications equipment was in talks to be sold to an unnamed overseas company.
The reports said Gilat might be sold at a 2 billion shekel ($580 million) company valuation, which works out to a price of $10.50 a share – a 15% premium on Gilat’s Friday closing price in New York. The stock finished Sunday on the TASE up 14.1% at 333.80 shekels, or $9.78.
Gilat shares had begun rising last week, climbing 20%. Until then, the stock had been underperforming the TASE TA-90 by about 34% over the previous 12 months. The sudden turnaround in the stock without any official news points to possible insider trading on the rumored negotiations.
Gilat, which is 34%-owned by the FIMI private equity fund and 9.8% of which is owned by Mivtach-Shamir Holdings, designs and manufactures ground segment equipment and provides comprehensive solutions and end-to-end services for satellite-based broadband communications.
Gilat’s very small aperture terminal – or VSAT – platforms are usually deployed in places were it’s not financially feasible to install landline communications equipment using fiber optics. Gilat has also developed solutions for providing broadband capacity to aircraft, trains and ships. It manages communications networks in Peru and Colombia.
The main institutional investors in Gilat are the insurance company Phoenix, which holds 5.9%, Clal Insurance (5.4%) and Harel Insurance (1.6%).
For FIMI, which is led by Ishay Davidi, the sale of Gilat would be profitable but not especially so by its usual high standards for internal rate of return, nor would it be for Mivtach Shamir, the main shareholder of Mivtach-Shamir. That is because since FIMI increased its stake in the company, buying a further 12% in November 2014 at $4.95 a share, the Nasdaq has risen 98% and the TA-90 by 79%.
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Last week, TheMarker reported that FIMI was in talks to sell the drip-irrigation equipment maker Rivulus at a reported valuation that would earn it a return of 50-60 times its investment.
FIMI first bought shares in Gilat eight years ago, as its oversaw a lengthy process of making the company culture more focused on profitability.
The company has long faced stiff competition from Hughes Satellite, which has flooded the market with low-cost VSAT stations. Operating under the names Dish and DirecTV, Hughes’ satellite-television service counts 1.3 million household subscribers in the Americas. It sells used equipment from customers who have canceled their subscription to markets like Russia at even lower prices.
Dov Baharav, a former CEO of the Israeli-U.S. company Amdocs, was named Gilat chairman in May 2014. He in turn appointed another Amdocs veteran, Yona Ovadia, as CEO two years later. Under its new management, Gilat began to focus on the satellite communications in developed countries, where subscriber revenues are high.
In addition, it has focused on profitable deals in the so-called cellular backhaul market, serving sites where cellular companies have found it is economically unviable to connect with fiber-optic cables.
Another key market for Gilat is the mobility segment, providing internet connections to trains and mainly passenger planes. Sales are now running at about $100 million a year and the market is growing quickly as internet access has become an important competitive tool for airlines.
The future looks bright as airlines begin to explore offering internet for free, as United Airlines has promised it will. Gilat works with Gogo, a major provider of broadband connectivity solutions and wireless entertainment to the aviation industry.
In November, Gilat reach an agreement with the European satellite communications company SES that should give a big boost to its revenues and profits. The Israeli company will supply VSAT platforms to SES, which provides video and data connectivity worldwide to broadcasters, content and internet service providers, among others. The multimillion-dollar contract will turn Gilat into a major player in the segment for satellite with non-geostationary orbits, or NGSO.
In contrast to geostationary satellites, which orbit at a fixed point above the Earth and are capable of transmitting communications to defined regions of the Earth, NGSO communication is nearly as fast as fiber-optic communication.