Drahi ups HOT offer to purchase

The new offer is NIS 38 per share, one shekel more than the original offer and 2% more than yesterday's closing price

HOT Telecommunication Systems Ltd. (TASE: HOT) controlling shareholder Patrick Drahi has raised his offer to purchase for the company. The current offer of NIS 38 per share will be submitted to HOT's general shareholders meeting for approval on November 4, NIS 1 more than the original offer published in late August, and 2% more than yesterday's closing price of NIS 37.24.

Drahi owns 69.2% of HOT through Cool Holdings Ltd. The cost of the new offer to purchase is NIS 852 million, giving a company value of NIS 2.77 billion, compared the cost of the original offer of NIS 2.72 billion. HOT's share price fell 1.9% by midday today to NIS 36.54, giving a market cap of NIS 2.71 billion.

Drahi needs the consent of the banks which lent HOT and Cool Holdings money to carry out the offer to purchase. The offer to purchase does not state where Drahi will secure the financing for it, or whether he will need additional financing. He is reportedly in talks with foreign banks to secure the necessary financing.

The majority of HOT's public shareholders also have to approve the offer to purchase.

Since taking over HOT just over three years ago, Drahi has bought back shares for NIS 2.2 billion. The largest public shareholder is Fishman Holdings (with a 6.9% stake). To finance the purchase of shares from Fishman Holdings and Noni Mozes, Cool Holdings raised NIS 850 million in debt in November 2011.

Cool Holdings' largest bondholders are Migdal Insurance and Financial Holdings Ltd. (TASE: MGDL), Clal Insurance Enterprises Holdings Ltd. (TASE: CLIS), The Phoenix Holdings Ltd. (TASE: PHOE1;PHOE5) and its subsidiary Excellence Investments Ltd. (TASE: EXCE), Mizrahi Tefahot Bank (TASE:MZTF), and Goldman Sachs Holdings Inc. (NYSE: GS). The bondholders received liens on HOT shares as collateral, and if the company is taken private, they may recall the loans.

In the summons for the general meeting, HOT appended a valuation made by TASC Strategic Consulting Ltd., which gives the company a value of NIS 2.6-3 billion.

HOT will continue filing notices with the TASE even after it goes private, because it has publicly traded bonds. The company is due to repay NIS 2 billion to its bondholders and lender banks by 2017, but TASC's valuation estimates the company's free cash flow for this period at only NIS 884 million, which means that it may have to recycle debt, which will cause uncertainty.

In a separate development, last week, HOT announced a party at interest deal, in which it acquired broadcast rights for three years for two French sports stations for NIS 1 million a year. Drahi is one of the owners of these stations.

Published by Globes [online], Israel business news - www.globes-online.com - on October 3, 2012

© Copyright of Globes Publisher Itonut (1983) Ltd. 2012

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