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DewDiligence

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DewDiligence

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Re: None

Saturday, 01/26/2008 6:58:51 PM

Saturday, January 26, 2008 6:58:51 PM

Post# of 251750
Barron’s roundtable touts ELRN. This discussion
took place 7-Jan-2008 when the stock price was
11.50; it is now 9.72.

http://online.barrons.com/article/SB120132064710419211.html

>>
Scott Black: My last company is based in Israel, and is more of an asset play. It's Elron Electronic Industries, ELRN. This was once a great tech company. It fostered Elbit Medical, which specialized in CT-scanning technology. They were the first to do body scans. It also spun out Elbit Systems, which creates ground-mapping systems not only for the Israeli air force but U.S. pilots. When you're flying at Mach 2.2, you know exactly where you are. They also make ground-mapping systems for the planes the U.S. sells to the Emirates and Kuwait.

Elron Electronic is now a venture-capital company. Their leading operating company, Given Imaging, developed what originally was a military technology, a camera in a pill. You swallow it and it captures images of your gastrointestinal tract. It represents 30% of Elron's value. Given has a market value of about $145 million. Revenues will go to $143 million this year from $110 million, and earnings per share to 42 cents from 18 cents.

The company has a good management team, and Israel Makov, who left Teva Pharmaceutical Industries [TEVA], just went on the Given board to help them with strategy.

Elron's stakes in publicly traded companies equal $212 million, or $7.18 a share. The private companies, at their current stage of financing, are worth $7.02 a share. Add $2.15 a share of net cash, and the break-up value is $16.35 on an $11.50 stock. [The stock is now 9.72.] The company is selling for 70 cents on the knock-down [dollar] value. [Now only 59 cents on the dollar!]

…The other businesses include Galil Medical, which is involved in cryo-therapeutic surgery; NuLens, for cataract surgery; and Medingo, which is developing an insulin-dispensing patch with a lot of potential. Elron owns 51% of the company. Elron also owns 17% of NetVision, the largest Internet-service provider in Israel; Atlantium, which specializes in water disinfection; and so on.

You are buying a chance on some good incubator companies at a big discount. There is no financial risk here, because the balance sheet is clean with cash. Last year, they invested about $51.9 million. This year, they will spend about another $50 million, but still have cash on the balance sheet. Ultimately, Elron will take public some of its companies, harvesting gains as it did with Elbit Medical and Elbit Systems. [Elbit Systems (ESLT) was one of my holdings in 2006-2007.]

Mario Gabelli: Scott, some of these companies do second and third rounds of financing through rights offerings and such. Are they raising more capital?

Black: In some cases, yes, but Elron remains the controlling shareholder in every company. This is a good way to tap into a lot of good science.

Gabelli: It is a terrific idea. They just need more money.

Black: Or more home runs like Given.
<<

“The efficient-market hypothesis may be
the foremost piece of B.S. ever promulgated
in any area of human knowledge!”

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