Erech Finance: The New Merger Path and What Current Shareholders May Actually Keep
At first glance, the February 2026 merger path sounds like 20% staying with the public. In practice, that number exists before the NIS 20 million raise, before the legacy lending activity is taken out, and before the shell-company and preservation-list constraints are cleared, so current shareholders are really holding an option on a long execution path rather than a clean stake in a new operating business.
What Is Actually Being Offered To The Public
The main article argued that Erech Finance is no longer a lender trying to restart, but a public shell trying to buy time until it can bring in a new activity. This follow-up isolates the narrower question, and the one that matters more for current shareholders: if the February 2026 path moves forward, how much of the merged company’s economics may actually remain with them.
The short answer is that the 20% shown in the term sheet is not an end-state number. It is a starting number. It appears before a NIS 20 million capital raise, before the legacy lending activity is dealt with, and before the company clears the constraints that come with shell-company status, the preservation list, and a return to the main list. Reading the transaction as “the public keeps 20% of the new company” is therefore too flat a reading of the documents.
What has improved versus an almost empty shell is that there is finally a more detailed path: a private company in real-estate-collateral financing, IFRS reporting requirements, and an equity plan that is supposed to return the company to the main list. But the more detailed the path gets, the easier it becomes to see that the explicit protection in the documents is written first for the incoming private-company shareholders, not for the legacy public holders.
The 20% Is Before The Money, Not After It
The February 22, 2026 memorandum states that, excluding the capital raise, the private-company shareholders are expected to hold 80% of the merged company and Erech Finance’s pre-merger shareholders are expected to hold 20%. That is a real number, but only at one point in the process, before the new money comes in.
The same document also says that a NIS 20 million capital raise into the merged company is a condition precedent to closing, and that this raise is not expected to dilute the private-company shareholders. That is the key sentence. If one side is explicitly protected from dilution in the capital raise, while the other side is not given similar protection, then 20% is not a floor. It is a point of departure from which the legacy public can still move lower. The filings still do not disclose the raise price, structure, or source, so the public’s final ownership cannot yet be calculated. But the documents are already clear on one point: the new capital is supposed to come in without hurting the incoming side.
There is another signal buried in the conditions precedent. During the diligence period, the private company committed to present a self economic valuation of at least NIS 100 million. That is not an agreed valuation, and it is certainly not cash in hand, but it does show where the narrative bargaining power is supposed to sit. The public shell comes into this discussion with a market cap of roughly NIS 6.5 million, so even without saying it directly, the document makes clear which side arrives with the stronger hand.
The NIS 20 Million Raise Is The Deal, Not A Side Note
To understand what current shareholders may keep, the first thing to look at is the gap between the shell and the proposed transaction. At the end of 2025, the company had just NIS 53 thousand of cash. In February 2026 it added a NIS 500 thousand convertible loan at 7% annual interest, and later issued 512,436 warrants to the lender. But the money that actually stands up the transaction is NIS 20 million, not half a million.
That chart is the economic center of the whole transaction. The required raise is more than 3 times the shell’s current market cap, and 40 times the size of the bridge loan signed on the same day. It cannot be treated as a technical line item that will somehow get solved later. If the raise fails, there is no deal. If the raise succeeds in a way that preserves the private-company shareholders, then the legacy public is the layer most exposed to dilution. And if more interim convertibles, warrants, or funding extensions are needed on the way, the middle layer only gets thicker.
There is a second point that is easy to miss. The company said the raise is not conditioned on any particular funding source. At first glance that sounds flexible. In practice, it means the filings still did not identify a concrete funding source at signing. For a shell with an equity deficit of about NIS 8 million, negative working capital of about NIS 18.9 million, and an explicit going-concern warning, that is a very material gap.
This Is Not A Deal That Combines Two Activities, It Replaces One
One of the most important sentences in the memorandum sits after the headline. The company’s existing lending activity is not expected to remain inside the public company before closing. The filings lay out several possible paths, creditor arrangement, asset sale, or another route to be determined by the board, unless the private company decides otherwise.
The implication is straightforward. Legacy public holders are not automatically getting both the old book and a slice of the new engine. The troubled lending activity is expected to leave the shell first, and only after that does it make sense to talk about the merged company’s economics. That matters because the company does not enter this step with a clean balance sheet. It enters with current liabilities of about NIS 19.7 million, short private funding that can generally be called with notice, and an explicit going-concern note.
In theory, one can argue that if the old loan book is sold well or settled cleanly, public holders could still benefit from both the incoming business and some of the legacy value. But that is not what the document promises. What it says is that the old activity is expected to leave the public shell before closing, so the relevant economic question is not what the book is worth on paper. It is how much of that value survives after creditors, funding claims, and legal friction are dealt with.
The Shell Brings Both A Regulatory Constraint And A Clock
The new transaction is not being built on a clean platform. The company’s shares were moved to the preservation list on July 22, 2024 after it failed to meet the minimum public-holdings value requirement. Note 1(v) then states clearly that a security that does not return to the main list within 48 months of leaving it will be delisted without any further board discussion. In other words, this clock already has a clear starting date, July 22, 2024.
On top of that, on September 18, 2025 the ISA staff informed the company that it should be classified as a shell company. That is not a side comment. It changes the nature of the transaction. This is why the memorandum is not just about a merger and a capital raise. It also talks about the adjustments needed to comply with TASE and ISA requirements, including minimum equity or market-value thresholds and public-float requirements, as a condition for returning to the main list.
The document also lays out a set of prerequisites that reads more like a relaunch than a simple merger: full due diligence, a detailed agreement, corporate approvals, reviewed and audited IFRS statements for the private company, and a formal business description that covers business plans, marketing, product development, technology, and manpower.
| Execution Layer | What Must Happen | Why It Matters To Current Shareholders |
|---|---|---|
| Binding agreement | Move from a term sheet to a detailed contract | Without it, there is no deal and no final exchange economics to rely on |
| Capital raise | NIS 20 million into the merged company | This is the cash that carries the whole structure, and the main source of dilution |
| IFRS statements and business description | Full disclosure for the private company | Without this, the public still does not know what is actually entering the shell |
| Treatment of the legacy activity | Sale, creditor arrangement, or another solution | Only after this can investors see what is left in the shell before closing |
| Return to the main list | Compliance with TASE and ISA requirements | Even a signed deal does not automatically create a properly tradable listed vehicle |
The more troubling part is that this is already the second path, not the first. In April 2025 the company signed an MOU with Trado, where the incoming side was supposed to receive 54% and the deal depended on at least NIS 5 million of external financing. By August, diligence had already started. By December 9, 2025 the negotiations were terminated.
| Path | Start Date | Incoming Side Share | Funding Requirement | Current Status |
|---|---|---|---|---|
| Trado | April 9, 2025 | 54% | At least NIS 5 million of external funding | Negotiations stopped on December 9, 2025 |
| February 2026 private company | February 22, 2026 | 80% before the raise | NIS 20 million via prospectus | Non-binding MOU, diligence and a binding agreement still ahead |
That is not proof that the current path will fail. But it is a clear warning against reading an MOU as if it were already a finished deal. The company has already been in a place where a document was signed, diligence began, and nothing closed.
Conclusion
Once all of the layers are stripped back, Erech Finance’s current shareholders do not today own a clean 20% of a new operating business. What they own is an option on a more complex path: first remove the legacy activity from the shell, then bring in NIS 20 million in a structure that does not dilute the private-company shareholders, and only then try to complete a merger that also clears shell-company and preservation-list constraints.
That does not mean the new route has no value. If a binding agreement is signed, if the financing structure becomes concrete, if the private company delivers the required disclosure and audited numbers, and if the legacy activity is taken out without wiping out what remains for the public, the result could still be a listed company far better than the current shell. But until that happens, the 20% is an introductory headline, not settled economics.
What the public needs now is not another positive description of a “merger of activity”, but a full post-raise cap table, a direct explanation of what happens to the legacy lending activity, and visibility on where the money is actually coming from. That is where the number that really matters to current shareholders will begin to appear.
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