Consider the following recipe: an investment company, interested in upgrading its value, decides to package all its holdings in the sexy communications and Internet field, and float them on the stock exchange. However, Securities Authority restrictions stipulate that a subsidiary cannot be worth more than 40% of the parent company on the eve of issue. What is the solution? Reduce company value at issuing? Heaven forbid! Distribute a dividend instead.
It sounds paradoxical to distribute a dividend on the eve of a public issue, but nothing is surprising when it comes to Shrem-Fudim-Kelner. The three financiers love cash, and are willing to share dreams and future potential with the public.
With the fashion for communications and the Internet, it can be assumed that Poalim Communications, with a 15% financial stake in activities in communications, media and the Internet, will successfully raise NIS 73-100 million tomorrow at a company value of NIS 520-600 million after money. This is in comparison to a book investment value of NIS 213 million, and shareholders' equity of NIS 188 million, as of June 30, 1999.
The most significant holding making the flotation interesting is without doubt the 3.75% of Partner's share capital. Following the recent climbs, the value of this holding stands at $131 million (NIS 550 million), while the book value is only NIS 1.7 million. This means that, after tax, it being quite obvious that the holding will be sold immediately after the "lock-up" period comes to an end, the company will remain with NIS 270 million, assuming the share price is similar to today's.
Another interesting activity is that of satellite services company YES (DBS), which is expected to start operating commercially in April 2000. Poalim Communications has rights to 10% of the company, wit a book value of NIS 7 million. Based on the Partner model, whereby the company rolls the enormous market penetration costs onto stock exchange shareholders, the satellite broadcasting company is likely to hold an IPO within two years of the start of operations.
Another of the company's communications activity is Hungarian telephony company Amitel, which currently operates 85,000 lines, and in which Poalim Communications has a 16.7% stake. Bezeq holds 33.3%, and the Hungarian telecom Matev company holds 50%.
In the first half of 1999, Amitel posted NIS 50 million in revenues and NIS 10.5 million net profit. The company is small, with limited growth potential. It has a license to operate in three regions, with a population totaling 300,000.
Other colorful Poalim Communications holdings are Reshet, Club Kasparov and Arel Communications. Reshet, Channel Two, the commercial television channel, licensee, invested $1.2 million in Internet portal NetKing, at a company value of $4.2 million after money, excluding services worth $400,000 which NetKing can receive from Reshet. NetKing is currently negotiating investments by Discount Investments and other concerns, at double the company value.
Poalim Communications holds 18.8% of shares in NASDAQ listed company Arel, which develops and markets distance learning systems through subsidiary Arel-Net. The subsidiary develops and markets communications products enabling the provision of IP and added value services.
Club Kasparov is an Internet chess site, in which world chess champion Garry Kasparov is active. Poalim Communications holds 25.3% of the site's shares, after investing $1.1 million in it.
To underscore the belief in the potential of this deal, we would point out that the manager of Club Kasparov was formerly head of CBS television for eastern USA, and that his options come into money only when company value reaches $100 million.
Published by Israel's Business Arena on November 28, 1999