Select Communications Ltd. controlled by Michael Gelfand and Louis Mayerberg, today gave the tenders committee a NIS 700 million letter of intent from Goldman Sachs Group Inc. (NYSE: GS). The deadline for submitting the guarantee is tomorrow. However, no Israeli bank was prepared to provide the guarantee and that is a condition of the tender.
In May, the Ministry of Communications awarded the mobile carrier tender to Select Communications, after it disqualified Hezi Bezalel's 018 Xfone Communications Ltd., owned by Marathon Telecom Ltd. which failed to secure financing. Mirs Communications Ltd., owned by Patrick Drahi, was the other winner in the tender, with a bid of NIS 710 million.
Select Communications has struggled in ways that the tenders committee had not expected because Israel's banks were unwilling to finance the company. Select is passing the buck to the tenders committee, which will have to decide whether a guarantee from a foreign bank is valid or not.
The Ministry of Communications will reportedly find it very difficult to accept the company's guarantee because, formally, it has not met the tender term, and this is liable to cause a major legal problem with the other bidders in the tender. Some of them could argue that Select Communications should be disqualified, since Mirs could also have obtained guarantees from a foreign bank, and 018 Xfone might have been able to do so too. Xfone was disqualified when Israel Discount Bank (TASE: DSCT) refused to provide the necessary guarantee. Since its disqualification, Bezalel has said that he would have no problem obtaining a guarantee from a foreign bank.
Select Communications plans to offer a new business model of a very limited number of marketing plan and a minimum network set-up costs. The company plans to slash prices because of its very narrow costs structure and no heavy investment in inventory, large service centers, and so on. It plans to target consumers who are sensitive to prices by offering an unlimited use package at a fixed fee.
Select Communications asked Goldman Sachs and Deutsche Bank AG (NYSE: DB; DAX: DBK) if they would provide the guarantees under the current conditions, but agreed unreservedly, according to a company executive. The company chose Goldman Sach because it is Mayberg's bank for his US business operations. The decision challenges the tenders committee to reconsider its position.
Yesterday, Bezalel asked the tenders committee to declare him the winner in the tender because he made a higher bid than Select Communications under the tender terms. The request is considered odd, given that he already failed to secure the necessary bank guarantee.
Published by Globes [online], Israel business news - www.globes-online.com - on July 14, 2011
© Copyright of Globes Publisher Itonut (1983) Ltd. 2011