Ilan Ben-Dov has dreamed of this moment for years. This is the moment, by means of a single great deal, that he has acquired the status of one of Israel's leading businessmen, and he will be included in the list of tycoons.
The important story however, is not gossip about Ben-Dov or his rise to the top, but what will happen the day after he closes the acquisition of the controlling interest in Partner Communications Ltd. (Nasdaq: PTNR; TASE: PTNR). Partner is going to face a period of uncertainty. It will take time for the company to get to know its new owner even as the Israeli telecommunications market will undergo a number of simultaneous changes.
Ben-Dov discussed the dangers that face Partner's buyer in a conversation with journalists. He noted that cellular operators were turning into pipelines, that calls would become Internet Protocol (IP) based, and control of content is passing from the operators to the handset manufacturers in line with the business model set by Apple Inc. (Nasdaq: AAPL) for its iPhone.
Under these circumstances, Ben-Dov the importer of Samsung Electronics Co. Ltd. (KSX: 5930) cellular telephones, will compete against Ben-Dov, the controlling shareholder in cellular operator Partner, which does not want the trends Ben-Dov described to occur. Will he be able to correctly price the risk of the deal, which is being made at the market price for Partner and with quite high leverage?
However, the biggest question mark is what will happen to Partner's management. Does Ben-Dov intend to serve as chairman of the company, or appoint someone who thoroughly understands the cellular business to act on his behalf? Will the change in control result in a change in management under CEO David Avner? Ben-Dov is a financier at heart and another kind of businessman. Initially, at least, Ben-Dov will probably prefer to keep Avner in his post; the last thing he needs now is executive shocks at Partner.
Nonetheless, no one knows what will happen to Partner's management in the long term. Partner got used to the easy life with a long-distance relationship with a controlling shareholder based in Hong Kong that only counted the money and did not intervene in Partner's day-to-day running. That is a dream relationship for any CEO, but it is going to be changed utterly under Ben-Dov.
Ben-Dov wants to make a return on his highly leveraged investment as soon as possible. Quite simply, that means that decision-making at Partner under its present corporate culture, will change, such as the sensitive issue of job cuts. It will no longer be possible to claim that Partner does not fire employees during a recession because it will have to present the best performance, which cannot be done with redundant manpower. Projects that require attention and resources without making an immediate contribution to the bottom line will probably be reviewed.
In other words, henceforth decisions at Partner will be directed toward just one objective: profit, profit, and more profit with everything aimed to serve the debt that Ben-Dov will assume to acquire the company.
Partner's second quarter financial report, published this week, indicate that it has stagnated and that it will not be able to repeat last year's strong performance, despite a number of factors that ought to facilitate this. More worryingly, the company's competitors - Cellcom Israel Ltd. (NYSE:CEL; TASE:CEL), controlled by Nochi Dankner, and Bezeq The Israeli Telecommunication Co. Ltd. (TASE: BEZQ) subsidiary Pelephone Communications Ltd. - both improved their results despite the recession.
Now for a word on handsets. Over the years, Partner mainly bought handsets made by Nokia Corporation (NYSE; LSE; HEX: NOK) because it got good prices through Nokia's global relations with Hutchison. This could change, and the share of Samsung Electronics Co. Ltd. (KSX: 5930) cellular telephones, which Ben-Dov imports through Scailex Corp. ltd. (TASE: SCIX; Pink Sheets:SCIXF), sold by Partner could rise. A probable scenario suggests that Partner will buy more Samsung handsets, albeit slowly.
An interesting question is whether Ben-Dov will try to make parallel imports of Nokia handsets in order to weaken Shaul Elovitch, who has the Nokia franchise in Israel through Eurocom Group, and who lost the race for Partner to Ben-Dov.
Cellcom already makes parallel imports of Nokia handsets because Partner received them at a discount, but the shoe is on the other foot now. Cellcom and Pelephone made sure to warn Eurocom against acquiring Partner, will now take similar caution toward Samsung's importer.
There is no doubt that Scailex, which acquired the Samsung handset franchise from its parent company, Suny Electronics Ltd. (TASE: SUNY), will be careful about any preferences and well sell handsets at all the cellular operators at the same terms. But it will be very interesting to see whether the proportion of handsets at Partner will change to favor Samsung over Nokia.
Published by Globes [online], Israel business news - www.globes-online.com - on August 13, 2009
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