Ilan Ben-Dov is in advanced talks to sell control of Partner Communications to Hutchison Whampoa, which the Israeli businessman still owes $300 million after his 2009 acquisition of Partner in a high-profile leveraged buyout.
In the deal taking shape, Hutchison would convert debt into a 60% stake in Partner's parent Scailex Corporation, in effect returning control of Partner to the Hong Kong-based conglomerate. Suny Electronic, Ben-Dov's holding company, would retain a big stake in Scailex, but not a controlling stake.
"Ben-Dov has already lost de facto control over Partner," said a source with knowledge of the talks. Scailex has net debt of NIS 2.4 billion - NIS 1.8 billion on its bonds - so Ben-Dov has been looking to offload his controlling stake in the company.
Ben-Dov has also considered selling shares to Russian cellphone operator Mobile TeleSystems, but this would require the approval of Hutchison, whose $300 million loan comes due in April 2014.
So at the beginning of last week, Ben-Dov flew to Hong Kong with his attorney Yossi Avraham for a series of long meetings with Hutchison executives. The Hong Kong-based company is represented in Israel by attorneys Ehud Sol and Ilanit Landesman Yogev, both partners at Herzog Fox & Neeman.
People close to the talks say it's unlikely Ben-Dov will sell control of Partner to Mobile TeleSystems; the likelier scenario is Hutchison reacquiring control through Scailex. Ben-Dov and Hutchison would need to decide together how to deal with Scailex's bond debt.
Reading the market poorly
For Ben-Dov, all this would mean a frightful fall from grace. He and his advisers didn't correctly gauge the changes in the telecom market and built a financing package that included less than 20% capital equity.
At first, the situation appeared promising. In the first year, Partner's value kept rising and Hutchison had no reason to worry. But when Communication Minister Moshe Kahlon's reduction of interconnect fees took effect at the beginning of 2011, Partner's value - and that of other cellphone operators - began dropping. Its profits suffered, as did its ability to pay out lavish dividends.
This trend continued throughout 2011, and Ben-Dov's plight only worsened last summer with Tao Tsuot's NIS 300 million debt settlement process - reflecting a haircut of more than 50%. The market values of Suny and Scailex then plunged to fractions of their previous levels, blocking Scailex from refinancing its debt in the capital market. So Ben-Dov began his talks with Hutchison and other potential suitors.
Three weeks ago two new players - Golan Telecom and HOT Mobile - entered the cellphone market, causing turmoil in the sector. Within a week, Partner's market value had been knocked to a low of NIS 3 billion. Ben-Dov has now lost, through his Scailex holdings, more than NIS 2 billion on his Partner investment.
Bank Leumi, which owns just under 5% of Partner, has been hit hard, too. It has had to write down about NIS 300 million of its NIS 515 million investment.
