ECI Telecom (Nasdaq: ECIL) has obtained for itself what is couldn't get from its subsidiaries - a capital transfusion. The "Ma'ariv" daily reported today that Koor Industries (NYSE: KOR), which holds a 34.8% controlling share in ECI, is negotiating to bring the Dovrat group and the Ofer Brothers into the ECI controlling interest.
The report stated that Aharon Dovrat, Shlomo Dovrat's son, and brothers Yuli and Sammy Ofer are about to acquire 12.5% of ECI for $50 million. The Dovrat group will apparently invest $25 million, half of which will come through Tel Aviv Stock Exchange-listed Isal Amlat Investments and the other half through the group's investment funds, mainly Carmel Investments group. The Ofer Brothers group will also invest $25 million, probably through private companies under its control. The deal is to take place at a $3.80 share value for ECI. None of the parties to the deal were willing to respond officially, but they hinted that advanced negotiations were indeed taking place.
In any case, while the price of the emerging deal is 40-50% higher than the market price at the beginning of negotiations a month ago, it is now 20% below the current market share price of $4.70. In other words, Koor Industries vice chairman and CEO Jonathan Kolber, who acquired control of ECI three years ago at an average share price of $31, is now consenting to dilution at a price 90% lower than his investment price, without even a premium on the current market price.
Kolber's attitude is understandable, but the other ECI shareholders have a very good reason to dislike this private share allocation. These include the Clal group, the second largest shareholders in ECI with a 14.5% stake, and the Shrem group, which has a small holding in the company. If the deal goes through at a price lower than the market price, then Clal, Shrem, and the other institutional bodies holding the share will be diluted at an extremely low price. It will therefore be interesting to see their reaction to the deal.
It should also be kept in mind that Yitzhak Shrem now finds himself once again opposite Aharon Dovrat. The two men, who both began their careers in the Clal concern, set up Dovrat Shrem and later had a noisy breakup, now confront each other as ECI investors.
In any event, press reports have it that Shlomo Dovrat will probably take Jonathan Kolber's place as ECI chairman. Things are not yet settled, however, and it appears that other candidates for the job - senior executives in leading communications companies, including Nortel Networks (NYSE: NT) - are still in the picture. Furthermore, ECI president and CEO Doron Inbar is not expected to resign when the new investors come in. Inbar is close friends with Aharon Dovrat and his status will probably not be affected. Other management changes, however, are possible.
Published by Israel's Business Arena on December 2, 2001