IAI in Talks to Acquire Probed Drone Maker Aeronautics

On Monday, Israel-based drone maker Aeronautics Ltd. announced in a filing to the Tel Aviv Stock Exchange it is negotiating the sale of a stake in the company to a strategic partner and is also currently holding preliminary discussions “with several third parties regarding a possible partial or complete acquisition of the company.” One of those parties is government-owned defense contractor Israel Aerospace Industries Ltd. ( IAI), one person familiar with the matter said in an interview with Calcalist.

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Founded in 1997 and based in Israeli town Yavne, Aeronautics specializes in the development of unmanned aerial Vehicles (UAV) for military use and has over 45 defense, military, and homeland security customers worldwide. The company listed on the Tel Aviv Stock Exchange in 2017 but lost over 50% of its share price since. It reported a 23.7% drop in revenues to $30.5 million and a net operating loss of $2.97 million in its third-quarter report for 2018, published November.

Aeronautics has been under investigation by Israeli police and the Israeli Ministry of Defense since September 2017, but the details of the probe have been placed under a gag order. In August, the company announced some of its senior executives, including the CEO, have been summoned for a hearing by the Israeli State Attorney. On Monday, Aeronautics reported that Israel Securities Authority agents raided the company's offices and confiscated documents.

In August, Calcalist reported Israeli defense technology company Rafael Advanced Defense Systems Ltd. has made an acquisition offer to Aeronautics, according to a fully diluted company valuation of NIS 430 million ($115 million), a 10% premium at the time. Both companies later confirmed the report. Aeronautics and Rafael have joint ownership of Controp Precision Technologies Ltd., an original equipment manufacturer of high-performance, stabilized observation payloads for manned and unmanned aerial, land, and naval systems, which also manufactures parts for Israel's Iron Dome air defense system.

IAI representatives held several meetings with Aeronautics' shareholders in the past weeks, according to the one person familiar with the matter. Aeronautics shareholders are demanding a heavy premium on the drone maker’s current market price, the person familiar with the matter said.

On Monday, Aeronautics filed documents stating Israeli businessman and billionaire Aaron Gover Frenkel acquired a 13.32% stake in Aeronautics over the weekend. Frenkel is the owner of Loyd's Aviation Group, which invests and owns assets in the domains of real estate, civil aviation and aerospace, energy, and technology. He also owns UVision Air Ltd., an Israeli company founded in 2011 that develops and manufactures unmanned aerial loitering systems, also sometimes referred to as suicide drones.