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Formula returning ForSoft to public market after withdrawing NIS 220m in dividends

Romtech board will meet shortly to approve takeover by Formula and merger with ForSoft

Formula Systems

(Nasdaq:FORTY) is returning its subsidiary ForSoft to the public market, after withdrawing NIS 220 million in dividends from the company.

Formula is taking over Tel Aviv-traded Romtech, for free. Romtech, for its part, gets the operations of Formula subsidiary ForSoft, which Formula delisted from Nasdaq in October 2000 at a cost of $40 million.

Prior to the deal with Formula, Romtech had been essentially devoid of activity, beyond a few investments in startups.

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Romtech Electronics will shortly be convening its board of directors to approve allocating 23 million shares to Formula in exchange for 85% of ForSoft's share capital.

But the ForSoft that left Nasdaq is not the same company now listing on the TASE, albeit through the back door, through its merger with Romtech.

ForSoft's main asset was its cash, but most of that has passed to Formula, which is controlled by the Goldstein brothers Danny and Gadi (18%). In the last year, as revealed by a Romtech prospectus, Formula withdrew NIS 220 million in dividends from ForSoft, in two instalments.

Formula withdrew NIS 58 million in December 2000, and another NIS 160 million in April 2001.

The dividends, which were approved by the Israeli courts, compensated Formula for its costs in buying back the public's holdings in ForSoft.

After the massive dividend, ForSoft's equity capital decreased to NIS 33 million and its cash reserves to NIS 31 million. But it has a credit line worth NIS 32.4 million.

Throughout its career as a publicly-traded company, ForSoft refrained from distributing dividends to shareholders, despite netting more than NIS 70 million in 1998 and 1999.

Meanwhile, Romtech's prospectus quotes Formula stating that one of the risks ForSoft faces is the difficulty in raising capital these days.

"The slowdown in the capital market, especially in the software sector, in recent months may compromise ForSoft's ability to raise capital, which could hamper the company's growth," the prospectus states. It postulated that ForSoft may have to borrow money under unfavorable conditions.

Earlier this month Rotem Starkman of


wrote that Formula planned to turn ForSoft into one of Israel's biggest software houses by merging it with several other group subsidiaries. However, Romtech's prospectus does not even mention such a plan.