SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported) September 7, 1998
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PEC Israel Economic Corporation
(Exact Name of Registrant as Specified in Charter)
Maine 1-8707 13-1143528
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(State or Other Jurisdiction (Commission (IRS Employer
of Incorporation) File Number) Identification No.)
511 Fifth Avenue, New York, New York 10017
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(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code (212) 687-2400
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(Former Name or Former Address, if Changed Since Last Report)
Page 1 of 6 pages
Item 5. OTHER EVENTS.
On September 8, 1998, IDB Development Corporation Ltd. ("IDB
Development"), the owner of approximately 81.35% of the outstanding shares of
common stock of PEC Israel Economic Corporation (the "Company"), delivered to
the Company a letter dated September 7, 1998 addressed to the Board of
Directors of the Company in which IDB Development proposed to acquire all of
the outstanding shares of common stock of the Company not already owned by
IDB Development for a cash price of $25.50 per share through a merger of a
wholly-owned subsidiary of IDB Development into the Company. As a result of
the proposed merger, the Company would become a wholly-owned subsidiary of
IDB Development. IDB Development stated in the letter that it intends to
exchange all of its shares of common stock of the Company with its partially-
owned subsidiary, Discount Investment Corporation Ltd. ("DIC"), for newly
issued shares of DIC. The merger would be subject to various conditions,
including approval by the Board of Directors and shareholders of the Company.
On September 9, 1998, the Board of Directors of the Company appointed
a special committee composed of Messrs. Alan R. Batkin and Robert H. Arnow who
are not affiliated with IDB Development or DIC to consider the proposal. The
Board authorized the special committee to engage independent financial advisors
and legal counsel to assist it in its deliberations.
Item 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND
EXHIBITS.
Letter dated September 7, 1998 addressed to the Board of Directors of
the Company from IDB Development.
Page 2 of 6 pages
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
PEC Israel Economic Corporation
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(Registrant)
By: /s/ JAMES I. EDELSON
Date: September 9, 1998 ----------------------------
James I. Edelson,
Executive Vice President
Page 3 of 6 pages
IDB DEVELOPMENT CORPORATION LTD. EXHIBIT 1
"The Tower", 3 DANIEL FRISCH ST., TEL-AVIV 64731
TELEFAX: (03) 6952069 TELEPHONE: (03) 6966766
September 7, 1998
Board of Directors of PEC Israel Economic Corporation
511 Fifth Avenue, 10th Floor
New York, New York 10017
Gentlemen:
IDB Development Corporation Ltd. ("IDB Development") hereby
proposes to acquire all of the outstanding shares of common stock of PEC
Israel Economic Corporation ("PEC") not already owned by IDB Development for
a cash price of $25.50 per share through a merger of a wholly-owned
subsidiary of IDB Development into PEC. As a result of the proposed merger,
as described above, PEC would become a wholly-owned subsidiary of IDB
Development. IDB Development intends to exchange all of its shares of common
stock of PEC with its partially-owned subsidiary, Discount Investment
Corporation Ltd. ("DIC"), for newly issued shares of DIC. In the event IDB
Development completes the transfer to DIC of all of its shares of common
stock of PEC prior to the completion of the merger, IDB Development will
assign to DIC all of its rights and obligations in connection with the
merger, including any rights under this offer and in connection thereto. In
such case, PEC would become a wholly-owned subsidiary of DIC.
Completion of the merger would be conditioned upon (i) the approval by
the Board of Directors and the shareholders of PEC, (ii) approval of the merger
by the Board of Directors and shareholders of IDB Development, and (iii)
satisfaction of all applicable regulatory and governmental requirements in
Israel, and certain other conditions customarily contained in transactions of
this type.
Financing for the merger would be provided by loans to PEC or a
merger-subsidiary company (a fully-owned subsidiary of IDB Development or DIC,
as the case may be) from IDB Development, DIC or any combination thereof. Our
proposal is not conditioned on financing.
IDB Development expects that the merger would occur
Page 4 of 6 pages
IDB DEVELOPMENT CORPORATION LTD.
before the end of the first quarter of 1999. Upon completion of the merger, PEC
would seek to cause its shares of common stock to be delisted from trading on
the New York Stock Exchange and to be deregistered under the Securities Exchange
Act of 1934, as amended.
IDB Development believes that this proposal is fair and will
benefit the public shareholders of PEC. The all cash price of $25.50 per
share to be paid in the merger represents an 11.8% premium over the closing
price on September 4, 1998 of $22.8125 per share and exceeds the highest
price at which the common shares of PEC have traded on the New York Stock
Exchange for the two and one half year period prior to the date of this
letter.
PEC and DIC, both subsidiaries of IDBD, hold similar, though not
identical, portfolios of equity interests in various public and private
companies, predominantly companies located in Israel or related to Israel. PEC
was established in 1926, in order to enable U.S. investors to invest in Israel.
Today, Israeli companies have ready-access to the U.S. capital markets. The
existing corporate structure, under which similar equity portfolios are held by
two separate public companies (PEC and DIC) which are subject to different laws
(U.S. and Israel) and have fiduciary duties to different shareholders, results
in a complex corporate organization.
After the merger and transfer of common stock of PEC from IDB
Development to DIC, if it occurs, PEC would realize savings and advantages,
including (i) streamlined management and avoidance of duplication of efforts in
participating in the management of corporations in which both PEC and DIC have
ownership interests, (ii) removal of restrictions on PEC's business resulting
from the Order PEC received from the United States Securities and Exchange
Commission that determined that PEC is not an investment company within the
meaning of the Investment Company Act of 1940, as amended, and (iii) substantial
savings of time, expense and energy resulting from the elimination of proxy
statements, annual and quarterly reports and compliance with United States
securities laws for public companies.
IDB Development desires to proceed on an expedited basis and urges the
Board of Directors of PEC to act as quickly as possible in considering the
proposal. IDB Development
Page 5 of 6 pages
IDB DEVELOPMENT CORPORATION LTD.
anticipates that the Board would consider appointment of a special committee
composed of directors who are not affiliated with IDB Development or DIC to
consider the proposal and that such committee would be authorized to engage
independent financial advisors and legal counsel to assist it in its
deliberations. IDB Development has engaged BT Wolfensohn as its financial
advisor and invites the special committee's representatives to contact its
advisors to discuss this proposal at the special committee's earliest
convenience.
Please be advised that IDB Development has no intention of selling its
holdings of PEC stock, otherwise than in connection with the possible
transaction with DIC referred to above.
IDB Development has been advised that it must promptly file an
amendment to the Statement on Schedule 13D with respect to PEC, which will
disclose the substance of this letter. Accordingly, PEC should consider making
its own public announcement relating to this matter.
IDB Development reserves the right to amend or withdraw this proposal
at its sole discretion at any time.
Sincerely yours,
IDB Development Corporation Ltd.
By: /s/ ELIAHU COHEN
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Name: Eliahu Cohen
Title: Joint Managing Director
By: /s/ DALIA LEV
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Name: Dalia Lev
Title: Joint Managing Director
Page 6 of 6 pages