Israeli Company Babylon Considers Going Private

Controlling shareholder of online translation company weighs proposal from Reed Elsevier Ventures fund that he should consider buying shares now trading on Tel Aviv Stock Exchange. Move could result in cancellation of company's pending NASDAQ IPO.

Babylon, the online translation company, may do an 11th-hour about-face on its plans to become a dual-listed New York-Tel Aviv share.

Controlling shareholder Noam Lanir is weighing a suggestion from another top shareholder in the company, Reed Elsevier Ventures fund, according to which the firm could consider buying the shares now trading on the Tel Aviv Stock Exchange and delist the company. This plan could result in the cancellation of the company's imminent public offering on NASDAQ.

Once a high flier on the TASE, Babylon has seen its shares fall by about a third in the last three months to as low as NIS 28.75. The price has picked up in the last few days but in spite of the rally, they closed yesterday at NIS 32.79, compared with NIS 43.12 at the end of July.

"At this price it's better to buy than to sell," wrote the fund, a venture capital firm backed by the European media and information company Reed Elsevier, in a memo to Lanir.

Considering Babylon's newly crumbling share price, along with the market's muted response last week to a breakthrough agreement with Google and the company's financial statements, Lanir agreed to examine the possibility of a full buyout.

Babylon's management headed by Lanir's brother-in-law Alon Carmeli, is meanwhile continuing its preparations for the IPO.

The impetus for the switch came last Tuesday after Babylon made two major announcements. The first was an agreement with Google, the first ever between the two companies, on mobile advertising. The second was better-than-expected financial results for the third quarter, results that would help determine the pricing of Babylon's NASDAQ IPO.

Despite all this, the Israeli market gave the stock the cold shoulder and it fell 10% within two days last week before rebounding yesterday and last Thursday. The reasons suggested for the drop were that Babylon didn't mention the IPO in its financials and omitted an accounting figure attesting to future revenues.

The dispute between Lanir and Carmeli over the IPO is nothing new. Carmeli has long urged listing the company on NASDAQ while Lanir expressed apprehension right from the start. Carmeli, who arrived at Babylon in 2007 before Lanir acquired control, and who was aware of the company's growth rate and Israeli skepticism regarding Internet companies like Babylon, has always expressed confidence that turning to foreign markets was the way to increase the company's stock market valuation.

"A NASDAQ IPO will infuse a great deal of value into the company," he told TheMarker in an interview three months ago.

This could be good news for Babylon investors. But whether it is a share offering or a buyout offer, the price is bound to be higher than the current NIS 33, which was probably the reason for the stock gaining 4.4% in yesterday's trading.