At the end of September, while visiting Washington, Minister of Finance Avraham ("Baiga") Shochat was invited to meet with the deputy chairman of US communications company SBC, evidently to discuss Israel's multi-channel television market. Shochat declined.
SBC is one of the United States' five largest communications companies and one of the largest in the world. The company also acquired 50% of Israel's Aurec back in 1985, when Israel wasn't even on the international investment market map, let alone the one relating to the communications market. SBC has since invested hundreds of millions of dollars in various enterprises such as Golden Channels, Golden Lines, Med-1, Golden Pages, Amdocs and others.
The company also bid in the large communications tenders for the first and second cellular operators, and was the driving force behind the growth of the Aurec group and its becoming one of Israel's leading communications entities. Shochat just didn't have the time. An official spokesman said this week that his timetable was very crowded.
Guy Rolnik of the "Ha'aretz" newspaper praised Baiga for not exposing himself to pressure even from the heads of a major US company. Sources related to the back-burner negotiations Aurec had been conducting for the past six months with Fishman and Tevel say that from then on, things started moving, as if some dam had burst, until the agreement was signed last week. SBC reached a decision and acted on it: it is exiting all its investments in the State of Israel.
Thousands of words wait to be written in an attempt to analyse these processes. Analysts will try to understand why, just when the two historical processes of opening up the local market to competition and privatising Bezeq, were about to commence, the foreign companies pulled out. Two of the biggest investors in the Israeli communications market, C&W of Britain and SBC of the US, mounted an end-of-season sale and shifted their focus to other markets, not as promising as Israel, perhaps, but not as exhausting, either.
Sources associated with Aurec maintain that for SBC, it was former Minister of Communications Limor Livnat who really brought it to breaking point. While fighting Labour in her election campaign, Livnat had reached an agreement with the cable TV companies, namely the Neve Ilan agreement. This agreement was to constitute a final arrangement enabling the market to be opened up to competition; but after signing it, Livnat surrendered to the DBS Satellite Services ultimatum, and retracted.
This amounted to a rude breach of an administration promise, an act of violence quite out of place in a well-regulated nation. Livnat, who for three years served the communications sector as a very positive, statesmanlike minister, ended her term with an outbreak of violence more redolent of the election campaign she was then waging. No wonder SBC couldn't take any more.
Aurec's withdrawal from the cable TV market, and also, apparently, at a later stage, from other areas of communications, forms part of a process that is even overtaking the Israeli portion of the company, namely businessmen Morris Kahan and Shmuel Meitar. Related sources say they are battle-weary, have no rising generation to take over the reins, and are now looking more to realising investments than to making new ones or bidding for Bezeq's controlling core.
Aurec was the only company not to negotiate with C&W over its shares in Bezeq. In the past, by contrast, Bezeq's controlling core was an Aurec target. Another significant process relating to the deal and details regarding which are only coming to light bit by bit, is Shmuel Dankner's effort to torpedo it. To put a spoke in the wheel in the shape of a high price and cause Aurec to sell him the shares.
The deal for the sale of Aurec's shares in Golden Channels was not born today. "Globes" first reported it in June 1999, and it was kept on a simmer for a long time, awaiting developments. It first came into being when Livnat cancelled the Neve Ilan agreement, leaving the cable company owners and many communications market players open-mouthed and aghast.
Aurec closed its mouth and resolved to sell. The original agreement was within Golden Channels, between Eliezer Fishman (representing Eliezer Fishman Properties, Monithin Press and Yediot Ahronot, in which he has holdings) and Aurec.
But Fishman is not a cable TV man. He is a financial investor. Which is why he brought Tevel into the deal, Tevel being owned by Discount Investments and European cable company UPC. The parties were agreed on all points, especially the price of $2,100 per subscriber. They were merely awaiting the right time and Aurec's final decision on how many subscribers it wanted to sell out of the 271,000 it had listed.
Then Dankner, controlling shareholder of the third cable company, Matav, recently entered the picture. Dankner, an associate relates, is a strong believer in cable TV in both its present and future formats. Dankner, despite his relatively advanced age, is charmed by interactive media and Internet, and wants in.
Dankner actually wanted more than just to be in. He wanted to lead. He knew that if Tevel actually entered into Golden Channels, it would be the leading entity in the consolidated cable company shortly to be formed. His method was to launch a surprise attack in the form of a much higher price of $2,700 per subscriber.
Sources knowledgeable about the deal defined Dankner's price offer as an attempt to torpedo it. Dankner, for his part, regards this as a legitimate business move, and finds it hard to accept rejection by Aurec, which is keeping faith after shaking hands with Fishman and Tevel. That handshake, it transpires, cost it $125 million, causing Dankner to lose the chance of leading the consolidated cable company.
The official application to approve the deal will be submitted this week to Anti-Trust Authority director-general Dr. David Tadmor and to the Cable and Satellite broadcasting board. Tadmor is not expected to approve the deal until a settlement is reached in the content market between State of Israel, the cable companies and YES satellite-broadcasting company.
The cable broadcasting board is expected to charge Tevel a price for approving the deal. In the past, when cable company merger deals were executed, the Board demanded that new channels be set up. The National Geographic channel and the Fashion Channel are the upshot of deals in which Idan and Gvanim were acquired in the past two years. This time, the demands are likely to be far more substantial.
Once the approvals for the deal are obtained, a new cable company is expected to be formed. It will comprise the 863,000 subscribers of Golden Channels and Tevel, and will actually be a merger. It seems likely that in view of the complicated ownership structure and the existence of small shareholders, the existing companies will remain in their present format (Tevel, Gvanim, Idan, Telem, Golden Channels and Tevel North), the shareholders will sign a management agreement and a joint management team will be appointed. Golden Channels has also been functioning in this way to the present.
Eliezer Fishman is a "Globes" shareholder.
Published by Israel's Business Arena November 9, 1999