Ilan Ben-Dov wins Partner in heavily leveraged buyout

It's one of the biggest transactions Israel has seen for years: Ilan Ben-Dov has sealed the deal winning him control of Partner Communications, Israel's largest cellular service provider. Ben-Dov has agreed to pay NIS 5.29 billion ($1.38 billion) to Hutchison Whampoa for a 51% stake in the Israeli company. The deal prices Partner at $17.50 per share, roughly its value on the open market, far outpacing competing bids from Primera and Shaul Elovitch's Eurocom.

The closing is scheduled to take place in three months, according to the press release.

"Sounds good! Sounds orange," Ben-Dov commented from Hong Kong, quoting one of Partner's advertising slogans.

Partner CEO David Avner welcomed the development. "I am positive that the assets we built over the past decade, foremost of these being the firm's human resources, Partner's unique corporate culture and our service and brand leadership, will serve as fertile ground for continued growth and prosperity in the coming years," he said.

Ben-Dov will finance the deal through one of his companies, Scailex. The heavily leveraged transaction is to be financed by a combination of money borrowed from Hutchison itself, credit from banks Leumi and Mizrahi Tefahot, and a bond issue by Scailex in the range of NIS 500 million to NIS 800 million. Scailex will be putting in the billion shekels it's been sitting on, and Ben-Dov is working out contributions from partners to the deal.

One is likely to be Leumi Partners, which has expressed interest in investing $100 million.

Usually, about 50% of the financing for such deals comes from banks. Hutchison is to provide about $300 million, about double the earlier assessments.

Meanwhile, it's fairly safe to assume that Ben-Dov will implement a series of sweeping efficiency programs at the company, and that he will seek to draw some heavy dividends from the firm.

Despite earlier estimates that Amikam Cohen would be appointed to chair Partner's board of directors after the sale, TheMarker has learned that Ilan Ben-Dov has apparently staked out the spot for himself.

Ben-Dov is no stranger to the communications industry. He owns the controlling stake in Suny, importer of Samsung cellular products in Israel since 1994. Suny is traded on the Tel Aviv exchange at a market cap of about NIS 540 million. In addition, he controls Tapuz, a portal and cellular content company worth about NIS 40 million.

He also owns the holding company Tao Tsuot, which was sent reeling with the global downturn because of its heavily-leveraged investments in the global real estate sector. But some deft maneuvering by Ben-Dov in recent months, combined with the recent stock market rally, stabilized the company somewhat. Also, Ben-Dov provided the company with guarantees, buying its subsidiary Tao Real Estate (which owns the Mall Ha'Yam shopping center in Eilat), and poured cash into the firm.

Through these maneuverings Ben-Dov managed to reduce Tao's bank debt, mainly to Leumi Bank, by hundreds of millions of shekels. He also bought back some of its bonds.

Tao's market value plummeted by 95% in 2008. But Ben-Dov's efforts paid off, and the company bounced back in 2009, increasing its market value by five-fold this year and doubling it in the past month alone. Tao's current market price reflects a market cap of more than NIS 100 million.

Despite these moves, some Tao bonds are still trading at junk-territory yields of 40%, an indication that bondholders are not confident that the company will repay its debt. The share price of Suny, of which Ben-Dov owns the controlling stake, are on the rise as well.

"The high price tag on the deal could lead Leumi Partners and the investment group it has consolidated to withdraw from the deal," one source familiar with the company told TheMarker.

Leumi Partners has earmarked about $100 million for investing in Partner and plans to bring a group of other investors aboard as well. These include the Old Mivtahim Pension Fund, which had also planned to put $100 million into the deal, as well as Ellomay Capital, controlled by former Bank Hapoalim chairman Shlomo Nehama and businessmen Ran Fridrich and Hemi Raphael. Ellomay is a public pink sheet company traded in the United States, with cash assets of about $80 million.

Ben-Dov's agreement to buy Partner shares from Hutchison at $17.50 each is about $2.50 higher than bids by other bidders such as Ishay Davidi's fund FIMI and Primera.

Sources close to Shaul Elovitch, who lost to Ben-Dov in the tender, have also joined in the chorus, hinting that the deal is economically unviable. In addition, the fact that the closing is expected to take place in three months makes it less attractive for potential investors.

First, it is now clear that the dividend declared by Partner will not find its way into their pockets, meaning that the share price is actually higher than $17.50. Plus, Partner's share price could change during the long interim until the final closing