Taking Stock / When Kings Play Poker

You wouldn't want to be in Dr.Ehud Shapira's shoes these days.

Partner Communications CEO Amikam Cohen took everybody by surprise last week, by publicly abandoning negotiations to buy Tevel and declaring to Haaretz that he'd only buy into the cable industry at a value per subscriber of $1,400. Maybe $1,450.

Ehud Shapira is a banker. He's a credit czar. He isn't a deal-maker. But this time, he isn't just deciding whether to finance a transaction; he's a party to it as a seller. His employer, Bank Leumi, became a de facto controling shareholder in Tevel after the cable TV company's collapse and slide into receivership.

Tevel owes the banks a gargantuan NIS 2.8 billion, of which a billion shekels is owed to Leumi alone. To get all their money back, the bankers would have to sell Tevel at $1,700 per subscriber, which is 20 percent more than Cohen is willing to pay.

Cohen first shocked the entire Israeli scene three months ago by announcing that Partner intended to acquire controling interest in Matav Cable Systems and then to buy Tevel. His aim was to make Partner Israel's second-largest communications provider after Bezeq. The press lost no time dubbing Cohen the Cable King, the man who would unite the fractured cable industry under his wing and lead it into a new era, during which it would also take on the giant Bezeq.

Shapira knows

But until Cohen pretended to the throne, the real cable king was Shapira, the man at the financial tap. He financed the losses, he financed the tremendous investment in infrastructures, he financed the expensive acquisitions during the boom.

Not only that, he was also the hand feeding the rival satellite broadcaster Yes, which could actually claim credit for causing the cable companies their massive losses as they adjusted to competition over multichannel television.

When Cohen walked off from the table, he pointed at the man on the other side - Shapira. "We severed negotiations with the banks, represented by Leumi deputy CEO Ehud Shapira, on purchasing cable television company Tevel. We put our offer, $1,400-1,450 per subscriber, on the table. Now we're waiting," Cohen told Haaretz.

Shapira and Cohen are playing poker. Shapira knows that Cohen badly wants to take over the entire cable industry. It would be the deal of his life, Cohen has said. Without it, he'd lose a lot of his raison d'etre at the Partner helm. Shapira also knows that Cohen's real fear is that Cellcom will rear up and snatch the cable companies from his grasp.

Shapira also knows what Cohen knows: that the worst is behind the cable trio of Matav, Tevel and Golden Channels. Their content costs plummeted over the last couple of years, and one day cable will be a massive money-maker.

Shapira knows Cohen had been prepared to pay more than $1,600 per subscriber, but then economists from HSBC, whom Partner's shareholders had commissioned to evaluate the deal, upped and told him it was too much: the price had to be lowered to make the deal economically feasible.

Cohen knows

Cohen, on the other hand, knows that Cellcom, with its perennially feuding shareholders, is highly unlikely to reach a momentous decision such as buying the entire cable industry. But he also knows that Yitzhak Tshuva, who bought Dankner Investment last week, is negotiating with Shapira to buy Tevel.

Cohen knows that Tshuva won't want to undertake huge risks in a market he doesn't know. And mainly, he won't want to shoulder the massive credit the cable industry has taken on.

Cohen knows that the cable companies are weakening by the day. They spent millions on launching their joint brand HOT, which hasn't done a thing for them so far. Each month they lose thousands of subscribers, many to Yes. Each group of 10,000 subscribers that shifts to Yes because of the managerial vacuum at the cable industry costs Shapira $17 million, if he believes in the price he quoted Cohen - $1,700 per subscriber.

So why can't Cohen and Shapira close a deal?

Shapira, himself and him

One possibility is that of all the top credit officers at the big banks, Shapira is the only one who's stayed at the same job at the same bank. If Shapira sells Tevel at a price representing $1,400 per subscriber on its roster, he'll have to turn huge provisions for doubtful debt into final, absolute, black-on-white write-offs.

Bankers write off credit without thinking twice in two cases: 1) when they have no choice, because the bank's accountants or the Supervisor of Banks tells them to do it; 2) when the bad loan was extended by their predecessor.

In Shapira's case, he'd be the one making the decision, not Leumi's number-crunchers or the Bank of Israel. He has to decide whether to sell Tevel for $1,400 per customer, and if so, to write off some debt. And this is his problem, because the man who'd have to decide to write off debt is the man who extended it in the first place - Shapira.

Why doesn't Bank Leumi CEO Galia Maor intervene? Maybe because her husband, Yehoshua Maor, works for Tshuva, who last week became a major player in the cable market and who's now negotiating with Shapira to buy Tevel.

Shapira is considered to be one of the best, most experienced credit managers in Israel. But now he's being forced to make a very hard decision: to admit to earlier mistakes.

Shapira may yet surprise and find a buyer for Tevel at $1,700 per subscriber. What is sure, is that he'll try hard before he gives up and gives the green light to the deal of Amikam Cohen's lifetime.