Arkia Israeli Airlines (IZ, Tel Aviv Ben Gurion) has signed an agreement with Canzon, a developer of cannabidiol (CBD) medical cannabis products, to find the carrier a publicly-traded shell company with no commitments or debt to merge with and go public, as an alternative to an Initial Public Offering (IPO), according to a Tel Aviv Stock Exchange filing.

In the disclosure, Canzon’s chairman, Shai Zohar, and CEO Avishai Fishman notified that they would work with Arkia by finding the “skeleton” company to merge with - though not Canzon, which is listed on the exchange - and that the merger would give Arkia a valuation of ILS100 million shekels (USD32 million).

Canzon said it had already signed a Memorandum of Understanding (MOU) on the matter with the carrier’s parent entity Arkia Holdings, in which the Nakash brothers hold a 70% stake. The airline’s employees hold the remaining 30%.

According to the MOU, Canzon will try to merge Arkia into a publicly-traded company with at least ILS10 million (USD3.2 million) in available cash.

The merger depends on several conditions, including entering into a binding agreement, completing due diligence, obtaining regulatory and other approvals, and the receiving company also raising at least ILS30 million (USD9.5 million) from other public or private investors at the time the transaction is completed, the filing said.

On completion of such a deal, the stakes held by Arkia’s existing shareholders would shrink from 100% to 82.64% of the newly merged company (57.85% for the Nakash brothers, 24.79% for Arkia employees), while the other 17.36% would be divided between Canzon’s shareholders.

Avi Hurmero, chief executive of the Israeli branch of the Nakash brothers’ New York-based Jordache Enterprises, which controls Arkia Holdings, said in the filing: “The Nakash Group has owned Arkia for 15 years, during which it has worked for the company’s growth and prosperity. Now it has identified an opportunity to increase and further support Arkia’s operations through a merger with a receiving public company. The merger will increase the company’s capital.”

Arkia’s employees have been given 30 days to decide if they want to be part of the offering, its chairman and CEO Gadi Tepper said. The airline currently has 530 employees, but all except 60 are on unpaid leave due to the Covid-19 pandemic.

Yaron Zelika, chairman of the Arkia Workers’ Council, told the business daily Globes: “Everything depends on the approval of the workers’ council. We will study the plan and make a decision.”

Completing such a merger would leave Canzon’s shareholders holding tradable shares in two public companies. However, Globes speculated that one option could be for Canzon to take over such a company to then use it as a platform for merging with Arkia.