Sources inform ''Globes'' that institutional investors in HOT Telecommunication Systems Ltd. (TASE: HOT) may vote against the the company's merger with mobile carrier Mirs Communications Ltd. at the general shareholders in two weeks, possibly jeopardizing the deal between Patrick Drahi's two companies. The institutional investors object to the company value HOT set for Mirs and have asked for an independent valuation that will reflect what they believe is Mirs' actual value.
Drahi owns 51.7% of HOT and all of Mirs. He wants to create a telecommunications group that will provide cable TV, Internet services, telephony and mobile services. Under the current terms of the deal, HOT will pay NIS 1.3 billion for Mirs in cash, net of Mirs' debts. Drahi cannot vote in the meeting as he has a personal interest in the outcome, which means that a majority of HOT's disinterested shareholders must approve the merger. Even though no institutional investor has a substantial holding in HOT, Drahi needs their approval.
HOT's institutional investors include Clal Insurance Enterprises Holdings Ltd. (TASE: CLIS) and Harel Insurance Investments and Financial Services Ltd. (TASE: HARL).
HOT is currently holding a road show to present the merger to institutional investors, apparently with little success. HOT recently published a valuation for Mirs by TASC Strategic Consulting, which valued the company at NIS 1.05 billion. The valuation is based on rather optimistic assumptions, including a 12.5% share of the private mobile market by 2020, compared with its current share of 5%, mostly business customers.
In addition, any change in the average revenue per user (ARPU) assumptions drastically changes Mirs' value: a 10% drop in ARPU cuts the valuation to NIS 270 million; a 10% rise in ARPU boosts the valuation to NIS 1.99 billion. Also a market share of 11.2% in 2020 cuts Mirs' value to NIS 510 million, but a 15% market share boosts its value to NIS 1.64 billion.
TASC adds that Altice One SAS, through which Drahi owns Mirs, values Mirs at NIS 1.9 billion, compared with the value of NIS 650 million at which Altice bought Mirs from Motorola in February 2010. HOT attributes the higher value to Mirs's win in the Ministry of Communications mobile carrier tender earlier this year.
Besides Drahi, HOT's shareholders include Fishman Holdings unit Monitin Holdings Ltd., with 6.5%; Yediot Communications Ltd., with 16.5%; HOT CEO Herzl Ozer, with 1.2%; and the public, including the institutional investors, with 24.2%.
HOT's share price fell 2% by early afternoon today to NIS 52.81, giving a market cap of NIS 4.1 billion.
Published by Globes [online], Israel business news - www.globes-online.com - on August 16, 2011
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