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The Alliance Tire Company has signed a memorandum of understanding to transfer control to a group of U.S. investors, led by Harvey Brodetzky, Saul Salzman and Charles Stein.

Alliance will allocate 51% of its shares to the investor group in a private placement.

Eliezer Fishman, who directly and indirectly holds 60% of the company, will lose control as his block is diluted to 29%. Final closing of the deal is expected in 60 days.

The U.S. investors are paying $50 million for the 51% stake. Final compensation of the infusion will be determined when due diligence is completed.

The investors will also be extending a shareholders loan that shall not exceed $10 million.

The investment sets the company's post-money value at $78 million to $98 million, while its market cap is $14.8 million.

Alliance chairman Isia Tchetchik said the Brodetzky group became interested in the company as early as 1992, when it was facing bankruptcy and was bought out by Eliezer Fishman.

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Tchetchik said the Brodetzky group has been investing in the rubber and polymer sector for decades, is familiar with the factory, and had identified a potential in increased marketing to America. "The acquiring group has vast connections in the U.S. through which we hope to increase U.S. sales from their current $5-7 million to our European levels of about $40 million annually," he said.

Tchetchik further stated that the group's "willingness to inject $50 million these days in extremely unusual. Alliance has poor-looking financial results but we have excess production capacity that can be used to double sales and increase profits significantly."

He said the consideration from the private placement will be directed primarily to paying off debt and developing new products.

Alliance confirmed a month ago that it was in various talks with a number of international groups on bringing additional investors into the company. "We are interested in a strategic partner who will develop our export operations. We are negotiating with more than one entity and examining cooperation with US companies," Tchetchik told TheMarker at the time. "Our main goal is to better utilize our production capability by increasing foreign sales. This should substantially improve our financial results."

Alliance yesterday reported one of the worst quarters in its history as revenues shrank and losses mounted, and its operating loss soared. The tire company's loss mounted by 750% for the second quarter of 2002, while revenues sank 27% to NIS 95.4 million.

Due to a 6% jump in sales costs, its second-quarter 2002 gross loss mounted to NIS 23.2 million, compared with a gross profit of NIS 19.5 million in the parallel quarter of last year. Its operating loss climbed to NIS 46.5 million, compared with NIS 2.8 million in the parallel quarter.

Alliance's bottom line was red for the fifth consecutive quarter, with a loss of NIS 71.2 million - 750% more than the same quarter last year when it lost NIS 8.4 million.