Eliezer Fishman, Noni Mozes may force the Patrick Drahi, to pay them much more than NIS 41-a-share he is offering investors

Hot Telecommunication Systems shareholders will be asked at a general shareholders meeting on Wednesday to approve a NIS 41-a-share buyout offer from its controlling shareholder Patrick Drahi, and to delist the company.

But it seems others can expect to receive at least 24% more for their stock.

Two former controlling owners, investor Eliezer Fishman and newspaper publisher Noni Mozes, who have stakes of 6.9% and 3%, respectively, in the company, have been offered at least NIS 51 a share, according to TheMarker sources.

Agreements between the sides dating back to October 2010, when Drahi bought most of their holdings in Hot and finally wrested control over the company, indicate some sort of mechanism to determine the price for their remaining shares.

At that time Fishman sold Drahi a 6% stake in the company at NIS 54.50 a share while Mozes sold him 13.2% at NIS 65 a share, reflecting premiums of 38% and 48% over Hot's average trading price during the three months preceding the transactions. Drahi also made a commitment to Fishman and Mozes at the time not to cause the public's holdings in HOT to drop below 20% of its listed capital. Drahi today controls 69% of the company.

Delisting Hot from trading, in fact, violates this agreement and therefore requires the consent of Fishman and Mozes. Indications are that, in return for agreeing to the move, they will insist on receiving a significant premium over the price being offered to the public.

Due to other rights held by Fishman and by virtue of his holdings exceeding 5% of the company, he is deemed an interested party in approving the buyout and delisting. Therefore Fishman, like Drahi, won't be entitled to vote on the proposal in Wednesday's shareholders meeting. It isn't yet clear whether Mozes will likewise be considered an interested party with respect to this matter.

To be approved, the buyout and delisting will require a majority of shareholders who aren't classified as interested parties. The institutionals representing the public at the meeting can therefore thwart the move being instituted at the current offered price on the basis of the deal discriminating between public shareholders and the historic controlling owners.

A highly placed legal source commented that, despite their no longer holding controlling interests, Fishman and Mozes gained the right to claim a premium for their remaining Hot shares as part of the process of withdrawing from the controlling shareholders' group in October 2010.

Hot informed the Tel Aviv Stock Exchange that the company isn't aware of any agreements between Drahi and either Fishman or Mozes to buy their shares in the framework of the pending deal.

Sources close to both sides, however, state that the purchase of shares from Fishman and Mozes can be expected to take place as part of the overall process of delisting the company.

Under the current offer, Drahi is expected to pay NIS 620 million for the 21% of Hot held by the public. He is also expected to pay at least NIS 370 million as well to Fishman and Mozes for their holdings. This would bring the total cost to around NIS 1 billion, which Drahi has arranged to finance by borrowing from foreign banks in exchange for pledging the shares he acquired.

Drahi invested NIS 2 billion

A French-Israeli entrepreneur, Drahi began accumulating a stake in the telecommunications company in May 2009 when he purchased shares from Bank Leumi, Israel Discount Bank and the First International Bank of Israel at NIS 33.50 each.

He later bought more stock from the public at NIS 35 a share and from Delek Group for NIS 44 a share before taking control of the company from Fishman and Mozes. All Drahi's purchases of Hot shares were executed at higher prices than they were when trading on the stock exchange.

Drahi has so far invested about NIS 2 billion in acquiring his 69% stake in Hot on the conviction that the stock market has routinely undervalued the company. His hope is that by delisting, he'll be able to sell part of the stake to another investor at a much higher price than its current market value of NIS 2.9 billion.

Market sources believe Drahi will continue to ameliorate the company in the hope of refloating the stock or making a sale offer at a higher value.

Last week Drahi overcame another hurdle in his plan to take the company private when he reached a compromise agreement to pay institutional investors and banks NIS 55 million in early-redemption penalties on NIS 850 million in bonds issued in a private placement last November by Cool Holdings, the company through which Drahi wields control of Hot.

As a result, Drahi will be released from pledging about 65% of Hot's shares to secure the bonds, and the bondholders will remove their objections to delisting the company.

To complete his purchase offer and buyback of the bonds, Drahi needs between $400 million and $600 million in financial backing, to be provided mainly by the foreign banks HSBC, Goldman Sachs and Morgan Stanley.