Israel’s NSO Group considering sale or shutdown of Pegasus unit

NSO Group, the Israeli spyware manufacturer whose military-grade malware has been condemned by human rights groups, is considering a sale of the company or a shutdown of its controversial Pegasus unit, according to two people familiar with the discussions.

The company has edged closer to a default on $500m in loans after being blacklisted by the US Department of Commerce in November. The agency accused NSO of selling its smartphone-hacking product to countries that used it for “transnational repression”.

The Herzliya-based group, valued at $1bn in a 2019 private equity transaction, is mulling either selling the entire company or closing its Pegasus unit to focus instead on its nascent drone defence system, the people said.

Bloomberg News first reported the private discussions, which are being led by New York-based investment bank Moelis & Co.

NSO Group is also considering turning Pegasus into a “defensive” product, a move the company estimates could raise as much as $200m from US-based investors, the people added. However, it is unclear how NSO or the Israeli government could ensure the spyware is only used defensively.

Pegasus works by surreptitiously infiltrating a target’s smartphone and mirroring its encrypted contents such that the customer can view them.

The technology is already licensed by the Israeli government to be sold to its allies on the condition that it be only be used to defend against terrorism and serious criminal actions. However, it has regularly been traced to the phones of journalists, academics, dissidents and private citizens.

The company has faced mounting legal woes as Apple and Facebook, which owns the WhatsApp messaging service, have sued it in US courts over claims that NSO abused their platforms to deliver Pegasus to users’ phones since early 2019.

Meanwhile, lenders have found few takers for the company’s debt — quotes were at about 70 cents on the dollar for a $350m term loan maturing in 2025.

The company attracted the ire of the US government after American diplomats in east Africa were informed by Apple in November that their smartphones had been recently targeted using Pegasus.

NSO declined to comment. Shalev Hulio, the company’s co-founder and the public face of NSO, retook the reins as chief executive after Itzik Benbenisti stepped down days after the blacklisting.

On several occasions, the Israeli government has been forced to hold diplomatic talks with countries affected by Pegasus malware attacks, including with France in October after it found the technology on government phones.

Last week, Jerusalem announced that buyers of cyber surveillance software would have to certify that they would use the technology only for defensive purposes. However, was is unclear how it would enforce that policy, as Pegasus is designed in such a way that the manufacturer is technically unable to see its targets.