Exhibit 99(b)(3)
[LETTERHEAD OF A.O. ADAV FINANCIAL CONSULTANTS LTD.]
Tel Aviv, December 15, 1998
Messrs:
The Board of Directors of IDB Development Corporation Ltd.
3 Daniel Frisch Street
Tel Aviv.
Dear Members of the Board of Directors,
RE: OPINION DATED OCTOBER 15, 1998 RELATING TO THE FAIRNESS
OF THE EXCHANGE RATIO OF THE SHARES OF DISCOUNT INVESTMENT
CORPORATION LTD. AND SHARES OF PEC ISRAEL ECONOMIC CORPORATION
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1. On October 15, 1998 an Opinion was submitted to you (hereinafter: "the
Opinion") relating to the fairness of the exchange ratio determined in
the context of an agreement for the transfer of 14,937,792 common shares
of US dollar 1 par value each of the PEC Israel Economic Corporation
("PEC"). We were requested by you to check whether there were
significant developments or changes from the date of the Opinion
relating to the value of the net assets of the companies which would
require a change in the Opinion.
2. As we stated in our Opinion, in view of the similarity of the
investments portfolio of the two companies, the exchange ratio has a low
sensitivity to reasonable changes in the values of the companies held by
Discount Investments and PEC.
3. In order to check the aforementioned we studied the amended Immediate
Report of IDB Development, the financial statements of Discount
Investments, PEC and important companies included in their investment
portfolios for the third quarter of 1998, we checked the data available
to the public (including developments in the stock exchange prices of
the affiliated listed companies) and surveys published about companies
and the branches in which they operate, and received additional data and
clarifications from the managements of Discount Investments and PEC.
4. In view of the procedures we applied, the details of which are mentioned
above, and in view of the low sensitivity, as mentioned, of the exchange
ratio to changes in the values of the affiliated companies, in our
opinion, despite changes which took place in the evaluations of some of
the affiliated companies, there were no material developments or changes
from the date of the Opinion relating to the value of the net assets of
Discount Investments and PEC, which would require a change in the
Opinion.
5. It should be emphasized that this letter should be read together with
our letter of October 15, 1998.
6. This letter is not a reevaluation of the exchange ratio.
7. In addition, we were requested to give a professional opinion regarding
the fairness of the issue of 10,712 additional shares of Discount
Investments to IDB Development in consideration for 3,484 shares of
Property and Building Corp. Ltd., based on the net asset value of
Discount Investments and the value of Property and Building Corp. Ltd.
as determined in the said exchange ratio evaluation. In our opinion the
issue of 10,712 additional shares of Discount Investments in
consideration for 3,484 shares of Property and Building Ltd. was fair
and reasonable from the point of view of IDB Development.
8. We agree that this letter will be included and/or mentioned in the
amended Immediate Report to be published regarding the engagement.
Yours sincerely,
Arie Ovadia
A.O. Adav Financial Consultants Ltd.
[LETTERHEAD OF A.O. ADAV FINANCIAL CONSULTANTS LTD.]
Tel Aviv, October 15, 1998
Messrs:
The Board of Directors of IDB Development Corporation Ltd.
3 Daniel Frisch Street
Tel Aviv.
Dear Members of the Board of Directors,
RE: FAIRNESS OF THE EXCHANGE RATIO BETWEEN SHARES
OF DISCOUNT INVESTMENTS CORPORATION LTD. AND
SHARES OF PEC ISRAEL ECONOMIC CORPORATION
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1. We were requested by you to give a professional opinion relating to the
fairness of the exchange ratio determined in the framework of the
agreement for a transfer of 14,937,792 common shares of US$1 par value
each of PEC Economic Corporation ("PEC"), which comprise 81.4% of the
rights in that company, held by IDB Development Corporation Ltd.
(hereinafter: "IDB Development") to Discount Investments Corporation
Ltd. ("Discount Investments") in consideration for a private placement
of 17,395,593 common shares of NIS 1 par value each of Discount
Investments (hereinafter: "the Private Placement"). The exchange ratio
was determined according to an average ratio of 1.327 between the net
assets value of Discount Investments and the net assets value of PEC. It
should be mentioned that the investment portfolios of the two companies
are very similar in their composition and about 80% of the net value of
the assets of the two companies are based on identical investments in
over 40 corporations. According to simulations carried out by us, the
exchange ratio has a very low sensitivity to changes within reasonable
fields (+/- 25%) of the value of the companies' net assets.
2. The Opinion focuses on the question whether the exchange ratio
determined in the said agreement reflects, from an economic point of
view, a fair and reasonable exchange ratio from the point of view of
IDB Development.
3. For the purpose of preparing the Opinion we based ourselves on data
included in the opinions of Prof. Yitzhak Swary and Uri Cohen, CPA. of
Yitzhak Swary Ltd., dated October 15, 1998 ("Swary") and we assumed
their correctness, exactness and completeness. We were not requested and
did not carry out independent checks to verify the above-mentioned data
or to verify the Results of Operations of Discount Investments and PEC
and/or the companies held by them.
4. For the purpose of preparing the Opinion, we studied the following
documents:
4.1 Swary's opinion.
4.2 The working papers of Itzbak Swary Ltd. with regard to Swary's
opinion.
4.3 The audited financial statements of Discount Investments and PEC
for the year ended December 31, 1997 and the reviewed financial
statements for the period of six months ended June 30, 1998.
4.4 The audited financial statements of the companies held by Discount
Investments and PEC for the year ended December 31, 1997 and the
reviewed financial statements for the period of six months ended
June 30, 1998.
4.5 PEC's 10-K form for the year ended December 31, 1997.
4.6 PEC's 10-Q form for the period of 6 months ended June 30, 1998.
4.7 Publicly available data and reviews published about the Companies
and branches in which they operate.
4.8 The clarifications given to us by Discount Investments and PEC on
our request regarding details in the agreement and the items in
the financial statements.
4.9 The immediate reports of Discount Investments and IDB Development
dated October 15, 1998 which relate to the Private Placement.
5. For the purpose of preparing our Opinion we met with Prof. Swary and Uri
Cohen, CPA of Swary Ltd., and received from them explanations and
details about Swary's Opinion.
6. The Opinion does not include any stand or recommendation whether to
carry out the Private Placement. The Opinion is not a recommendation to
shareholders of Discount Investments and/or PEC and/or IDB Development
how to vote in general meetings with regard to the Private Placement.
7. We hereby certify that we have no personal interest in Discount
Investments and/or PEC and/or IDB Development and that we have no
personal interest in the exchange ratio determined. It should be
clarified that we were not partners in the negotiations between Discount
Investments and IDB Development.
8. Regarding the Opinion IDB Development undertook to A.O. Adav Financial
Consultants Ltd. (hereinafter: "Adav") as follows: If Adav will be sued
in a legal proceedings to pay any amount whatsoever to a third party in
a legal proceeding for a reason which may result directly or indirectly
from this Opinion, IDB Development will compensate Adav for all
reasonable expenses which Adav will accrue or be required to pay for
legal representation, legal consulting, professional consulting,
defending itself from legal proceedings, negotiations, etc., and IDB
Development will compensate ADAV for the amount it will be charged, in
the legal
proceeding, to pay a third party over and above one million US dollars.
The amount of compensation will not apply if it is determined that Adav
acted in supplying the services, the subject of the Opinion, with
serious negligence or with malicious intent.
9. After studying the documents mentioned in clause 4 and our meetings as
detailed in clause 5, we consider, to the best of our professional
opinion, that the exchange ratio determined in the said agreement in
clause 1 above, reflects a fair and reasonable ratio from the point of
view of IDB Development.
We would like to emphasize, that in view of the legal limitations
connected with the possibility of a public issue in the U.S. of Cellcom
Israel Ltd. ("Cellcom") whose shares are held among others by Discount
Investments and PEC, we were requested by you to check the fairness and
reasonability of the exchange ratio taking into account the general
indication of a ratio in the field of Cellcom's value. The indication is
based on a comparison of the market prices and multipliers of similar
European cellular companies, taking into account the discount resulting
from a lack or marketability and liquidity of the investment in Cellcom
compared to those companies checked. We should state that the investments
of Discount Investments and PEC in Cellcom are material to their economic
value, but the ownership has little significant effect on the exchange
ratio due their identical holdings in Cellcom. It should be emphasized
that in view of your aforementioned instructions, we did not carry out an
evaluation and did not apply any other procedures relating to the
investments in Cellcom.
As in our Opinion the indications checked by us and the range of
variance checked by us with regard to the value of Cellcom (+/- 25%)
reflect a reasonable range of Cellcom's economic value, and as a change
in the estimated value of Cellcom in the range mentioned, does not
result in a significant variance in the results of the exchange ratio.
In our Opinion this limitation does not harm the reasonability and
validity that the exchange ratio is fair and reasonable.
10. The Opinion does not express the price in which the shares of Discount
Investments and/or PEC should be traded after the notice of approval or
after implementation of the Private Placement. The evaluation of the
exchange ratio is not an evaluation of the value of the assets or the
share capital of Discount Investments and/or PEC.
11. We hereby agree that this Opinion is attached and/or mentioned in the
Immediate Report.
Yours sincerely,
Arie Ovadia
A.O. Adav Financial Consultants Ltd.