Shani buys out ECI partner for $200m

Shaul Shani's Swarth Group has bought Ashmore's 90% stake in ECI.

After six years, during which Shaul Shani has been a party at interest in communications equipment maker ECI Telecom Ltd., but not its controlling shareholder, he is now its sole owner. Shani, who led the takeover of ECI with private equity firm Ashmore Investment Management Ltd. (LSE: ASHM) for $1.23 billion in 2007, is about to acquire Ashmore's 90% stake in the company for $200 million.

The significance is not only in taking over ECI, but symbolically, an attempt to bring the company to a new era, operationally speaking. Shani has had a complicated relationship with ECI, which until now, at least, has not had good results. He was ECI's chairman for most of the time after the 2007 takeover, but was far from controlling it. He acquired 10% of ECI in the takeover, but in the event of a successful sale, his share could be much greater, because of his preferred shares. Although the current deal reflects a $1 billion loss of value, ECI's value for a future buyer will probably be much greater.

Sources inform ''Globes'' that that Shani and Ashmore's divorce is over disagreements on ECI's future and the expiry of Ashmore's funds through which the investment was made. During the two years that Ashmore sought to sell ECI, it refused to allow the company to increase its R&D spending. Shani opposed a sale. ECI reportedly received tens of millions of dollars a year in capital injections from its owners to support its operations and R&D.

The timing of ECI's acquisition in 2007 was especially bad as far as the shareholders were concerned. The telecommunications equipment industry in general, and ECI in particular, have suffered from the aggressive entry by Chinese manufacturers, especially Huawei, which hit companies' revenue and profits. The industry was also hit by the drop in investment by carriers during the 2008-09 economic crisis. ECI, with a turnover of $500 million, posted a loss in 2012.

The business problems hit the company's workforce hard. It workforce has been slashed from 3,000 at the time of the takeover, to 1,700, following several rounds of layoffs, including one underway now. Half the workforce is in Israel.

Telecom industry veteran Darryl Edwards was appointed ECI CEO in August 2012, and he has tried to stabilize the company. In August 2013, chairman Rafi Maor, who was ECI's CEO at the time of the takeover, was appointed chairman of Israel Aerospace Industries Ltd. (IAI) (TASE: ARSP.B1). The chairmanship has since been held by an Ashmore executive, and Shani may reassume the job or appoint someone from the telecommunications industry.

ECI has been trying for years to change its strategy and focus on the development of new products, which have not yet proven themselves. As part of its plan to expand in optics and to offer more software solutions in its legacy business, it may raise more capital to support these efforts.

Published by Globes [online], Israel business news - - on January 9, 2014

© Copyright of Globes Publisher Itonut (1983) Ltd. 2014

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