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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 13E-3
Rule 13e-3 Transaction Statement
(Pursuant to Section 13(e) of the Securities Exchange Act of 1934)
PEC ISRAEL ECONOMIC CORPORATION
(Name of the Issuer)
DISCOUNT INVESTMENT CORPORATION LTD., PEC ACQUISITION CORPORATION, PEC
ISRAEL ECONOMIC CORPORATION AND IDB DEVELOPMENT CORPORATION LTD.
(Name of Persons Filing Statement)
COMMON SHARES, $1.00 PAR VALUE 705098-10-1
(Title of Class of Securities) (Cusip Number of Class of Securities)
MR. JAMES I. EDELSON
EXECUTIVE VICE PRESIDENT, SECRETARY AND
GENERAL COUNSEL
PEC ISRAEL ECONOMIC CORPORATION
511 FIFTH AVENUE
NEW YORK, NEW YORK 10017
(212) 551-8881
(Name, address and telephone number of person authorized to receive notices
and communications on behalf of the persons filing statement.)
Copy To:
PETER G. SAMUELS, ESQ.
PROSKAUER ROSE LLP
1585 BROADWAY
NEW YORK, NEW YORK 10036-8299
(212) 969-3335
a. [x] The filing of solicitation materials or an information statement
subject to Regulation 14A [17 CFR 240.14a-1 to 240.14b-1], Regulation
14C [17 CRF 240.14c-1 to 240.14c-101] or Rule 13e-3(c) [240.13e-3 (c)]
under the Securities Exchange Act of 1934.
b. [ ] The filing of a registration statement under the Securities Act of
1933.
c. [ ] A tender offer.
d. [ ] None of the above.
Check the following box if the soliciting materials or information
statement referred to in checking box (a) are preliminary copies: [x]
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CALCULATION OF FILING FEE
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TRANSACTION AMOUNT OF
VALUATION* FILING FEE**
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<S> <C>
$102,731,880 $20,546.38
</TABLE>
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* Assumes 3,424,396 Common Shares, par value $1.00 per share, of PEC Israel
Economic Corporation (the "Common Shares") will be converted into the right
to receive $30.00 per share in cash.
** The amount of the filing fee, calculated in accordance with 240.0-11 of the
Securities Exchange Act of 1934 equals 1/50th of one percent of the
transaction value.
[x] Check box if any part of the fee is offset as provided by Rule 0-11(a)(2)
and identify the filing with which the offsetting fee was previously paid.
Identify the previous filing by registration statement number, or the Form
or Schedule, and the date of its filing.
Amount Previously Paid: $20,546.38
Form or Registration No.: Schedule 14A Information
Filing Party: PEC Israel Economic Corporation
Date Filed: January 5, 1999
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INTRODUCTION
This Schedule 13E-3 Transaction Statement is being filed by Discount
Investment Corporation Ltd., an Israeli corporation ("DIC"), PEC Acquisition
Corporation, a Maine corporation and wholly-owned subsidiary of DIC ("Merger
Sub"), PEC Israel Economic Corporation, a Maine corporation (the "Company"), and
IDB Development Corporation Ltd., an Israeli corporation ("IDB Development") and
is being filed in connection with an Agreement and Plan of Merger, dated as of
December 15, 1998 ("the Merger Agreement") among DIC, Merger Sub, and the
Company.
The following cross-reference sheet is supplied pursuant to General
Instruction F to Schedule 13E-3 and shows the location in the preliminary proxy
statement filed by the Company with the Securities and Exchange Commission
contemporaneously herewith (including all annexes and schedules thereto)
("Preliminary Proxy Statement") of the information required by Schedule 13E-3 to
be included in response to the items of this Transaction Statement. The
information in the Preliminary Proxy Statement, a copy of which is attached
hereto as Exhibit (d), is incorporated by reference, and the responses to each
item are qualified in their entirety by the information contained in the
Preliminary Proxy Statement. The cross-reference sheet indicates the caption in
the Preliminary Proxy Statement under which the responses are incorporated
herein by reference. If any such item is inapplicable or the answer thereto is
in the negative and is omitted from the Preliminary Proxy Statement, it is so
indicated in the cross-reference sheet.
CROSS-REFERENCE SHEET SHOWING
LOCATION IN PRELIMINARY PROXY STATEMENT
OF INFORMATION REQUIRED BY ITEMS IN SCHEDULE 13E-3
<TABLE>
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SECTION 13E-3 ITEM LOCATION IN PRELIMINARY PROXY STATEMENT
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<S> <C>
1. Issuer and Class of Security Subject to the
Transaction
Item 1(a)...................................... Cover Page and "SUMMARY--Parties to the Merger
Agreement"
Item 1(b)...................................... Cover Page and "INTRODUCTION--Voting at the Special
Meeting and Revocation of Proxies"
Item 1(c)...................................... "SUMMARY--Market Prices and Dividends"
Item 1(d)...................................... "SUMMARY--Selected Summary Financial Information
Concerning the Company" and "SELECTED FINANCIAL
INFORMATION OF THE COMPANY"
Item 1(e)...................................... Not Applicable
Item 1(f)...................................... "TRANSACTIONS BY CERTAIN PERSONS IN
SHARES"
2. Identity and Background
Items 2(a) - (d) and (g)....................... Cover Page, "INTRODUCTION--General;" "SUMMARY
-- Parties to the Merger Agreement;" "OWNERSHIP OF
SHARES;" and "MANAGEMENT OF THE COMPANY,
DIC, IDB DEVELOPMENT, IDB HOLDING, AND
MERGER SUB"
</TABLE>
3
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<TABLE>
<CAPTION>
SECTION 13E-3 ITEM LOCATION IN PRELIMINARY PROXY STATEMENT
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<S> <C>
Items 2(e) and (f)............................. "MANAGEMENT OF THE COMPANY, DIC, IDB
DEVELOPMENT, IDB HOLDING, AND MERGER SUB
-- Directors and Executive Officers of IDB Holding"
3. Past Contacts, Transactions or Negotiations
Item 3(a)(1)................................... "INFORMATION CONCERNING DIC AND MERGER
SUB"
Items 3(a)(2) and (b).......................... "SUMMARY--Background of the Merger;" "--Litigation
Related to the Merger;" "SPECIAL
FACTORS--Background of the Merger;" and "--Certain
Shareholder Litigation"
4. Terms of Transaction
Item 4(a)...................................... "QUESTIONS AND ANSWERS ABOUT THE
MERGER;" "SUMMARY--Purpose and Structure of the
Merger; Reasons for the Merger;" "--Effective Time for
the Merger;" "--Appraisal Rights;" "--Conditions to the
Merger;" "--Termination of the Merger Agreement;"
"--Amending or Waiving Terms of the Merger
Agreement;" "INTRODUCTION--General;" "--Voting at
the Special Meeting and Revocation of Proxies;"
"SPECIAL FACTORS--Interests of Certain Persons in the
Merger;" "--Payment for Shares;" "--The Merger
Agreement;" "--Certain U.S. Federal Income Tax
Consequences of the Merger;" and "--Rights of Dissenting
Shareholders"
Item 4(b)...................................... "SPECIAL FACTORS--Interests of Certain Persons in the
Merger"
5. Plans or Proposals of the Issuer or Affiliate
Items 5(a), (b) and (e)........................ "SUMMARY--Purpose and Structure of the Merger;
Reasons for the Merger;" "--Certain Effects of the Merger;
Plans for the Company after the Merger;" "SPECIAL
FACTORS--Purpose and Effects of the Merger; Reasons
for the Merger;" "--Plans for the Company after the
Merger;" "--Certain Effects of the Merger;" and
"FINANCING OF THE MERGER"
Item 5(c)...................................... "SPECIAL FACTORS--The Merger Agreement" and Annex A to the
Preliminary Proxy Statement
Item 5(d)...................................... "SUMMARY--Financing of the Merger" and
"FINANCING OF THE MERGER"
Item 5(f)...................................... Not Applicable
Item 5(g)...................................... "SUMMARY--Purpose and Structure of the Merger;
Reasons for the Merger;" "--Certain Effects of the Merger;
Plans for the Company after the Merger;" "SPECIAL
FACTORS--Purpose and Effects of the Merger; Reasons
for the Merger;" and "--Certain Effects of the Merger"
6. Source and Amounts of Funds or Other
Consideration
</TABLE>
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<TABLE>
<CAPTION>
SECTION 13E-3 ITEM LOCATION IN PRELIMINARY PROXY STATEMENT
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<S> <C>
Item 6(a)...................................... "SUMMARY--Financing of the Merger" and
"FINANCING OF THE MERGER"
Item 6(b)...................................... "SPECIAL FACTORS--Fees and Expenses"
Items 6(c) and (d)............................. "SUMMARY--Financing of the Merger" and
"FINANCING OF THE MERGER"
7. Purpose(s), Alternatives, Reasons and Effects
Items 7(a) and (c)............................. "QUESTIONS AND ANSWERS ABOUT THE
MERGER;" "SUMMARY--Background of the Merger;"
"--Purpose and Structure of the Merger; Reasons for the
Merger;" "SPECIAL FACTORS--Background of the
Merger;" "--Fairness of the Merger;" "--Position of DIC
and IDB Development Regarding Fairness of the Merger;"
"--Plans for the Company after the Merger;" and
"--Purpose and Effects of the Merger; Reasons for the
Merger"
Item 7(b)...................................... Not Applicable
Item 7(d)...................................... "QUESTIONS AND ANSWERS ABOUT THE MERGER;"
"SUMMARY--Background of the Merger;" "--Purpose and
Structure of the Merger; Reasons for the Merger;"
"--Certain Effects of the Merger; Plans for the
Company after the Merger;" "--Accounting Treatment;"
"--Certain Federal Income Tax Consequences;" "SPECIAL
FACTORS--Background of the Merger;" "--Purpose and
Effects of the Merger; Reasons for the Merger;"
"--Plans for the Company after the Merger;" "--Certain
Effects of the Merger;" "--Accounting Treatment of the
Merger;" and "--Certain U.S. Federal Income Tax
Consequences of the Merger"
8. Fairness of the Transaction
Item 8(a)...................................... "QUESTIONS AND ANSWERS ABOUT THE
MERGER;" "SPECIAL FACTORS-- Recommendation of the
Special Committee and the Company Board;" "--Fairness
of the Merger;" and "--Position of DIC and IDB
Development Regarding Fairness of the Merger"
Item 8(b)...................................... "QUESTIONS AND ANSWERS ABOUT THE
MERGER;" "SUMMARY--Background of the Merger;"
"--Purpose and Structure of the Merger; Reasons for the
Merger;" "--The Fairness Opinion of the Financial
Advisor;" "SPECIAL FACTORS--Background of the
Merger;" "--Fairness of the Merger;" "--Position of DIC
and IDB Development Regarding Fairness of the Merger;"
and "--Purpose and Effects of the Merger; Reasons for the
Merger"
Item 8(c)...................................... "QUESTIONS AND ANSWERS ABOUT THE
MERGER;" "INTRODUCTION--General;" "--Voting at
the Special Meeting and Revocation of Proxies;" and
"SPECIAL FACTORS--Fairness of the Merger"
</TABLE>
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<TABLE>
<CAPTION>
SECTION 13E-3 ITEM LOCATION IN PRELIMINARY PROXY STATEMENT
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<S> <C>
Item 8(d)...................................... "SUMMARY--Background of the Merger;" "--The
Fairness Opinion of the Financial Advisor;" "SPECIAL
FACTORS--Background of the Merger;" and "--Opinion
of Merrill Lynch"
Item 8(e)...................................... "QUESTIONS AND ANSWERS ABOUT THE
MERGER;" "SPECIAL FACTORS--Recommendation of
the Special Committee and the Company Board;" and
"--Interests of Certain Persons in the Merger"
Item 8(f)...................................... Not Applicable
9. Reports, Opinions, Appraisals and Certain
Negotiations
Items 9(a) and (b)............................. "QUESTIONS AND ANSWERS ABOUT THE
MERGER;" "SUMMARY--Background of the Merger;"
"--The Fairness Opinion of the Financial Advisor;"
"SPECIAL FACTORS--Background of the Merger;"
"--Fairness of the Merger;" "--Opinion of Merrill Lynch;"
and Exhibits (b)(1) and (b)(2) to this Transaction Statement
Item 9(c)...................................... "SPECIAL FACTORS--Opinion of Merrill Lynch"
10. Interest in Securities of the Issuer
Item 10(a)..................................... "INTRODUCTION--General;" "SPECIAL FACTORS
--Interests of Certain Persons in the Merger;" and
"OWNERSHIP OF SHARES"
Item 10(b)..................................... Not Applicable
11. Contracts, Arrangements or Understandings
with Respect to the Issuer's Securities........ "QUESTIONS AND ANSWERS ABOUT THE
MERGER;" "SUMMARY--Parties to the Merger
Agreement;" "--Background of the Merger;" "--Purpose
and Structure of the Merger; Reasons for the Merger;"
"--Effective Time for the Merger;" "--Appraisal Rights;"
"--The Fairness Opinion of the Financial Advisor;"
"--Conditions to the Merger;" "--Termination of the
Merger Agreement;" "--Amending or Waiving Terms of the
Merger Agreement;" "SPECIAL FACTORS--Background of the
Merger;" "--Interests of Certain Persons in the Merger;"
"--The Merger Agreement;" and Annex A to the
Preliminary Proxy Statement
12. Present Intention and Recommendation of
Certain Persons with Regard to the Transaction
</TABLE>
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<TABLE>
<CAPTION>
SECTION 13E-3 ITEM LOCATION IN PRELIMINARY PROXY STATEMENT
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<S> <C>
Item 12(a)..................................... Not Applicable
Item 12(b)..................................... "INTRODUCTION--General;" "--Voting at the Special
Meeting and Revocation of Proxies;" "SPECIAL
FACTORS--Recommendation of the Special Committee
and the Company Board;" "--Fairness of the
Merger;"--Position of DIC and IDB Development
Regarding Fairness of the Merger;" "--The Merger
Agreement;" and Annex A to the Preliminary Proxy
Statement
13. Other Provisions of the Transaction
Item 13(a)..................................... "QUESTIONS AND ANSWERS ABOUT THE
MERGER;" "SUMMARY--Appraisal Rights;" SPECIAL
FACTORS--The Merger Agreement;" "--The Rights of
Dissenting Shareholders;" and Annex B to the Preliminary
Proxy Statement
Items 13(b) and (c)............................ Not Applicable
14. Financial Information
Item 14(a)..................................... "SUMMARY--Selected Summary Financial Information
Concerning the Company;" "SELECTED FINANCIAL
INFORMATION OF THE COMPANY;"
"INCORPORATION OF CERTAIN DOCUMENTS BY
REFERENCE;" and Exhibits (g)(1) and (g)(2) to this
Transaction Statement
Item 14(b)..................................... Not Applicable
15. Persons and Assets Employed, Retained or
Utilized
Item 15(a)..................................... "INTRODUCTION--Voting at the Special Meeting and
Revocation of Proxies;" "SPECIAL FACTORS--Plans for
the Company after the Merger;" "--The Merger
Agreement;" "FINANCING OF THE MERGER;" and Annex A to
the Preliminary Proxy Statement
Item 15(b)..................................... "SUMMARY--Background of the Merger;" "--The
Fairness Opinion of the Financial Advisor;" "SPECIAL
FACTORS--Background of the Merger;" "--Opinion of
Merrill Lynch;" and "--Fees and Expenses"
16. Additional Information......................... Preliminary Proxy Statement in its entirety
17. Material to be Filed as Exhibits............... Separately filed with this Schedule 13E-3
</TABLE>
ITEM 1. ISSUER AND CLASS OF SECURITY SUBJECT TO THE TRANSACTION.
(a) The name of the issuer of the class of equity security subject to the
Rule 13e-3 transaction is PEC Israel Economic Corporation and the address of its
principal executive offices is 511 Fifth Avenue, New York, New York 10017. The
relevant information set forth on the Cover Page of the Preliminary Proxy
Statement and under the caption "SUMMARY--Parties to the Merger Agreement" is
incorporated herein by reference.
(b) The relevant information set forth on the Cover Page of the Preliminary
Proxy Statement and under the caption "INTRODUCTION--Voting at the Special
Meeting and Revocation of Proxies" is incorporated herein by reference.
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(c) The relevant information set forth under the caption "SUMMARY--Market
Prices and Dividends" is incorporated herein by reference.
(d) The relevant information set forth under the captions
"SUMMARY--Selected Summary Financial Information Concerning the Company" and
"SELECTED FINANCIAL INFORMATION OF THE COMPANY" is incorporated herein by
reference.
(e) Not Applicable.
(f) The relevant information set forth under the caption "TRANSACTIONS BY
CERTAIN PERSONS IN SHARES" is incorporated herein by reference.
ITEM 2. IDENTITY AND BACKGROUND.
(a) - (d) and (g). This Transaction Statement is being filed by DIC,
Merger Sub, IDB Development, and the Company (the Company being the issuer).
The relevant information set forth on the Cover Page of the Preliminary
Proxy Statement and under the captions "INTRODUCTION--General,"
"SUMMARY--Parties to the Merger Agreement," "OWNERSHIP OF SHARES," and
"MANAGEMENT OF THE COMPANY, DIC, IDB DEVELOPMENT, IDB HOLDING, AND MERGER
SUB" is incorporated herein by reference.
(e) and (f) The relevant information set forth under the caption
"MANAGEMENT OF THE COMPANY, DIC, IDB DEVELOPMENT, IDB HOLDING, AND MERGER
SUB--Directors and Executive Officers of IDB Holding" is incorporated herein
by reference.
ITEM 3. PAST CONTACTS, TRANSACTIONS OR NEGOTIATIONS.
(a)(1). The relevant information set forth under the caption "INFORMATION
CONCERNING DIC AND MERGER SUB" is incorporated herein by reference.
(a)(2) and (b). The relevant information set forth under the captions
"SUMMARY--Background of the Merger," "--Litigation Related to the Merger,"
"SPECIAL FACTORS--Background of the Merger," and "--Certain Shareholder
Litigation" is incorporated herein by reference.
ITEM 4. TERMS OF THE TRANSACTION.
(a) The relevant information set forth under the captions "QUESTIONS AND
ANSWERS ABOUT THE MERGER," "SUMMARY--Purpose and Structure of the Merger;
Reasons for the Merger," "--Effective Time for the Merger," "--Appraisal
Rights," "--Conditions to the Merger," "--Termination of the Merger Agreement,"
"--Amending or Waiving Terms of the Merger Agreement," "INTRODUCTION--General,"
"--Voting at the Special Meeting and Revocation of Proxies," "SPECIAL
FACTORS--Interests of Certain Persons in the Merger,"
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"--Payment for Shares," "--The Merger Agreement," "--Certain U.S. Federal Income
Tax Consequences of the Merger," and "--Rights of Dissenting Shareholders" is
incorporated herein by reference.
(b) The relevant information set forth under the caption "SPECIAL
FACTORS--Interests of Certain Persons in the Merger" is incorporated herein by
reference.
ITEM 5. PLANS OR PROPOSALS OF THE ISSUER OR AFFILIATE.
(a), (b) and (e). The relevant information set forth under the captions
"SUMMARY--Purpose and Structure of the Merger; Reasons for the Merger,"
"--Certain Effects of the Merger; Plans for the Company after the Merger,"
"SPECIAL FACTORS--Purpose and Effects of the Merger; Reasons for the Merger,"
"--Plans for the Company after the Merger," "--Certain Effects of the Merger,"
and "FINANCING OF THE MERGER" is incorporated herein by reference.
(c) The relevant information set forth under the caption "SPECIAL
FACTORS--The Merger Agreement" and in Annex A to the Preliminary Proxy Statement
is incorporated herein by reference.
(d) The relevant information set forth under the captions
"SUMMARY--Financing of the Merger" and "FINANCING OF THE MERGER" is incorporated
herein by reference.
(f) Not Applicable.
(g) The relevant information set forth under the captions "SUMMARY--Purpose
and Structure of the Merger; Reasons for the Merger," "--Certain Effects of the
Merger; Plans for the Company after the Merger," "SPECIAL FACTORS--Purpose and
Effects of the Merger; Reasons for the Merger," and "--Certain Effects of the
Merger" is incorporated herein by reference.
ITEM 6. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION.
(a) The relevant information set forth under the captions
"SUMMARY--Financing of the Merger" and "FINANCING OF THE MERGER" is incorporated
herein by reference.
(b) The relevant information set forth under the caption "SPECIAL
FACTORS--Fees and Expenses" is incorporated herein by reference.
(c) and (d). The relevant information set forth under the captions
"SUMMARY--Financing of the Merger" and "FINANCING OF THE MERGER" is incorporated
herein by reference.
ITEM 7. PURPOSE(S), ALTERNATIVES, REASONS AND EFFECTS.
(a) and (c). The relevant information set forth under the captions
"QUESTIONS AND ANSWERS ABOUT THE MERGER," "SUMMARY--Background of the Merger,"
"--Purpose and Structure of the Merger; Reasons for the Merger," "SPECIAL
FACTORS--Background of the Merger," "--Fairness of the Merger," "--Position of
DIC and IDB Development Regarding Fairness of the Merger," "--Plans for the
Company after the Merger," and "--Purpose and Effects of the Merger; Reasons for
the Merger" is incorporated herein by reference.
(b) Not Applicable.
(d) The relevant information set forth under the captions "QUESTIONS AND
ANSWERS ABOUT THE MERGER," "SUMMARY--Background of the Merger," "--Purpose and
Structure of the Merger; Reasons for the
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Merger," "--Certain Effects of the Merger; Plans for the Company after the
Merger," "--Accounting Treatment," "--Certain Federal Income Tax Consequences,"
"SPECIAL FACTORS--Background of the Merger," "--Purpose and Effects of the
Merger; Reasons for the Merger," "--Plans for the Company after the Merger,"
"--Certain Effects of the Merger," "--Accounting Treatment of the Merger," and
"--Certain U.S. Federal Income Tax Consequences of the Merger" is incorporated
herein by reference.
ITEM 8. FAIRNESS OF THE TRANSACTION.
(a) The relevant information set forth under the captions "QUESTIONS AND
ANSWERS ABOUT THE MERGER," "SPECIAL FACTORS--Recommendation of the Special
Committee and the Company Board," "--Fairness of the Merger," and "--Position of
DIC and IDB Development Regarding Fairness of the Merger" is incorporated herein
by reference.
(b) The relevant information set forth under the captions "QUESTIONS AND
ANSWERS ABOUT THE MERGER," "SUMMARY--Background of the Merger," "--Purpose and
Structure of the Merger; Reasons for the Merger," "--The Fairness Opinion of the
Financial Advisor," "SPECIAL FACTORS--Background of the Merger," "--Fairness of
the Merger," "--Position of DIC and IDB Development Regarding Fairness of the
Merger," and "--Purpose and Effects of the Merger; Reasons for the Merger" is
incorporated herein by reference.
(c) The relevant information set forth under the captions "QUESTIONS AND
ANSWERS ABOUT THE MERGER," "INTRODUCTION--General," "--Voting at the Special
Meeting and Revocation of Proxies," and "SPECIAL FACTORS--Fairness of the
Merger" is incorporated herein by reference.
(d) The relevant information set forth under the caption
"SUMMARY--Background of the Merger," "--The Fairness Opinion of the Financial
Advisor," "SPECIAL FACTORS--Background of the Merger," and "--Opinion of Merrill
Lynch" is incorporated herein by reference.
(e) The relevant information set forth under the captions "QUESTIONS AND
ANSWERS ABOUT THE MERGER," "SPECIAL FACTORS--Recommendation of the Special
Committee and the Company Board," and "--Interests of Certain Persons in the
Merger" is incorporated herein by reference.
(f) Not Applicable.
ITEM 9. REPORTS, OPINIONS, APPRAISALS AND CERTAIN NEGOTIATIONS.
(a) and (b). The relevant information set forth under the captions
"QUESTIONS AND ANSWERS ABOUT THE MERGER," "SUMMARY--Background of the Merger,"
"--The Fairness Opinion of the Financial Advisor," "SPECIAL FACTORS--Background
of the Merger," "--Fairness of the Merger," "--Opinion of Merrill Lynch," and in
Exhibits (b)(1) and (b)(2) to this Transaction Statement is incorporated herein
by reference.
(c) The relevant information set forth under the caption "SPECIAL
FACTORS--Opinion of Merrill Lynch" is incorporated herein by reference.
ITEM 10. INTEREST IN SECURITIES OF THE ISSUER.
(a) The relevant information set forth under the captions
"INTRODUCTION--General," "SPECIAL FACTORS--Interests of Certain Persons in the
Merger," and "OWNERSHIP OF SHARES" is incorporated herein by reference.
(b) Not Applicable.
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ITEM 11. CONTRACTS, ARRANGEMENTS OR UNDERSTANDINGS WITH RESPECT TO THE
ISSUER'S SECURITIES.
The relevant information set forth under the captions "QUESTIONS AND
ANSWERS ABOUT THE MERGER," "SUMMARY--Parties to the Merger Agreement,"
"--Background of the Merger," "--Purpose and Structure of the Merger; Reasons
for the Merger," "--Effective Time for the Merger," "--Appraisal Rights,"
"--The Fairness Opinion of the Financial Advisor," "--Conditions to the
Merger," "--Termination of the Merger Agreement," "--Amending or Waiving
Terms of the Merger Agreement," "SPECIAL FACTORS--Background of the Merger,"
"--Interests of Certain Persons in the Merger," "--The Merger Agreement," and
in Annex A to the Preliminary Proxy Statement is incorporated herein by
reference.
ITEM 12. PRESENT INTENTION AND RECOMMENDATION OF CERTAIN PERSONS WITH
REGARD TO THE TRANSACTION.
(a) Not Applicable.
(b) The relevant information set forth under the captions
"INTRODUCTION--General," "--Voting at the Special Meeting and Revocation of
Proxies," "SPECIAL FACTORS--Recommendation of the Special Committee and the
Company Board," "--Fairness of the Merger," "--Position of DIC and IDB
Development Regarding Fairness of the Merger," "--The Merger Agreement," and
in Annex A to the Preliminary Proxy Statement is incorporated herein by
reference.
ITEM 13. OTHER PROVISIONS OF THE TRANSACTION.
(a) The relevant information set forth under the captions "QUESTIONS AND
ANSWERS ABOUT THE MERGER," "SUMMARY--Appraisal Rights," "SPECIAL FACTORS--The
Merger Agreement," "--The Rights of Dissenting Shareholders," and in Annex B to
the Preliminary Proxy Statement is incorporated herein by reference.
(b) and (c). Not Applicable.
ITEM 14. FINANCIAL INFORMATION.
(a) The relevant information set forth under the captions
"SUMMARY--Selected Summary Financial Information Concerning the Company,"
"SELECTED FINANCIAL INFORMATION OF THE COMPANY," "INCORPORATION OF CERTAIN
DOCUMENTS BY REFERENCE," and in Exhibits (g)(1) and (g)(2) to this
Transaction Statement is incorporated herein by reference. Pursuant to
Instruction D and Instruction F to Schedule 13E-3, the following are
incorporated by reference:
(i) The "Consolidated Financial Statements" from the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1997 (copies of
which are filed as Exhibit (g)(1) to this Transaction Statement); and
(ii) The "Consolidated Financial Statements" from the Company's
quarterly report on Form 10-Q for the period ended September 30, 1998
(copies of which are filed as Exhibit (g)(2) to this Transaction
Statement).
(b) Not Applicable.
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ITEM 15. PERSONS AND ASSETS EMPLOYED, RETAINED OR UTILIZED.
(a) The relevant information set forth under the captions
"INTRODUCTION--Voting at the Special Meeting and Revocation of Proxies,"
"SPECIAL FACTORS--Plans for the Company after the Merger," "--The Merger
Agreement," "FINANCING OF THE MERGER," and in Annex A to the Preliminary Proxy
Statement is incorporated herein by reference.
(b) The relevant information set forth under the captions
"SUMMARY--Background of the Merger," "--The Fairness Opinion of the Financial
Advisor," "SPECIAL FACTORS--Background of the Merger," "--Opinion of Merrill
Lynch," and "--Fees and Expenses" is incorporated herein by reference.
ITEM 16. ADDITIONAL INFORMATION.
The information set forth in the Preliminary Proxy Statement is
incorporated herein by reference in its entirety.
ITEM 17. MATERIAL TO BE FILED AS EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION
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<S> <C>
(a) --Not applicable.
(b)(1) --Fairness Opinion of Merill Lynch International
(incorporated by reference to Annex C to the Preliminary
Proxy Statement).
(b)(2) --Presentation materials regarding Project Alpha provided to
the Special Committee of the Board of Directors of the
Company by Merrill Lynch International dated December
11, 1998.
(c) --Agreement and Plan of Merger dated as of December 15,
1998 among Discount Investment Corporation Ltd., PEC
Acquisition Corporation, and PEC Israel Economic
Corporation (incorporated by reference to Annex A to the
Preliminary Proxy Statement).
(d) --The Preliminary Proxy Statement (incorporated by reference
to the Preliminary Proxy Statement).
(e) --Dissenters' Rights (incorporated by reference to Annex B to
the Preliminary Proxy Statement).
(f) --Not applicable
(g)(1) --Consolidated Financial Statements (incorporated by
reference from the Company's Annual Report on Form 10-K
for the fiscal year ended December 31, 1997).
(g)(2) --Consolidated Financial Statements (incorporated by
reference from the Company's Quarterly Report on
Form 10-Q for the period ended September 30, 1998).
</TABLE>
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After due inquiry and to the best of my knowledge and belief, I certify
that the information set forth in this Transaction Statement is true, complete
and correct.
DISCOUNT INVESTMENT CORPORATION LTD.
By: /s/ Dov Tadmor
--------------------------------
Title: Managing Director
By: /s/ Yoram Turbowicz
--------------------------------
Title: Deputy Managing Director
Date: January 5, 1999
After due inquiry and to the best of my knowledge and belief, I certify
that the information set forth in this Transaction Statement is true, complete
and correct.
PEC ACQUISITION CORPORATION
By: /s/ Dov Tadmor
--------------------------------
Title: Chairman of the Board
Date: January 5, 1999
After due inquiry and to the best of my knowledge and belief, I certify
that the information set forth in this Transaction Statement is true, complete
and correct.
PEC ISRAEL ECONOMIC CORPORATION
By: /s/ Frank Klein
--------------------------------
Title: President
Date: January 5, 1999
After due inquiry and to the best of my knowledge and belief, I certify
that the information set forth in this Transaction Statement is true, complete
and correct.
IDB DEVELOPMENT CORPORATION LTD.
By: /s/ Eliau Cohen
--------------------------------
Title: Co-Chief Executive
Officer
By: /s/ Arthur Caplan
--------------------------------
Title: Corporate Secretary
Date: January 5, 1999
13
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION
-------------- -----------
<S> <C>
(a) --Not Applicable
(b)(1) --Fairness Opinion of Merill Lynch International
(incorporated by reference to Annex C to the Preliminary
Proxy Statement).
(b)(2) --Presentation materials regarding Project Alpha provided to
the Special Committee of the Board of Directors of the
Company by Merrill Lynch International dated December
11, 1998.
(c) --Agreement and Plan of Merger dated as of December 15,
1998 among DIC Investment Corporation Ltd., PEC
Acquisition Corporation, and PEC Israel Economic
Corporation (incorporated by reference to Annex A to the
Preliminary Proxy Statement).
(d) --The Preliminary Proxy Statement (incorporated by reference
to the Preliminary Proxy Statement).
(e) --Dissenters' Rights (incorporated by reference
to Annex B to the Preliminary Proxy Statement).
(f) --Not applicable
(g)(1) --Consolidated Financial Statements (incorporated by
reference from the Company's Annual Report on Form 10-K
for the fiscal year ended December 31, 1997).
(g)(2) --Consolidated Financial Statements" (incorporated by
reference from the Company's Quarterly Report on Form 10-Q
for the period ended September 30, 1998).
</TABLE>
14
<PAGE>
EXHIBIT 99.(b)(2)
================================================================================
Presentation to the Special Committee
Regarding Project Alpha
December 11, 1998
[LOGO] Merrill Lynch
<PAGE>
Table of Contents
================================================================================
1. Offer by IDB Development Corporation
2. Valuation
o Summary
o Premiums and Discounts
o Public Market Overview
3. Draft of Fairness Opinion Letter
Exhibits
- --------------------------------------------------------------------------------
2 [LOGO] Merrill Lynch
<PAGE>
================================================================================
Offer by
IDB Development Corporation
================================================================================
<PAGE>
Offer by IDB Development Corporation
================================================================================
IDB Group Structure
-----------------------
IDB Holding Corporation
-----------------------
|
-------------------------------
| |
--------------- ---------------
IDB Development Israel Discount
Corporation Bank
--------------- ---------------
|
-------------------------------------
| | |
| 81.4% | 48.6% | 54.3%
| | |
----------- -------- -----------
PEC Israel Discount
Economic Clal Investment
Corporation (Israel) Corporation
----------- -------- -----------
o IDB Development Corporation ("IDB") is a controlling shareholder of PEC
Israel Economic Corporation ("PEC")
o PEC and Discount Investment Corporation ("DIC"), its sister company, hold
a diversified portfolio of equity investments in Israeli companies
o PEC and DIC have numerous cross shareholdings in Israeli public and
private companies as a result of their co-investment strategy
o IDB intends to rationalise its holdings by taking PEC private and merging
it into a 100% subsidiary of IDB Development Corporation
- --------------------------------------------------------------------------------
4 [LOGO] Merrill Lynch
<PAGE>
Offer by IDB Development Corporation
================================================================================
o The cash offer for all outstanding shares of PEC not already owned by IDB
or its affiliates is announced by IDB on September 8, 1998
o Board of Directors of DIC approves an exchange of 81.35% of PEC shares
currently owned by IDB for newly issued shares of DIC on October 15, 1998
o Acquisition of at least 8.65% of total outstanding shares will allow IDB
to effect a Short-Form merger
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Summary of Financial Terms
- --------------------------------------------------------------------------------
<S> <C>
Cash Offer (per share) $30.00
% Increase from original offer ($25.50) 18%
Premium /(Discount) to market price:
> One day before the offer (09/04/98) 32%
> One week before the offer (09/01/98) 28%
> One month before the offer (08/07/98) 20%
> 52-week high of $26.50 (09/18/98) 13%
> 52-week low of $19.94 (01/22/98) 50%
> Premium to 3-month average of $21.02 prior to (03/25/98)(1) 43%
Implied Company Value (@$30.00) $551m
Implied Offer Value (assumes 100% acceptance) $103m
</TABLE>
- --------------------------------------------------------------------------------
Source: Bloomberg
(1) On 3/25/98, IDB Holdings announced an acquisition of 9.5% of PEC in the
public market at a price of $25.50. Simultaneously, IDB indicated its
intention to acquire the remaining shares of PEC.
- --------------------------------------------------------------------------------
5 [LOGO] Merrill Lynch
<PAGE>
================================================================================
Valuation
================================================================================
<PAGE>
================================================================================
Summary
================================================================================
<PAGE>
Summary
================================================================================
Methodology
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
PEC Economic Corporation
Net Asset Value Analysis(1) Investment Portfolio
- --------------------------------------------------------------------------------------------- ------------------------------------
6 Public 3 Private Other
Valuation Methodology Key Analyses Companies Companies Holdings(3)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Analysis of research coverage o Opinions of analysts (PEC overall & key holdings) X X
o Valuation/target values
Analysis of public market prices o Current prices
o 52 week high/low X X(2)
Analysis of publicly o Current trading valuations for relevant peer group
traded comparables o Review of trading values as a multiple of projected X X
results
Analysis of acquisition o Analysis of pricing of relevant transactions
transactions for o Review of multiples paid X X
comparable companies
Analysis of equity o Valuation achieved in recent transactions X X X
transactions in respective
companies
[DCF analysis](4) o Projections of financial performance
o Present values of projected cash flows
> Explicit projections
> Terminal value
Historical cost/carrying value o Determination of cost/carrying values of investments
o Unrealised capital gains X X X
o Liquidation value analysis
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Market Discounts for comparable o US and Emerging Markets closed end fund discounts to NAV
companies
o Discounts to NAV of Israel Holding companies
Market Premiums paid in comparable o Analysis of minority "buyouts" in "going private"
acquisition transactions transactions
o Consider control premiums as appropriate
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) In addition to performing NAV analysis of PEC's holdings, Merrill Lynch
analysed major assets and liabilities on the holding company level.
(2) For public companies.
(3) Includes public and private holdings.
(4) Merrill Lynch has been informed by PEC that it did not possess and could
not provide access to financial forecasts for any of the companies in
PEC's investment portfolio. Therefore, we have not been able to conduct
the DCF analyses.
- --------------------------------------------------------------------------------
8 [LOGO] Merrill Lynch
<PAGE>
Summary
================================================================================
Most Significant Direct Holdings
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
PEC Israel Economic Discount Investment IDB(1)
Corporation Corporation Holdings
------------------- ------------------- -----------
% of Equity % of Equity % of Equity
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Private Companies
o Cellcom Israel 12.5% 12.5% 25.0%
o Tevel Israel International Communication 23.7% 24.8% 48.5%
o El-Yam Ships and Holdings 10.1% 14.3% 24.4%
Public Companies(2)
o Property and Building Corporation 41.0% 14.9% 55.9%
o Super-Sol 17.7% 20.2% 37.9%
o Elron Electronics Industries 13.6% 26.6% 40.2%
o Gilat Satellite Networks 5.6% 6.2% 11.8%
o Tambour(3) 43.2% 42.4% 85.8%
o Scitex Corporation 6.6% 6.6% 13.2%
- ----------------------------------------------------------------------------------------------------------
</TABLE>
Source: PEC Israel Economic Corporation.
(1) Includes total holdings of PEC Israel Economic Corporation, Discount
Investment Corporation, IDB Holdings and their affiliates.
(2) Diluted ownership. Assumes treasury method when calculating diluted number
of shares outstanding.
(3) Includes the proportionate interest of 0.4% of IDB Group in Tambour.
- --------------------------------------------------------------------------------
9 [LOGO] Merrill Lynch
<PAGE>
Summary
================================================================================
Assumptions
o All public market share prices as of Wednesday, December 9, 1998
o Share ownership in different companies as provided by PEC management and
SEC filings
o 1998 projections based on discussions and correspondence with management
and Merrill Lynch estimates or obtained from equity research reports
o Net debt estimates as of last publicly available financial statements
o Effective tax rate on estimated gains assumed at 25.0% for all companies
o Exchange rate used: US$1.00 = NIS 4.184 as of December 9, 1998
o Outstanding shares of PEC: 18,362,188
- --------------------------------------------------------------------------------
10 [LOGO] Merrill Lynch
<PAGE>
Summary
================================================================================
<TABLE>
<CAPTION>
-------------------- -------------------- -------------------------
Value of Value of PEC Estimated Contribution
PEC's Interest Share(1) per share as a % of Total
-------------------- -------------------- -------------------------
High Low High Low High Low
-------------------- -------------------- -------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Large Public Holdings $468 $341 $25.47 $18.59 44.0% 39.8%
Large Private Holdings $431 $351 $23.47 $19.14 40.6% 41.0%
Total Other Public Holdings(2) $83 $4.52 7.8% 9.7%
Total Other Private Holdings $51 $2.78 4.8% 6.0%
Other Net Assets(3) $30 $1.62 2.8% 3.5%
-------------------- -------------------- -------------------------
Total Pre-Tax Value of PEC
Holdings $1,062 $857 $57.86 $46.65 100.0% 100.0%
====== ======
Less: Taxes(4) $205 $153 $11.14 $8.34
------ ------ ------ ------
Sub-Total $858 $704 $46.72 $38.31
Less: Closed End Fund
Discount 30.00%
Estimated Value $601 $492 $32.70 $26.82
------ ------ ------ ------
</TABLE>
(1) Assumes 18,362,188 PEC shares outstanding.
(2) Includes proceeds from the sale of Caniel share holdings.
(3) Net cash (net debt) plus outstanding loan to Cellcom.
(4) Assumes 25.0% effective tax rate on estimated gains for all companies.
- --------------------------------------------------------------------------------
11 [LOGO] Merrill Lynch
<PAGE>
Summary
================================================================================
Sensitivity Analysis
o 5.0% increase in effective tax rate on estimated gains results in
approximately $1.55 (at the top end of the range) and $1.17 (at the bottom
end of the range) reduction in valuation per share of PEC
o 5.0% increase in closed-end fund market discount to NAV results in
approximately $2.33 (at the top end of the range) and $1.92 (at the bottom
end of the range) reduction in valuation per share of PEC
o $500 million increase in valuation of Cellcom results in approximately
$1.79 increase in valuation per share of PEC
- --------------------------------------------------------------------------------
12 [LOGO] Merrill Lynch
<PAGE>
Summary
================================================================================
PEC'S "Top 10" Minority Shareholders
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Institutional Investors 06/30/98 03/31/98 12/31/97 09/30/97
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
BEA Associates Inc 3.4% 3.0% 3.0% 2.1%
Vanguard Group Inc 0.9% 0.9% 0.9% 0.8%
Mellon Bank Corporation 0.5% 0.6% 0.6% 0.5%
Bankers Trust NY Corp 0.4% 0.4% 0.4% 0.4%
Zweig/Glaser Advisers 0.3% 0.3% 0.3% 0.0%
Neuberger & Berman 0.2% 0.2% 0.2% 0.2%
College Retire Equities 0.2% 0.1% 0.0% 0.0%
Lehman Brothers Hldgs 0.2% 0.2% 0.2% 0.2%
Northern Trust Corp 0.2% 0.2% 0.1% 0.1%
Tweedy Browne Co 0.1% 0.0% 0.0% 0.0%
- --------------------------------------------------------------------------------
</TABLE>
Source: SDC and recent SEC filings.
- --------------------------------------------------------------------------------
13 [LOGO] Merrill Lynch
<PAGE>
================================================================================
Premiums and Discounts
================================================================================
<PAGE>
Premiums and Discounts
================================================================================
Analysis of Premiums in "Going Private" Transactions
o Reviewed completed "going private" transactions in the range of $100-$500
million from 1995 to the present
<TABLE>
<CAPTION>
--------------------------------------------------------------------------
Offer Price as a Premium/(Discount) to Target Share Price at
Indicated Period Prior to Announcement
-------------------------------------------------------------
1 Day 1 Week 1 Month
----------- ------------ -------------
<S> <C> <C> <C>
Maximum 63.9% 78.9% 88.2%
Mean 25.4% 29.2% 34.7%
Median 22.6% 25.2% 29.2%
Minimum (6.1%) 0.5% 3.6%
</TABLE>
--------------------------------------------------------------------------
o Reviewed completed "going private" transactions in which less than 25.0%
minority shareholdings were acquired(1)
<TABLE>
<CAPTION>
--------------------------------------------------------------------------
Offer Price as a Premium/(Discount) to Target Share Price at
Indicated Period Prior to Announcement
-------------------------------------------------------------
1 Day 1 Week 1 Month
----------- ------------ -------------
<S> <C> <C> <C>
Maximum 52.0% 50.0% 77.8%
Mean 19.5% 23.6% 30.8%
Median 19.7% 24.8% 28.6%
Minimum (6.1%) 1.7% 3.6%
</TABLE>
--------------------------------------------------------------------------
Source: SDC database, November 1998.
(1) Using the 1 month mean of 30.8% and applying it to the share price of PEC
one month prior to March 25, 1998 and on September 8, 1998, would result
in per share value of $26.98 and $32.78, respectively.
- --------------------------------------------------------------------------------
15 [LOGO] Merrill Lynch
<PAGE>
Premiums and Discounts
================================================================================
Holding Company/Closed-End Fund Discounts
- --------------------------------------------------------------------------------
Appropriate holding company discount is approximately 30.0% or
possibly higher in the case of Israeli holding companies
- --------------------------------------------------------------------------------
o Morgan Stanley Emerging Markets Fund is currently trading at a (20.56%)
discount to its NAV(1)
o Foreign and Colonial Emerging Middle East Fund is currently trading at a
(22.94%) discount to its NAV(1)
o First Israel Fund is trading at a (19.84%) discount to its NAV(1)
o Koor Industries is trading at a (29.0%) discount to its NAV(2)
o Ampal-American Israel Corporation is trading at a (47.8%) discount to its
NAV(3)
(1) Merrill Lynch Mutual Fund database as of October 23, 1998.
(2) Merrill Lynch equity research as of December 2, 1998.
(3) Lehman Brothers equity research as of September 4, 1998.
- --------------------------------------------------------------------------------
16 [LOGO] Merrill Lynch
<PAGE>
Premiums and Discounts
================================================================================
PEC Historical Discounts(1)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
Investment Equity Analyst
Bank Report Date Estimated Pre-Tax NAV per Share Share Price Discount to NAV
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Lehman Brothers 11/19/98 $45.10(2) $24.250 (46.2%)
Lehman Brothers 05/26/98 51.94 22.688 (56.3)
Lehman Brothers 03/27/98 51.10 23.063 (54.9)
Lehman Brothers 12/05/97 35.29 Conservative 22.188 (37.1)
38.16 Aggressive 22.188 (41.9)
Lehman Brothers 11/19/97 35.29 Conservative 19.063 (46.0)
38.16 Aggressive 19.063 (50.0)
Smith Barney 11/18/97 34.47 19.375 (43.8)
Lehman Brothers 09/12/97 36.41 Conservative 20.625 (43.4)
39.28 Aggressive 20.625 (47.5)
Smith Barney 09/03/97 34.15 20.625 (39.6)
Lehman Brothers 06/24/97 36.68 Conservative 23.625 (35.6)
38.59 Aggressive 23.625 (38.8)
Smith Barney 04/09/97 28.03 19.000 (32.2)
Lehman Brothers 09/04/96 23.03 Conservative 18.375 (20.2)
24.56 Aggressive 18.375 (25.2)
- ---------------------------------------------------------------------------------------------------
</TABLE>
Source: Publicly disclosed research reports
(1) Research analysts valued the PEC's NAV under both aggressive and
conservative scenarios.
(2) On an after-tax basis, the NAV per share was estimated at $39.71, implying
a discount to after-tax NAV of 38.9%.
- --------------------------------------------------------------------------------
17 [LOGO] Merrill Lynch
<PAGE>
================================================================================
Public Market Overview
================================================================================
<PAGE>
Public Market Overview
================================================================================
December 1996 to Present(1)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Daily Stock Price Trading Performance
- --------------------------------------------------------------------------------
- --------------------------------------------- --------------------------
PEC Israel Economic Corporation March 25, 1998
- --------------------------------------------- --------------------------
<S> <C> <C> <C> <C>
12/09/98 $24.56 1 Month Avg. $24.38 IDB Holdings acquired 9.5%
52 Week High $26.50 3 Month Avg. $24.99 of PEC's outstanding shares
52 Week Low $19.94 1 Year Avg. $23.26 --------------------------
- ---------------------------------------------
</TABLE>
[THE FOLLOWING TABLE WAS DEPICTED AS A LINE CHART IN THE PRINTED MATERIAL]
[PLOT POINTS TO COME]
[THE FOLLOWING TABLE WAS DEPICTED AS A BAR CHART IN THE PRINTED MATERIAL]
[PLOT POINTS TO COME]
Source: Datastream
(1) As of December 9, 1998.
- --------------------------------------------------------------------------------
19 [LOGO] Merrill Lynch
<PAGE>
Public Market Overview
================================================================================
Share Price Performance since the IDB Offer Announcement on September 8, 1998
[THE FOLLOWING TABLE WAS DEPICTED AS A LINE CHART IN THE PRINTED MATERIAL]
[PLOT POINTS TO COME]
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Companies Sept. 8(2) Dec. 9(2) % Change
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
PEC Israel Economic
Corporation $25.00 $24.56 (1.8%)
Property and Building
Corporation $89.33 $78.63 (12.0%)
Super-Sol $2.87 $2.37 (17.7%)
Elron Electronic
Industries $14.88 $15.34 3.1%
Gilat Satellite $37.13 $56.25 51.5%
Networks
Tambour $1.30 $1.30 0.3%
Scitex Corporation $11.00 $10.19 (7.4%)
- --------------------------------------------------------------------------------
</TABLE>
(1) Share prices in local currency; PEC Israel Economic Corporation, Scitex
Corporation and Gilat Satellite Networks quoted in U.S. dollars.
(2) Assumes exchange rate of NIS/US$ of 3.85 and 4.18 on September 8, 1998 and
December 9, 1998, respectively.
- --------------------------------------------------------------------------------
20 [LOGO] Merrill Lynch
<PAGE>
================================================================================
Draft of Fairness Opinion Letter
================================================================================
<PAGE>
Merrill Lynch International
Ropemaker Place
25 Ropemaker Street
London EC2Y 9LY
Telephone: 0171-628 1000
Direct: 0171-867
Telex: 8811047 MERLYN G
[LOGO] MERRILL LYNCH
Special Committee of the Board of Directors of
PEC Israel Economic Corporation
511 Fifth Avenue
New York, NY 10017
December [ ], 1998
Gentlemen:
PEC Israel Economic Corporation (the "Company"), IDB Development
Corporation Ltd. (the "Acquiror") and PEC Acquisition Corporation, a newly
formed, wholly owned subsidiary of the Acquiror (the "Acquisition Sub") propose
to enter into an agreement and plan of merger (the "Merger Agreement") pursuant
to which the Acquisition Sub will be merged with and into the Company in a
transaction (the "Merger") in which each outstanding share of the Company's
common stock, par value US$1 per share (the "Shares"), not already owned by the
Acquiror or any of its direct or indirect subsidiaries, will be converted into
the right to receive US$30 in cash. We understand that the Acquiror's rights and
obligations under the Merger Agreement may be assigned to Discount Investment
Corporation Ltd. ("DIC"). A Special Committee (the "Committee") of the Board of
Directors of the Company has been established to consider the terms of the
proposed Merger insofar as they affect the holders of the Shares, other than the
Acquiror and its affiliates. The Merger is expected to be considered by the
shareholders of the Company at a special shareholders' meeting to be held in the
first quarter of 1999 and consummated on or shortly after the date of such
meeting.
You have asked us whether, in our opinion, the proposed cash consideration
to be received by the holders of the Shares, other than the Acquiror and its
affiliates, pursuant to the proposed Merger is fair to such shareholders from a
financial point of view.
In arriving at the opinion set forth below, we have, among other things:
(1) Reviewed certain publicly available business and financial
information which we deemed to be relevant relating to the Company,
certain public and private companies interests in which comprise the
larger investments in the Company's investment portfolio (the
"Portfolio Companies") and certain other companies interests in
which are contained in the Company's investment portfolio;
(2) Reviewed certain publicly available business and financial
information relating to the Acquiror and DIC which we deemed to be
relevant;
(3) Reviewed certain information relating to the business, earnings,
cash flow, assets, liabilities and prospects of the Company
furnished to us by the Company;
(4) Conducted discussions with members of senior management of the
Company and the Acquiror concerning their respective businesses and
prospects;
Registered in England (No. 2312079)
Registered Office: 25 Ropemaker Street, London EC2Y 9LY
A Subsidiary of Merrill Lynch & Co., Inc., Delaware, U.S.A.
Regulated by The Securities and Futures Authority Limited
Member of the London Stock Exchange
<PAGE>
2
(5) Conducted discussions with members of senior management of certain
of the private Portfolio Companies concerning their respective
businesses and prospects;
(6) Reviewed the historical market prices of the shares of certain of
the publicly traded Portfolio Companies and the results of
operations and certain other data relating to such Portfolio
Companies and compared them with those of certain publicly traded
companies which we deemed to be reasonably similar to such Portfolio
Companies;
(7) Reviewed the results of operations of certain of the private
Portfolio Companies and compared them with those of certain publicly
traded companies which we deemed to be reasonably similar to such
Portfolio Companies;
(8) In connection with our review of certain of the Portfolio Companies,
reviewed the financial terms of transactions which we deemed to be
relevant;
(9) Reviewed the historical market prices and implied discounts to net
asset value for the Shares and compared them with those of certain
publicly traded companies which we deemed to be reasonably similar
to the Company;
(10) Compared the proposed financial terms of the Merger with the
financial terms of certain other transactions which we deemed to be
relevant;
(11) Participated in certain discussions and negotiations among
representatives of the Company and the Acquiror and their legal and
financial advisors;
(12) Reviewed a draft dated December 1998 of the Merger Agreement; and
(13) Reviewed such other financial studies and analyses and performed
such other investigations and took into account such other matters
as we deemed necessary.
In preparing our opinion, we have relied on the accuracy and completeness
of all information supplied or otherwise made available to us by the Company,
and we have not independently verified such information or undertaken an
independent appraisal of the assets of the Company. In preparing our opinion, we
were informed by the Company that it does not make financial forecasts and that
it did not possess (and could not provide access to) financial forecasts for the
Portfolio Companies and, accordingly, we have not been able to conduct certain
analyses that we would otherwise have conducted. In addition, we have not been
afforded the opportunity to meet with the management of Cellcom Israel Ltd., the
Company's largest single holding, and thus have not been able to discuss with
such management the business prospects of Cellcom Israel Ltd. We have assumed
that the final form of the Merger Agreement will be substantially similar to the
last draft reviewed by us.
Our opinion is necessarily based upon market, economic and other
conditions as they exist on, and can be evaluated as of, the date hereof.
In connection with the preparation of this opinion, we have not been
authorized by the Committee, the Company or the Board of Directors to solicit,
nor have we solicited, third-party indications of interest for the acquisition
of all or any part of the Company.
We have been retained by the Committee to act as financial advisor to the
Committee in connection with the proposed Merger and will receive fees for our
services, a significant portion of which is contingent on the consummation of
the Merger. In addition, the Company has agreed to indemnify us for certain
liabilities arising out of our engagement. We may have in the past provided and
may be currently engaged to provide financial advisory, investment banking
and/or other services to the
<PAGE>
3
Company, the Portfolio Companies or the Acquiror and their respective affiliates
and may have received or may receive in the future fees for rendering such
services. In the ordinary course of our securities business, we also may
actively trade debt and/or equity securities of the Company, its Portfolio
Companies and the Acquiror and their respective affiliates for our own account
and the accounts of our customers, and we therefore may from time to time hold a
long or short position in such securities.
This opinion is for the information of the Committee only and may not be
used for any other purpose without our prior written consent; except that this
opinion may be included in its entirety in any filing made by the Company with
the Securities and Exchange Commission in connection with the Merger. Our
opinion does not address the merits of the underlying decision by the Company to
engage in the Merger nor the decision by the Committee to recommend that the
holders of the Shares accept the proposed terms of the Merger and does not
constitute a recommendation to any shareholder as to how such shareholder should
vote on the proposed Merger.
On the basis of, and subject to the foregoing, we are of the opinion that
the proposed cash consideration to be received by the holders of the Shares,
other than the Acquiror and its affiliates, pursuant to the proposed Merger is
fair to such shareholders from a financial point of view.
Very truly yours,
MERRILL LYNCH INTERNATIONAL
<PAGE>
================================================================================
Exhibits
================================================================================
<PAGE>
================================================================================
Private Holdings
================================================================================
<PAGE>
Private Holdings
================================================================================
Cellcom Israel(1)
<TABLE>
<CAPTION>
-------------------- -------------------- --------------------
Total Company PEC's % Interests PEC's Value
Valuation Range Valuation Range(5) Per Share(6)
-------------------- -------------------- --------------------
<S> <C> <C> <C>
Comparable Company Analysis
Enterprise Value/1998E EBITDA(2) $3,073 - $2,453 $384 - $307 $20.92 - $16.70
Enterprise Value per Subscriber(3) $2,855 - $2,455 $357 - $307 $19.44 - $16.71
Enterprise Value/1998E EBITDA Growth(4) $2,453 - $2,039 $307 - $255 $16.70 - $13.88
-------------------- -------------------- --------------------
Valuation Range $2,500 - $2,039 $313 - $255 $17.02 - $13.88
-------------------- -------------------- --------------------
</TABLE>
(1) Assumes exchange rate of (NIS/US$) 4.18.
(2) Based on Enterprise Value/1998E EBITDA multiple range of 14.0x - 17.0x.
Assumes 1998 third quarter EBITDA is annualised to reflect a full year
figure.
(3) Based on Enterprise Value of $2,900.0 - $3,300.0 per subscriber.
(4) Based on Enterprise Value/1998E EBITDA/growth rate multiple of 1.2 - 1.4.
Assumes a 3 year EBITDA growth rate of 10.0% for Cellcom Israel.
(5) Assumes PEC Israel Economic Corporation owns 12.5% of Cellcom Israel.
(6) Assumes 18,362,188 shares outstanding.
- --------------------------------------------------------------------------------
23 [LOGO] Merrill Lynch
<PAGE>
Private Holdings
================================================================================
Tevel Israel International Communication(1)
<TABLE>
<CAPTION>
-------------------- -------------------- --------------------
Total Company PEC's % Interests PEC's Value
Valuation Range Valuation Range(8) Per Share(9)
-------------------- -------------------- --------------------
<S> <C> <C> <C>
Comparable Company Analysis
Adjusted Enterprise Value per Subscriber(2) $941 - $546 $223 - $129 $12.15 - $7.04
Adjusted Enterprise Value/1998E EBITDA(3) $677 - $464 $160 - $110 $8.74 - $5.99
Matav Comparable Company Analysis
Adjusted Enterprise Value per Subscriber(4) $231 $55 $2.99
Adjusted Enterprise Value/1998E EBITDA(5) $173 $41 $2.24
Comparable Acquisition Analysis
Transaction Value per Subscriber in Gvanim $368 $87 $4.75
Acquisition(6)
Transaction Value in TCI's Acquisition(7) $285 $68 $3.68
-------------------- -------------------- --------------------
Valuation Range $368 - $285 $87 - $68 $4.75 - $3.68
-------------------- -------------------- --------------------
</TABLE>
(1) Assumes exchange rate of (NIS/US$) 4.18.
(2) Based on Adjusted Enterprise Value per Subscriber of $2,000.0 - $3,000.0.
(3) Based on Adjusted Enterprise Value/1998E EBITDA multiples of 10.0x - 13.0x.
Assumes 1998 third quarter EBITDA is annualised to reflect a full year
figure.
(4) Based on Matav's Enterprise Value per Subscriber of $1,205.6.
(5) Based on Matav's Enterprise Value/1998E EBITDA multiple of 5.9x.
(6) Based on $223 million acquisition of Gvanim (144,000 subscribers).
(7) Based on the acquisition of 23% of Tevel by TCI for a consideration of
$65.0 million.
(8) Assumes PEC Israel Economic Corporation owns 23.7% of Tevel International
Communication.
(9) Assumes 18,362,188 shares outstanding.
- --------------------------------------------------------------------------------
24 [LOGO] Merrill Lynch
<PAGE>
Private Holdings
================================================================================
El-Yam Ships and Holdings(1)
<TABLE>
<CAPTION>
-------------------- -------------------- --------------------
Total Company PEC's % Interests PEC's Value
Valuation Range(6) Valuation Range(6) Per Share(7)
-------------------- -------------------- --------------------
<S> <C> <C> <C>
Market Value of IDB Holdings by El-Yam Ships and
Holdings
Todays Value (12/09/98)(2) $287 $29 $1.58
90 Day Average(2) $275 $28 $1.52
Market Value of Shipping Business(3)
Est. value of ships/resale basis
Approx. value of outstanding business $0 $0 $0.00
Recent Block Trades of IDB Holdings
9.5% transaction with Goldman Sachs(4) $306 $31 $1.69
3.5% sale by DIC(5) $309 $31 $1.70
-------------------- -------------------- --------------------
Valuation Range $309 - $287 $31 - $29 $1.70 - $1.58
-------------------- -------------------- --------------------
</TABLE>
(1) Assumes exchange rate of (NIS/US$) 4.18.
(2) Information from Bloomberg. Assumes 37.67 million shares outstanding.
(3) Assumes value of shipping business is fully offset by liabilities (as
represented by management).
(4) In February of 1998, Goldman Sachs and related entities bought 9.5% of IDB
Holding's outstanding shares.
(5) In April of 1998, DIC sold 3.5% of IDB Holding's outstanding shares.
(6) Assumes PEC Israel Economic Corporation owns 10.1% of El-Yam Ships and
Holdings. El-Yam Ships owns substantially all of the equity in El-Yam
Holdings, which in turns owns 37.1% in IDB Holdings.
(7) Assumes 18,362,188 shares outstanding.
- --------------------------------------------------------------------------------
25 [LOGO] Merrill Lynch
<PAGE>
Private Holdings
================================================================================
El-Yam Ships and Holdings
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Daily Stock Price Trading Performance
- --------------------------------------------------------------------------------
------------------------------
IDB Holding Corporation(1)
------------------------------
<S> <C>
12/09/98 $20.51
30 Day Avg. $19.76
90 Day Avg. $19.71
1 Year Avg. $20.14
------------------------------
</TABLE>
[THE FOLLOWING TABLE WAS DEPICTED AS A LINE CHART IN THE PRINTED MATERIAL]
[PLOT POINTS TO COME]
Source: Datastream
(1) Assumes exchange rate of (NIS/US$) 4.18.
- --------------------------------------------------------------------------------
26 [LOGO] Merrill Lynch
<PAGE>
Private Holdings
================================================================================
Other Private Holdings (Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------
PEC's PEC's Carrying Estimated
Ownership Cost Va1ue Holding's
Other Private Holdings (%) (1) (2) Value*
--------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Advent Israel Limited Partnership 5.0% 501 629 629
Gemini Israel Fund L.P. 11.0% 3,000 4,346 4,346
Gemini Israel II Limited Partnership 4.0% 304 282 304
Kiriyat Weizmann Ltd. 17.0% 179 179 179
DEP 16.7% 7,013 3,407 7,013
New Check 5.0% 2,500 2,500 2,500
Global Village 5.7% 1,438 1,438 1,438
HTC Ltd 4.9% 1,264 1,264 1,264
Aviv Giladi 12.5% 1,261 1,261 1,261
Combact 2.2% 1,050 1,050 1,050
El Rad 1.0% 1,000 1,000 1,000
Given Imaging 1.7% 225 225 225
Camdev n/a 240 240 240
Gemini Cap. Management n/a 134 134 134
United Vocal n/a 160 160 160
Witcom 6.7% 500 -76 500
Tradanet 30.0% 906 -299 906
Aerogen 2.5% 879 -400 879
Adir n/a 1,314 -787 1,314
Libit Signal Processing 5.0% 2,222 2,222 2,222
PAMOT Fund 3.3% 129 117 129
RDC-Rafael Development Corporation 17.0% 6,288 3,178 6,288
Soreq Development Corporation 25.0% 1,355 0 1,355
Soundesigns Multimedia Communications Systems 13.0% 831 0 831
Tradanet Electronic Commerce Services 30.0% 906 906 906
Tel-Ad Jerusalem Studios 12.0% 810 1,810 1,810
Lego Irrigation 13.0% 2,349 1,812 2,349
Maxima Air Seperation Centre 12.0% 1,716 2,258 2,258
General Engineers Limited 100.0% 1,381 0 1,381
Mondex 25.0% 859 0 859
PEC Israel Finance Corporation 100.0% 161 0 161
Renaissance Fund 4.0% 4,520 5,217 5,217
--------------------------------------------------------------
Total 47,395 34,073 51,108
Total Per Share $2.58 $1.86 $2.78
--------------------------------------------------------------------------------------------------------
</TABLE>
* Higher of PEC's cost and carrying value.
- --------------------------------------------------------------------------------
27 [LOGO] Merrill Lynch
<PAGE>
================================================================================
Public Holdings
================================================================================
<PAGE>
Public Holdings
================================================================================
Property and Building Corporation (Dollars in millions, except per share data
(1))
<TABLE>
<CAPTION>
--------------- ----------------- -------------
Total Company PEC's % Interests PEC's Value
Valuation Range Valuation Range(2) Per Share(3)
--------------- ----------------- -------------
<S> <C> <C> <C>
Current Trading Price (12/09/98) $325 $134 $7.28
Historical Trading Analysis
52-Week High/Low $350 - $248 $143 - $102 $7.81 - $5.53
Net Asset Valuation(4) $425 $174 $9.48
--------------- ----------------- -------------
Preliminary Valuation Range $425 - $325 $174 - 134 $9.48 - $7.28
--------------- ----------------- -------------
</TABLE>
(1) Assumes exchange rate of (NIS/US$) 4.18.
(2) Assumes PEC Israel Economic Corporation owns 41.0% of the diluted stock.
(3) Assumes 18,362,188 shares outstanding.
(4) Based on Professor Swary's independent report.
- --------------------------------------------------------------------------------
29 [LOGO] Merrill Lynch
<PAGE>
Public Holdings
================================================================================
Super-Sol (Dollars in millions, except per share data(1))
<TABLE>
<CAPTION>
--------------- ----------------- -------------
Total Company PEC's % Interests PEC's Value
Valuation Range Valuation Range(2) Per Share(3)
--------------- ----------------- -------------
<S> <C> <C> <C>
Current Trading Price (12/09/98) $496 $88 $4.79
Historical Trading Analysis
52-Week High/Low $766 - $433 $136 - $77 $7.39 - $4.18
Comparable Company Analysis
LTM Sales(4) 0.80x - 0.50x $858 - $521 $152 - $92 $8.29 - $5.03
LTM EBITDA(4) 11.0x - 8.0x $654 - $465 $116 - $82 $6.32 - $4.49
Comparable Acquisition Analysis
LTM Sales(5) 0.80x - 0.45x $858 - $465 $152 - $82 $8.28 - $4.49
LTM EBITDA(5) 12.5x - 7.5x $749 - $434 $133 - $77 $7.23 - $4.19
--------------- ----------------- -------------
Valuation Range $654 - $433 $116 - $77 $6.32 - $4.18
--------------- ----------------- -------------
</TABLE>
(1) Assumes exchange rate of (NIS/US$) 4.18.
(2) Assumes PEC Israel Economic Corporation owns 17.7% of Super-Sol's diluted
stock.
(3) Assumes 18,362,188 shares outstanding.
(4) Based on "second tier" U.S. supermarkets chains like Food Lion; Fred
Meyer; Hannaford; and the Israeli Supermarket chain Blue Square.
(5) Based on the following transactions: Safeway/Carr-Guttstein; Ahold/Giant
Food; Richfood/Shoppers; Fred Meyer/Quality Food Centers; Giant
Eagle/Riser Foods; Fred Meyer/Smith's; Shamrock/Grand Union; and
Ahold/Stop & Shop.
- --------------------------------------------------------------------------------
30 [LOGO] Merrill Lynch
<PAGE>
Public Holdings
================================================================================
Elron Electronic Industries (Dollars in millions, except per share data(1))
<TABLE>
<CAPTION>
--------------- ----------------- -------------
Total Company PEC's % Interests PEC's Value
Valuation Range Valuation Range(2) Per Share(3)
--------------- ----------------- -------------
<S> <C> <C> <C>
Current Trading Price (12/09/98) $324 $44 $2.40
Historical Trading Analysis
52-Week High/Low $405 - $211 $55 - $29 $3.01 - $1.56
Net Asset Valuation Analysis(4)(5)
15% - 40% Discount to Pre-Tax NAV $438 - $309 $60 - $42 $3.25 - $2.29
--------------- ----------------- -------------
Valuation Range $405 - $309 $55 - $42 $3.01 - $2.29
--------------- ----------------- -------------
</TABLE>
(1) Assumes exchange rate of (NIS/US$) 4.18.
(2) Assumes PEC Israel Economic Corporation owns 13.6% of Elron Electronic
Industries common stock.
(3) Assumes 18,362,188 shares outstanding.
(4) Public and private holdings based on BancBoston Stephens research dated
September 15, 1998 and management report dated November 3, 1998.
(5) Total Pre-Tax Net Asset Value of $514.9 million.
- --------------------------------------------------------------------------------
31 [LOGO] Merrill Lynch
<PAGE>
Public Holdings
================================================================================
Gilat Satellite Networks (Dollars in millions, except per share data(1))
<TABLE>
<CAPTION>
--------------- ----------------- -------------
Total Company PEC's % Interests PEC's Value
Valuation Range Valuation Range(2) Per Share(3)
--------------- ----------------- -------------
<S> <C> <C> <C>
Current Trading Price (12/09/98) $751 $42 $2.29
Historical Trading Analysis
52-Week High/Low $764 - $284 $43 - $16 $2.33 - $0.86
Comparable Company Analysis
1999 EPS(4)(5) 21.5x - 11.0x $764 - $391 $43 - $22 $2.33 - $1.19
1999 P/E to Growth(4) 1.05x - 0.65x $971 - $601 $54 - $34 $2.96 - $1.83
--------------- ----------------- -------------
Valuation Range $893 - $601 $50 - $34 $2.72 - $1.83
--------------- ----------------- -------------
</TABLE>
(1) Assumes exchange rate of (NIS/US$) 4.18.
(2) Assumes PEC Israel Economic Corporation owns 5.6% of Gilat Satellite
Network's diluted stock.
(3) Assumes 18,362,188 shares outstanding.
(4) Based on Scientific Atlantic; Digital Microwave and California Microwave.
(5) Pro forma for the pending GE Capital Spacenet Services transaction
announced on July 28, 1998.
- --------------------------------------------------------------------------------
32 [LOGO] Merrill Lynch
<PAGE>
Public Holdings
================================================================================
Tambour (Dollars in millions, except per share data(1))
<TABLE>
<CAPTION>
--------------- ----------------- -------------
Total Company PEC's % Interests PEC's Value
Valuation Range Valuation Range(2) Per Share(3)
--------------- ----------------- -------------
<S> <C> <C> <C>
Current Trading Price (12/09/98) $79 $34 $1.86
Historical Trading Analysis
52-Week High/Low $114 - $59 $49 - $26 $2.67 - $1.40
Comparable Company Analysis
LTM Sales(4) 0.90x - 0.70x $98 - $70 $42 - $30 $2.31 - $1.65
LTM EBITDA(5) 9.0x - 6.0x $104 - $60 $45 - $26 $2.45 - $1.41
Comparable Acquisition Analysis
LTM Sales(6) 0.80x - 0.70x $84 - $70 $36 - $30 $1.98 - $1.65
LTM EBITDA(6) 9.0x - 6.5x $104 - $67 $45 - $29 $2.45 - $1.58
--------------- ----------------- -------------
Valuation Range $93 - $70 $40 - $30 $2.18 - $1.65
--------------- ----------------- -------------
</TABLE>
(1) Assumes exchange rate of (NIS/US$) 4.18.
(2) Assumes PEC Israel Economic Corporation owns 43.2% of Tambour's stock.
(3) Assumes 18,362,188 shares outstanding.
(4) Based on Kalon and McWhorter Technologies.
(5) Based on Kalon, Lilly Industries and McWhorter Technologies.
(6) Based on McWhorter Tech./Syntech; RPM/Tremco; Kalon/Euridep.; Pratt &
Lambert/United Coatings; Bowater/Specialty Coatings; Ferro Corporation/
ICI-Powder Crating Business.
- --------------------------------------------------------------------------------
33 [LOGO] Merrill Lynch
<PAGE>
Public Holdings
================================================================================
Scitex Corporation (Dollars in millions, except per share data(1))
<TABLE>
<CAPTION>
--------------- ----------------- -------------
Total Company PEC's % Interests PEC's Value
Valuation Range Valuation Range(2) Per Share(3)
--------------- ----------------- -------------
<S> <C> <C> <C>
Current Trading Price (12/09/98) $436 $29 $1.57
Historical Trading Analysis
52-Week High/Low $629 - $246 $42 - $16 $2.27 - $0.89
Comparable Company Analysis
LTM EBITDA(4) 13.0x - 8.5x $609 - $428 $40 - $28 $2.20 - $1.55
Comparable Acquisition Analysis
LTM EBITDA(5) 10.0x - 8.5x $489 - $428 $32 - $28 $1.76 - $1.55
--------------- ----------------- -------------
Valuation Range $489 - $377 $32 - $25 $1.76 - $1.36
--------------- ----------------- -------------
</TABLE>
(1) Assumes exchange rate of (NIS/US$) 4.18.
(2) Assumes PEC Israel Economic Corporation owns 6.6% of Scitex Corporation's
diluted stock.
(3) Assumes 18,362,188 shares outstanding.
(4) Based on Heidelberger Druchmaschinen and Gerber Scientific and Presstek.
(5) Based on Axiohm/DH Technology and Clayton, Dubilier & Rice/IBM
Corporation-Lexmark.
- --------------------------------------------------------------------------------
34 [LOGO] Merrill Lynch
<PAGE>
Public Holdings
================================================================================
Other Public Holdings
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------
Share Price Shares in PEC's % Equity Market Value
Other Public Holdings (12/09/98) Ownership Owned of PEC's Holding
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Agis Industries 2,240 727,000 2.50% 3,892
Caniel 4,110 1,633,589 30.10% 22,900*
Cell Pathways $10.75 162,140 0.67% 1,743
Electronic Line 534 833,250 13.90% 1,063
Gilat Communications $8.69 888,075 9.80% 7,715
Ham-Lat (Israel Canada) 1,861 768,676 6.80% 3,419
Isrotel 620 1,167,942 2.30% 1,731
Klil Industries 8,500 352,122 17.90% 7,154
Lipman 2,700 133,300 2.50% 860
Lirax 2,550 1,209,419 20.20% 7,371
Logal $0.53 248,690 4.30% 132
Macpell 588 110,744 0.70% 156
Maxima (NIS 1 shares) 392 790,803 12.10% 741
(NIS 5 shares) 1,402 315,159 1,056
Mul-T-Lock 600 2,283,017 14.90% 3,274
Nice $22.75 576,833 5.21% 13,123
Tefron $7.00 958,433 7.10% 6,709
Exchange rate (NIS/$) 4.184 Total 83,039
Effective Tax Rate on
Estimated Gains 25%
PEC's Share Outstanding 18,362,188 Per Share $4.52
- -------------------------------------------------------------------------------------
<CAPTION>
- ------------------------------------------------------------------------------------
PEC's Unrealised Projected Capital Liquidation
Other Public Holdings Cost Gain/(Loss) Gain/(Loss) Taxes Value
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Agis Industries 5,882 (1,990) (497) 4,390
Caniel 2,821 20,079 5,020 17,880
Cell Pathways 1,000 743 186 1,557
Electronic Line 1,999 (936) (234) 1,297
Gilat Communications 1,010 6,705 1,676 6,039
Ham-Lat (Israel Canada) 4,398 (979) (245) 3,664
Isrotel 2,413 (682) (171) 1,901
Klil Industries 6,222 932 233 6,921
Lipman 780 80 20 840
Lirax 6,027 1,344 336 7,035
Logal 403 (271) (68) 200
Macpell 269 (113) (28) 184
Maxima (NIS 1 shares) 1,719 78 19 1,777
(NIS 5 shares)
Mul-T-Lock 3,260 14 3 3,270
Nice 10,492 2,631 658 12,465
Tefron 262 6,447 1,612 5,097
Exchange rate (NIS/$) 48,957 34,082 8,520 74,518
Effective Tax Rate on
Estimated Gains
PEC's Share Outstanding $2.67 $1.86 $0.46 $4.06
- ----------------------------------------------------------------------------------
</TABLE>
* Value of Caniel stake is at the sale price as agreed by the Company
Source: Public market values.
- --------------------------------------------------------------------------------
35 [LOGO] Merrill Lynch
