Spacecom Satellite Communications Ltd. (TASE: SCC) has asked the Ministry of Communications for clarifications concerning the transfer of control in the company to Hungarian company 4iG. This follows media reports that officials in Israel's Ministry of Defense are determined to prevent completion of the deal, because of the connections of the Hungarian company and its owners, past and present, to Hungarian prime minister Viktor Orban.
Spacecom operates the Israeli Amos satellites, and transfer of control in the company therefore requires approval by its regulator, the Ministry of Communications. The Ministry of Communications itself, however, generally consults the various security agencies before approving the transfer of control in a company like Spacecom.
Since the Ministry of Defense's reservations were made public at the beginning of this week, Spacecom has had no approach from the Ministry of Communications, and so the company decided to take the initiative. Defense officials with whom "Globes" spoke had no comment to make on the matter.
Last week, Spacecom reported that the investment deal with 4iG had won a large majority at its general shareholders meeting. Approval by the Ministry of Communications and by the company's bondholders seemed to be the two main remaining hurdles on the way to completing the deal.
Representatives of the acquiring company recently came to Israel for meetings with the relevant parties, and the reports of opposition to the deal in the Ministry of Defense follow these meetings.
Spacecom mainly relies these days on long-term contracts with governments, security agencies, multi-channel television operators, telecommunications service providers, and broadcasting channels. Its two main customers are the government of Israel and television broadcaster Yes, which respectively accounted for 33% and 25% of its revenue in 2020.
The agreement with Yes, however, is expected to come to an end in February 2026 at the latest, as Yes switches from satellite broadcasting to the Internet. Meanwhile, the Israeli government has decided to buy a communications satellite, currently being built by Israel Aerospace Industries.
The satellite, called Dror 1, is intended to be placed at 4? west, which last year was responsible for 73% of Spacecom's revenue under contracts with the government (24% of its total revenue). At present it is not clear when Dror 1 will be launched, but it should happen within a few years.
Meanwhile, the government has not renewed contracts with Spacecom for this point in the sky beyond the expected life of the veteran Amos 3 satellite. Spacecom thus finds itself between hammer and anvil. It has sustained a substantial blow from the government's decision to transfer its future communications contracts to the Dror 1 satellite, while at the same time it is running into difficulties in raising investment from foreign investors.
Share price down 24%
The deal between Spacecom and 4iG was first reported in June this year. In a notification to the Tel Aviv Stock Exchange, Spacecom said that it had signed a non-binding letter of intent for the sale of control to 4iG of Hungary.
The letter stated that Spacecom would allocate 51% of its shares to the Hungarian company in return for a cash investment of NIS 215 million. Four months later, Spacecom reported that the two sides had signed a binding agreement, under which 4iG would invest NIS 221 million against the allocation of shares.
The share price in the deal was set at NIS 8.5, valuing Spacecom at NIS 205 million pre-money and NIS 428 million post-money. Spacecom's current share price is NIS 5.33, giving the company a market cap of just NIS 130 million, after a 24% decline since mid-June.
The investment deal also stipulated that when the deal was completed, four out of Spacecom's five regular directors would resign, to be replaced by five directors on behalf of 4iG, making them a majority on the board and facilitating practical control of the company.
Between the signing of the letter of intent and the signing of the binding agreement, Spacecom conducted talks with representatives of the Ministry of Communications, who did not rule out approval for the deal, or indicate any particular problem with it.
It should also be noted that Spacecom operates under a license from the Ministry of Communications, which was amended in 2015, and which states officially that the company can have a foreign controlling shareholder. On the face of it, then, the deal depends only on a check of the identity of the acquiring company and those who head it.
4iG is a Hungarian public company traded on the Budapest Stock Exchange. It deals in information technology and communications, and is controlled by Jászai Gellért. Spacecom's management said at the time of the deal that it would strengthen and expand the company's activity in Eastern and Central Europe, and generate synergies with the various companies in the 4iG group.
Published by Globes, Israel business news - en.globes.co.il - on December 7, 2021.
© Copyright of Globes Publisher Itonut (1983) Ltd., 2021.