EXHIBIT 99.(b)(2)
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Presentation to the Special Committee
Regarding Project Alpha
December 11, 1998
[LOGO] Merrill Lynch
Table of Contents
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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
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2 [LOGO] Merrill Lynch
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Offer by
IDB Development Corporation
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Offer by IDB Development Corporation
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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
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4 [LOGO] Merrill Lynch
Offer by IDB Development Corporation
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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
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Summary of Financial Terms
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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
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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.
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5 [LOGO] Merrill Lynch
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Valuation
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Summary
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Summary
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Methodology
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PEC Economic Corporation
Net Asset Value Analysis(1) Investment Portfolio
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6 Public 3 Private Other
Valuation Methodology Key Analyses Companies Companies Holdings(3)
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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
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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
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(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.
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8 [LOGO] Merrill Lynch
Summary
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Most Significant Direct Holdings
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PEC Israel Economic Discount Investment IDB(1)
Corporation Corporation Holdings
------------------- ------------------- -----------
% of Equity % of Equity % of Equity
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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%
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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.
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9 [LOGO] Merrill Lynch
Summary
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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
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10 [LOGO] Merrill Lynch
Summary
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-------------------- -------------------- -------------------------
Value of Value of PEC Estimated Contribution
PEC's Interest Share(1) per share as a % of Total
-------------------- -------------------- -------------------------
High Low High Low High Low
-------------------- -------------------- -------------------------
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
------ ------ ------ ------
(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.
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11 [LOGO] Merrill Lynch
Summary
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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
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12 [LOGO] Merrill Lynch
Summary
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PEC'S "Top 10" Minority Shareholders
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Institutional Investors 06/30/98 03/31/98 12/31/97 09/30/97
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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%
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Source: SDC and recent SEC filings.
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13 [LOGO] Merrill Lynch
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Premiums and Discounts
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Premiums and Discounts
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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
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Offer Price as a Premium/(Discount) to Target Share Price at
Indicated Period Prior to Announcement
-------------------------------------------------------------
1 Day 1 Week 1 Month
----------- ------------ -------------
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%
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o Reviewed completed "going private" transactions in which less than 25.0%
minority shareholdings were acquired(1)
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Offer Price as a Premium/(Discount) to Target Share Price at
Indicated Period Prior to Announcement
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1 Day 1 Week 1 Month
----------- ------------ -------------
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%
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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.
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15 [LOGO] Merrill Lynch
Premiums and Discounts
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Holding Company/Closed-End Fund Discounts
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Appropriate holding company discount is approximately 30.0% or
possibly higher in the case of Israeli holding companies
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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.
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16 [LOGO] Merrill Lynch
Premiums and Discounts
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PEC Historical Discounts(1)
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Investment Equity Analyst
Bank Report Date Estimated Pre-Tax NAV per Share Share Price Discount to NAV
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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)
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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%.
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17 [LOGO] Merrill Lynch
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Public Market Overview
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Public Market Overview
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December 1996 to Present(1)
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Daily Stock Price Trading Performance
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- --------------------------------------------- --------------------------
PEC Israel Economic Corporation March 25, 1998
- --------------------------------------------- --------------------------
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 --------------------------
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[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.
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19 [LOGO] Merrill Lynch
Public Market Overview
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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]
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Companies Sept. 8(2) Dec. 9(2) % Change
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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 $10.19 (7.4%)
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(1) Share prices in local currency; PEC Israel Economic Corporation, Scitex
Corporation and Gilat Satellite Networks quoted in U.S. dollars.
(2) Assumes exchange rate of NIS/US$ of 3.85 and 4.18 on September 8, 1998 and
December 9, 1998, respectively.
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20 [LOGO] Merrill Lynch
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Draft of Fairness Opinion Letter
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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
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
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
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Exhibits
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================================================================================
Private Holdings
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Private Holdings
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Cellcom Israel(1)
-------------------- -------------------- --------------------
Total Company PEC's % Interests PEC's Value
Valuation Range Valuation Range(5) Per Share(6)
-------------------- -------------------- --------------------
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 - $13.88
-------------------- -------------------- --------------------
(1) Assumes exchange rate of (NIS/US$) 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.
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23 [LOGO] Merrill Lynch
Private Holdings
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Tevel Israel International Communication(1)
-------------------- -------------------- --------------------
Total Company PEC's % Interests PEC's Value
Valuation Range Valuation Range(8) Per Share(9)
-------------------- -------------------- --------------------
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 - $3.68
-------------------- -------------------- --------------------
(1) Assumes exchange rate of (NIS/US$) 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.
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24 [LOGO] Merrill Lynch
Private Holdings
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El-Yam Ships and Holdings(1)
-------------------- -------------------- --------------------
Total Company PEC's % Interests PEC's Value
Valuation Range(6) Valuation Range(6) Per Share(7)
-------------------- -------------------- --------------------
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 - $1.58
-------------------- -------------------- --------------------
(1) Assumes exchange rate of (NIS/US$) 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.
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25 [LOGO] Merrill Lynch
Private Holdings
================================================================================
El-Yam Ships and Holdings
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Daily Stock Price Trading Performance
- --------------------------------------------------------------------------------
------------------------------
IDB Holding Corporation(1)
------------------------------
12/09/98 $20.51
30 Day Avg. $19.76
90 Day Avg. $19.71
1 Year Avg. $20.14
------------------------------
[THE FOLLOWING TABLE WAS DEPICTED AS A LINE CHART IN THE PRINTED MATERIAL]
[PLOT POINTS TO COME]
Source: Datastream
(1) Assumes exchange rate of (NIS/US$) 4.18.
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26 [LOGO] Merrill Lynch
Private Holdings
================================================================================
Other Private Holdings (Dollars in thousands, except per share data)
--------------------------------------------------------------------------------------------------------
PEC's PEC's Carrying Estimated
Ownership Cost Va1ue Holding's
Other Private Holdings (%) (1) (2) Value*
--------------------------------------------------------------------------------------------------------
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
--------------------------------------------------------------------------------------------------------
* Higher of PEC's cost and carrying value.
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27 [LOGO] Merrill Lynch
================================================================================
Public Holdings
================================================================================
Public Holdings
================================================================================
Property and Building Corporation (Dollars in millions, except per share data
(1))
--------------- ----------------- -------------
Total Company PEC's % Interests PEC's Value
Valuation Range Valuation Range(2) Per Share(3)
--------------- ----------------- -------------
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 - $7.28
--------------- ----------------- -------------
(1) Assumes exchange rate of (NIS/US$) 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.
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29 [LOGO] Merrill Lynch
Public Holdings
================================================================================
Super-Sol (Dollars in millions, except per share data(1))
--------------- ----------------- -------------
Total Company PEC's % Interests PEC's Value
Valuation Range Valuation Range(2) Per Share(3)
--------------- ----------------- -------------
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 - $4.18
--------------- ----------------- -------------
(1) Assumes exchange rate of (NIS/US$) 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.
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30 [LOGO] Merrill Lynch
Public Holdings
================================================================================
Elron Electronic Industries (Dollars in millions, except per share data(1))
--------------- ----------------- -------------
Total Company PEC's % Interests PEC's Value
Valuation Range Valuation Range(2) Per Share(3)
--------------- ----------------- -------------
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 - $2.29
--------------- ----------------- -------------
(1) Assumes exchange rate of (NIS/US$) 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.
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31 [LOGO] Merrill Lynch
Public Holdings
================================================================================
Gilat Satellite Networks (Dollars in millions, except per share data(1))
--------------- ----------------- -------------
Total Company PEC's % Interests PEC's Value
Valuation Range Valuation Range(2) Per Share(3)
--------------- ----------------- -------------
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 - $1.83
--------------- ----------------- -------------
(1) Assumes exchange rate of (NIS/US$) 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.
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32 [LOGO] Merrill Lynch
Public Holdings
================================================================================
Tambour (Dollars in millions, except per share data(1))
--------------- ----------------- -------------
Total Company PEC's % Interests PEC's Value
Valuation Range Valuation Range(2) Per Share(3)
--------------- ----------------- -------------
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 - $1.65
--------------- ----------------- -------------
(1) Assumes exchange rate of (NIS/US$) 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.
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33 [LOGO] Merrill Lynch
Public Holdings
================================================================================
Scitex Corporation (Dollars in millions, except per share data(1))
--------------- ----------------- -------------
Total Company PEC's % Interests PEC's Value
Valuation Range Valuation Range(2) Per Share(3)
--------------- ----------------- -------------
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 - $1.36
--------------- ----------------- -------------
(1) Assumes exchange rate of (NIS/US$) 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.
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34 [LOGO] Merrill Lynch
Public Holdings
================================================================================
Other Public Holdings
- -------------------------------------------------------------------------------------
Share Price Shares in PEC's % Equity Market Value
Other Public Holdings (12/09/98) Ownership Owned of PEC's Holding
- -------------------------------------------------------------------------------------
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 $4.52
- -------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------
PEC's Unrealised Projected Capital Liquidation
Other Public Holdings Cost Gain/(Loss) Gain/(Loss) Taxes Value
- ------------------------------------------------------------------------------------
Agis Industries 5,882 (1,990) (497) 4,390
Caniel 2,821 20,079 5,020 17,880
Cell Pathways 1,000 743 186 1,557
Electronic Line 1,999 (936) (234) 1,297
Gilat Communications 1,010 6,705 1,676 6,039
Ham-Lat (Israel Canada) 4,398 (979) (245) 3,664
Isrotel 2,413 (682) (171) 1,901
Klil Industries 6,222 932 233 6,921
Lipman 780 80 20 840
Lirax 6,027 1,344 336 7,035
Logal 403 (271) (68) 200
Macpell 269 (113) (28) 184
Maxima (NIS 1 shares) 1,719 78 19 1,777
(NIS 5 shares)
Mul-T-Lock 3,260 14 3 3,270
Nice 10,492 2,631 658 12,465
Tefron 262 6,447 1,612 5,097
Exchange rate (NIS/$) 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
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* Value of Caniel stake is at the sale price as agreed by the Company
Source: Public market values.
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35 [LOGO] Merrill Lynch