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12 MONTH
CERTIFICATE

5.75'

Picking Up The Pieces

INTEREST RATE
5.870

Faced with inconsistent performance among its
diversified activities, 31-year-old Israeli high-tech
pioneer Elbit has decided to brace for a better future.

A.P.Y./*

JONATHAN FEDLER SPECIAL TO THE JEWISH NEWS

A

pilot project soon to be
launched in Tianzin, Chi-
na, reflects Israel-based
high-tech powerhouse El-
bit's new corporate strategy.
A cooperation agreement with
various communications and TV
companies in Tianzin, a city of
10 million people, has given El-
bit a leg up on its competitors in
a new field: At a cost of several
million dollars, thousands of
homes will be linked up to tele-
phone services via TV cables.
Success with the Chinese pro-
ject could open up a vast new
market, not just in China, but in
many other countries in the Far
East where cable TV infrastruc-
ture has preceded
telephones.
Launched
last November,
the new strat-
egy — or "de-
merger" as the
company terms
it — led to a
split-up of the
$1 billion elec-
tronics con-
glomerate into
three publicly
listed compa-
nies: Elbit Sys-
tems Ltd. (ESL),
which now owns
and operates
what previously
constituted Elbit's
defense related business, Elbit
Medical Imaging Ltd. (EMI),
which inherited the company's
healthcare related business, in-
cluding a 55 percent-stake in
leading diagnostic imaging com-
pany Elscint Ltd., and Elbit Ltd.,
which retains the original com-
pany's remaining activities, and
focuses on communications.
The demerger was dictated by
both a continued global process
of diversification and consolida-
tion in the defense market, and
by the need to keep investor con-
fidence in the face of falling sales.
Consequently, the company's
newly loosened arms can better
seek and promote non-defense-
related joint ventures like the
one in Tianzin.
Only eight years ago Elbit, a 40
percent-Elron subsidiary, was ba-
sically an armaments company,
with defense wares accounting for
76 percent of its sales. With the
accelerated consolidation of the
global defense industry in the af-
termath of the Cold War, howev-
er, Elbit had to remaneuver its
way through foreign markets.

Aping many of its larger com-
petitors, it streamlined its mili-
tary side and strengthened it
through mergers and acquisi-
tions (notably the 1993 purchase
of General Dynamics' electron-
ics manufacturing center at Fort
Worth).
Meanwhile, the company also
single-mindedly pursued diver-
sification.
The first major result of this
reorientation was the 1988 ac-
quisition of medical diagnostic
imaging leader Elscint. But-
tressed by-the subsequent ac-
quisition of other companies in
the field, medical technologies
(before the selling-off of that
division) pulled
in about 55 per-
cent of turnover,
with defense ac-
counting for
only 32 per-
cent. The re-
m a i n d e r
consisted of
new areas of
civilian-sector
activity devel-
oped in the
1990s, several
of them prob-
lematic, ranging
from data trans-
mission to in-
f r a r e d
photography and
color TVs.
However, diversification cre-
ated its own challenges.
First, despite their dwindling
share of overall revenues, Elbit's
defense-related sales continued
to grow — until last year. In-
deed, company President and
CEO Emmanuel Gill argues that
diversification was a prerequi-
site for this success. "For our de-
fense business to be competitive,
we needed the flexibility of min-
imizing our manpower and as-
sets while diverting resources to
the other businesses we acquired
or developed," he says.
Secondly, splitting up was
clearly going to be hard to do.
Had the company separated its
defense activities five years ago,
says Mr. Gill, it would have been
more difficult to reduce it to the
size and cost structure required
by the market. "Today, that is
the real problem of defense com-
panies," he says.
The importance of the move
was underscored by the perfor-
mance of what would later be-

ELBIT page 68

60 MONTH
CERTIFICATE

&Oaf°

INTEREST RATE

6• 1 3%
A.P.Y./*

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