The fair value for mobile carrier Mirs Communications Ltd. is just NIS 450-550 million, according to the independent valuation made by David Solomon's DS Analysts, a copy of which "Globes" has obtained. The valuation is NIS 500-600 million less than the valuation by TASC Strategic Consulting Ltd., which HOT Telecommunication Systems Ltd. (TASE: HOT) commissioned as part of its planned acquisition of Mirs.
HOT plans to acquire Mirs for NIS 1.3 billion in cash, net of Mirs's debts. Patrick Drahi controls both HOT and Mirs, which he acquired from Motorola for NIS 650 million just over a year ago. The premium for Mirs in the proposed takeover was attributed to its win in the Ministry of Communications mobile carriers tender.
HOT also announced that the general shareholders meeting to approve the takeover has been postponed from late August to September 19, in order to complete procedures with the banks. The delay means that Mirs will publish its financial report for the second quarter before the shareholders' meeting is held.
Some institutional investors in HOT are liable to oppose the acquisition, and they have been trying to obtain an external valuation for Mirs to reflect what they believe is its true value. Solomon's valuation could suit the institutional investors' needs, and assist their claims over the price that HOT is paying.
HOT plans to finance the acquisition of Mirs from its current credit lines from Bank Hapoalim (TASE: POLI) and Bank Leumi (TASE: LUMI) at terms that basically the same as the current terms. If there is a material change in the terms, HOT's shareholders will have to approve them. In March, HOT signed a NIS 3.4 billion financial agreement with the banks for three credit lines and guarantees, including liens on HOT's assets.
In his valuation, Solomon says, "Since the price for the Mirs-HOT deal was set between a voluntary seller and a voluntary buyer in a concrete deal, the price set conforms to the benefits structure for each of the parties and their bargaining power. The question is who wants more - the cow giving the milk or the suckling calf?
"We believe that the planned business of Mirs includes risk factors that should not be ignored or dismissed as immaterial." Solomon says that these risks include Mirs' target market share of at least 7% of the private market, which he says too aggressive. "This is a reasonable, but borderline target, and the company has barely any margin of error."
If Mirs achieves the target within five years, that will represent a payback of NIS 696 million of the NIS 706 million it paid for the frequencies in the tender. "To the best of our judgment, the company's margin of error on this point is minimal," says Solomon.
Published by Globes [online], Israel business news - www.globes-online.com - on August 21, 2011
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