After week-long negotiations, Ilan Ben-Dov has reached an agreement to sell control of cellular operator Partner Communications to Hutchison Whampoa, which the Israeli businessman still owes $300 million after his 2009 acquisition of Partner from Hutchison in a leveraged buyout. Ben-Dov signed the agreement Monday evening in Hong Kong.
Hutchison sold Partner for NIS 5.3 billion, but lent Ben-Dov $300 million to complete the deal. Hutchison holds 12% of Partner shares as a guarantee for the loan, which is due in April 2014, but their value has sunk to only $90 million. The venture loan carries a 2.5% interest rate, and its repayment date will now be postponed by five years as part of the deal.
In the deal, Partner's parent corporation, Scailex, would pay $125 million for 75% of the shares of Suny Electronic, Ben-Dov's holding company at the top of the leveraged pyramid of holdings. Scailex owns a 44.5% share of Partner. This would leave Ben-Dov with only a tiny holding in Partner.
Scailex would sell Suny its main business, the import of Samsung cellular phones, which is valued at some NIS 600 million. This would leave Ben-Dov with control of the Samsung franchise, the business that made him his fortune.
Even though the two sides have reached an agreement, the deal is far from being completed. Scailex bondholders could put up a fight and demand a higher price from Suny for sale of the Samsung franchise. Scailex has net debt of NIS 2.4 billion - NIS 1.8 billion on its bonds - and not including the $300 million owed to Hutchison.
Hutchison will offer to buy 50% of the debt of Scailex bondholders, and will pay off the rest according to the original bond redemption schedules. But it is still not clear at what price Hutchison will offer to buy back the bonds. These bonds trade today at 30-75 agorot per shekel of face value. Even though Hutchison will offer a higher price than the present market value, this nonetheless means a still undetermined haircut for bondholders. Scailex has a negative value of NIS 300 million based on its net asset valuation.
Ben-Dov had also considered selling shares to Russian cellphone operator Mobile TeleSystems, but that would have required the approval of Hutchison under the terms of the loan.
Ben-Dov flew to Hong Kong with his attorney Yossi Avraham for the meetings with Hutchison executives a week ago. The Hong Kong-based company is represented in Israel by attorneys Ehud Sol and Ilanit Landesman Yogev, both partners at Herzog, Fox & Neeman. Bank Leumi owns just under 5% of Partner and has had to write down about NIS 300 million of its NIS 515 million investment.
After the first steps of the cellphone market reform in 2011, shares of Partner and the other cellular operators began falling. Profits did as well, and so did Partner's ability to pay generous dividends. In turn, the market valuations of Scailex and its parent company Suny Electronic plummeted. Yields on Scailex bonds began rising to junk levels, preventing Scailex from rolling over debt with new bonds.
