Partner CEO Puts His Offer on the Table for Matav Cable

The last time the management of cellular service provider Partner Communications met with representatives of the banking sector for talks on Partner's acquisition of cable television companies was 10 days ago. "We severed negotiations with the banks, represented by Bank Leumi deputy CEO Ehud Shapira, on buying cable television company Tevel. We put our offer - $1,400-1,450 per subscriber - on the table and now we are just waiting." Partner CEO Amikam Cohen sounds determined.

The declaration is surprising as he has so much to lose from the collapse of the Partner-Matav-Tevel deal. Partner agreed a few months ago to take over Matav Cable Systems Media from the Dankner family and Yitzhak Tshuva. The potential acquisition was slated to be the first stage in a much larger deal, the acquisition of financially-troubled Tevel from its creditor banks and the eventual merger of all three cable providers - Matav, Tevel, Golden Channels (Arutzei Zahav) - under the Partner umbrella.

The deal was considered one of the most important in the history of the Israeli communications sector, potentially paving the way for the creation of a communications giant offering multi-channel television, Internet, cellular and landline telephony, the first entity that would have been capable of competing with state-run telephony monopoly Bezeq.

Business-wise, the deal could turn the sector on its ear. And the deal makes Amikam Cohen one of Israel's most important and influential figures. But Amikam Cohen faces the possibility now of losing what has been called "his" deal.

If he is anxious about this possibility, he isn't showing it. The deal stumbled when Shapira demanded a $1,700 per subscriber price for Tevel. That's the price at which the banks loaned money to Tevel in the bubble years of the late 1990s, and selling at this price ensures they don't have to forgive any of the company's exorbitant debt.

In addition, the banks - mostly Bank Leumi - financed mass daily newspaper Yediot Ahronot and businessman Eliezer Fishman's acquisition of Golden Channels. That $350 million deal closed at $2,100 per subscriber. The credit czar who approved the financing for that deal was Shapira himself. So the Partner deal won't just determine how much the banks have to write off on Tevel's debts, but how much of the financing for the Golden Channels deal they have to write off as well.

Cohen says the banks "hemmed themselves in" by promising their boards there would be no write offs on Tevel debt. He, however, refuses to pay the price for that. "Our shareholders, Hong Kong's Hutchison Whampoa, demanded we examine the deal price. We hired investment bank HSBC to look at cable company values all over the world. They told us we were off our rockers to consider $1,700. What are cable companies selling for? $1,400, $1,420, maybe even $1,450. No more."

So Cohen, he says, moved aside. He put his offer on Shapira's table, something in that ballpark, and walked away. Now Shapira is talking to Yitzhak Tshuva, who bought a controlling stake in Dankner Investments last week, becoming Matav's largest shareholder, prior to Partner's entry, if that takes place.

Tshuva is basically on both sides of the Matav tracks. He bought control of the cable company when he took over Dankner Investments, but has committed to selling control to Partner and retaining just a minority stake. Tshuva made both deals according to numbers that Partner likes, $1,400 per subscriber. "Tshuva promised to sell to us at $1,400. Now he is talking to the banks about Tevel, because he also understands Matav has no value if it isn't bringing the cable merger into play. Does it seem reasonable that he will agree to buy Tevel from the banks at $1,700 while selling Matav, which is in much better shape than Tevel, at $1,400? I doubt it. But he is now talking to the banks with the intention that if he reaches a reasonable agreement with them, he will offer us a part in the deal."

Cohen says Tshuva plans to remain only a financial investor in the cable television sector, in part due to the merged company's projected debt of NIS 4.4 billion.

Cohen, in contrast, is undeterred by the debt. "We started out as a small company, with no revenues whatsoever, and NIS 4.5 billion in debt. We now have NIS 2.7 billion in debt, including bonds, and no problem servicing it. Partner's ratio of debt to operating cash flow, used to service the debt, is just 1.6. This is an excellent ratio and we have no problem taking on more debt."

He is also undeterred by claims the cellular-cable deal lacks synergy. "You have to look at strategy," he says. "The communications sector is at an important crossroads. Technology is striding forward, and the substantially cheaper Voice over Internet (VoIP) is maturing, meaning 10 years from now, anyone with access to homes, which right now means Bezeq and the cable companies, will be in line to control a communications revolution, providing households with the whole enchilada: telephone, Internet, cellular and television, for a single, much lower, price. It will be do or die."