Fagor, Elco’s partner in Elco Brandt, ready to buy out owner

A month after Elco Holdings announced its intention to sell Elco Brandt, its subsidiary in France, the firm said yesterday that it has an offer.

Elco, which is controlled by Gershon Salkind, said it wanted to obtain a company valuation of 150-200 million euros for the French company. Yesterday it said its partner in Elco Brandt, Fagor, which owns 10 percent, is offering to buy its share for 162.5 million euros.

When the deal is closed, Elco Holdings will get back the 27 million euros it lent to the French subsidiary, plus interest.

Elco has agreed to give Fagor’s offer exclusivity for a period of time, apparently several weeks, during which it will examine it, and regulatory issues. The sale would need approval from antitrust authorities, labor unions and the courts that oversaw Brandt Moulinex’s 2002 bankruptcy sale. Elco has apparently received other bids as well.

Elco Holdings paid 48.6 million euros for Brandt, and gave the company a shareholder’s loan of 54 million euros, paid to Brandt’s receivers out of cash flow. Elco Brandt’s balance sheet value is 84 million euros, due to its 30 million euro contribution to profits, despite a series of restructuring charges.

A month ago a Bank Hapoalim equity analyst said that if Elco Brandt is sold at the lower end of the range, 150 million euros, the parent company Elco Holdings will post a huge capital gain of 80 million euros. On that, it would have to pay between 12-15 million euros to Tadiran.

Elco Holdings could post a large profit on the Brandt investment thanks to the low purchase price and despite the fact the subsidiary did not meet milestones determined under the purchase terms.

Elco Brandt posted operating profits of NIS 58 million on turnover of NIS 3.8 billion in the first nine months of 2004. This amounts to 1.5 percent of turnover, compared to its 2.5 percent operating profit margin in the first nine months of 2003.

Elco Holdings defined the Brandt acquisition as step toward target sales of 900-930 million euros in 2004 and operating margins of 5 percent of turnover. However, Fagor may get a substantially streamlined company. The agreement with the receiver prohibited layoffs in the first two years after the purchase, but Elco Brandt started closing loss-generating factories in January 2004, dismissing hundreds of employees, including 357 at a plant in France. These steps led to NIS 66 million in one-time charges, which caused the company a NIS 53 million loss for the first nine months of 2004.

From Haartez