According to Discount Investment's announcement yesterday to the stock exchange, it has received an option to purchase Gvanim and 32.3% of Monitin Publishing for $280 million. Applications for approval were submitted yesterday to the Cable Broadcasting Board and the Restraint of Trade Commissioner. According to the option, Monitin Publishing, which owns, among other things, the daily "Globes", is worth $125 million.
If and when the deal is approved, there will be only three cable companies left in the picture, each of which is essentially a communications empire. One, with 400,000 subscribers, is the Golden Channels-Idan group controlled by Aurec, Yediot Aharonot and Eliezer Fishman. The second is Gvanim-Tevel, controlled by Discount Investments and US cable companies TCI and UPC. The third is the Matav group, controlled by Dankner Investments, "Ma'ariv", Hanania Gibstein, Russian group Most, and a few smaller shareholders. Matav owns 10% of international communications provider Barak, and 25% of the new cellular provider, Partner.
UPC brought the Tevel deal. After CableTel, a group of companies the most prominent of which is Daniels Communications of Colorado, learned it couldn't realize the agreements as Israel does not allow foreign control of companies broadcasting to the public, it essentially offered the agreements for sale. Through UPC the option came into the hands of Tevel, which will essentially buy CableTel in its entirety, with agreements to acquire Gvanim and 32.3% of Monitin Holdings.
This deal has a few interesting aspects. The first is its effect on the cable market and the Israeli communications market as a whole, where the evident trend is the formation of larger groups capable of withstanding the fierce projected competition, both for the cable market against DBS (direct broadcast satellite), and in the field of local telephony.
Israel has one of the highest penetration rates for cable in the world, with penetration reaching close to 70% of Israeli households, 1.04 million homes, as of January 1998. The five companies are currently waging a rearguard action in the courts against Ministry of Communications plans to open the field to competition before the end of their franchise period, by bringing in the multi-channel satellite broadcast (DBS) franchisees.
Meanwhile, they are acting as if the court battle doesn't even exist and are investing tens of millions of dollars in establishing infrastructure in outlying areas, in order to provide service in those towns that have not yet been connected due claims the move was not financially viable.
Despite everything, the cable companies shares are slowly acquiring a buyers only status. This started with Most, owned by the Russian Jewish millionaire Vladimir Gusiinsky, who announced in September 1997 that he was paying $24.5 million to acquire of 10% of Matav from businessman Hanania Gibstein. This amounted to $946 each in terms of cost per subscriber.
Another deal was reported in December 1997, when Fishman Holdings and Golden Lines bought Idan from The Israel Corporation and US company Omega. Here the price rose significantly. The selling price was $103 million, but rises to $120 million when one takes into account the purchasers' undertakings to repay loans.
Under these conditions, the price per subscriber is $1090. The deal was officially executed this week, while the Matav deal is expected to be approved and executed later this month. In the Gvanim deal, the threshold rose to $1730 per subscriber.
Another interesting aspect is the acquisition of Jewish-Mexican billionaire Marcus Katz's share of Monitin Publishing by Tevel. Rumour has it that the Gvanim deal started with Katz's desire to dump his Monitin holdings, around which CableTel's acquisition of Gvanim from its three owners, Monitin, Telrad Holdings, and Swiss CableCom, crystallized.
Monitin Publishing has holdings in Golden Lines, the undersea cable company Med-1, communications company Americom, network end-point company GlobalCall (jointly with Tevel), Internet company ISDNNet, and owns in their entirety the financial daily "Globes", and software house Globes Sites.
Discount Investments, which is already involved in a number of communications entities both large and small, is therefore now stepping foot in Golden Lines, and is expected to have a cross-ownership problem, in light of its indirect ownership of competitor Barak, through Clal Industries. Another cross-ownership problem is expected to arise due to the ISDNNet holding, as Tevel owns 30% of competitor NetVision.
The last aspect is Gvanim itself, managed by Menachem Ackerman. It appears that the high price Tevel is willing to pay for the company testifies to Tevel's assessment of Gvanim's financial results. Gvanim keeps its reports to itself, but is considered, relative to the number of subscribers, to be the most profitable of the five cable television companies. It is the only one of the five that didn't agree to use Bezeq's infrastructure from the beginning and laid its own infrastructure. Gvanim also holds the franchise for the city of Modi'in, where future revenues are expected to be very high.
Published by Israel's Business Arena March 10, 1998