Tadiran Staff Threatens to Scupper Elbit-Elisra Union

Representatives of Tadiran Communications' workers told company shareholders in a "warning letter" yesterday that they would try preventing the acquisition of Elisra by Elbit Systems, which owns controlling interest (27 percent) in Tadiran.

In the letter to shareholders, including Bank Leumi CEO Galia Maor and the British investment firm Atticus Fund, workers demanded the signing of a special collective work agreement guaranteeing Tadiran's 450 employees several years of improved rights, including severence pay of 270 percent the legal minimum.

"Just as we prevented the deal where Tadiran Communication' was supposed to buy Elisra six months ago, we'll prevent implementation of the deal for Elbit to buy Elisra, as well as future Elbit deals, if our demands to guarantee workers' conditions are not met," worker representatives wrote.

Analysts, nevertheless, are pleased with the merger due to what they see as great synergy between electronics warfare and terrestrial systems. Poalim Sahar said that Elbit has been using Elisra as a subcontractor for electronic warfare contracts anyway. However, with control over Elisra, higher margins are in the offing.

Poalim Sahar analyst Yoav Burgan also believes the two companies will cooperate in the maritime market for warfare electronics, adding that demand in this sector is relatively low.

Burgan said Elisra's $100-million company valuation is reasonable, and repeated a 12-month Elbit price target of NIS 132, which is 26 percent above yesterday's opening price on the Tel Aviv Stock Exchange.

He also repeated a Buy rating for Elbit, and at the same time upgraded Tadiran Communications from Sell to Hold, after the merger removed the danger of Tadiran's being forced by Koor Industries to use its cash to buy Elisra.

Elbit's purchase of Elisra remains contingent on antitrust approval due to competition issues: Israel Aircraft Industries company Elta owns the remaining 30 percent of Elisra. If Elbit buys Koor's 70 percent, then Elbit and Elta would effectively be allied via Elisra. Elta bought its Elisra stock three years ago, according to an enormous company valuation of $330 million. Burgan said resolving the situation will not be easy. Presumably, Elta would demand a lot more for its stake than anybody would be willing to pay.

Bank Hapoalim's Equity Research Department also singled out the synergy of Elbit and Elisra, and upgraded Elbit from Market Perform to Outperform based on the evaporation of uncertainties. The analysts believe the merger will trigger a wave of consolidation in Israel's defense industries.