August 21, 2012 / 11:43 AM / 5 years ago

Partner Comms up for sale again after Hutchison pulls out

TEL AVIV (Reuters) - The debt-laden parent of Israel's second-largest mobile phone operator was left scrambling to find a buyer for the business, after Hong Kong conglomerate Hutchison Whampoa 0013.HK pulled out of a deal on Tuesday to regain control of the company.

Hutchison ended a deal to acquire a 75 percent stake in Scailex Corp (SCIX.TA) - whose main business is its ownership of 44.5 percent of mobile operator Partner Communications (PTNR.TA) - from Suny Electronic Inc (SUNY.TA).

Scailex, also the sole importer of Samsung (005930.KS) mobile handsets into Israel, said it could not yet assess the impact of the deal's termination on its business, results and securities.

But analysts said Scailex would seek a new buyer for Partner, whose shares were down 2.7 percent at 15.42 shekels in midday trade in Tel Aviv.

"We believe Partner or Scailex remains for sale, but see a lower probability of an international investor stepping in," UBS analyst Roni Biron said, noting local private equity funds might take an interest.

Analyst Gilad Alper at brokerage Excellence Nessuah said it would still be best to find an international buyer for Partner, more able to exert the management control needed to impose necessary drastic changes at the company, adding that the collapse of the deal was bad news for Partner though it did not come as a total surprise.

"The biggest advantage of Hutchison taking over the company is that it would have been able to make the aggressive adjustments needed to make Partner more competitive," he said.

This would involve laying off thousands of workers and changing the business model from one focused on heavy marketing costs and a large sales force, to one that is low cost and Internet based, Alper said.

According to Scailex, Hutchison cited several reasons for cancelling the deal, including a substantial deterioration in Partner's results in the second quarter, when net profit tumbled 41 percent.

"In addition, the buyers expressed concern that it would not be possible to complete the purchase of the company's (Scailex's) bonds according to the conditions of the partial purchase offer for the bonds, given the adamant stance of the bondholders' representatives against the offer," Scailex said in a statement.

HAIRCUT OPPOSED

Scailex has debts of $760 million including $300 million owed to Hutchison, much of it from buying Partner - which operates under the Orange brand name in Israel. Scailex was seeking to repurchase about 50 percent of its outstanding non-convertible bonds and the deal with Hutchison was conditional on the success of the bond buyback.

The price offered represented 69 percent of the face value of the bonds, a "haircut" strongly opposed by bondholders. Scailex bond prices were down by between 14 and 24 percent in Tel Aviv.

The sale for $125 million in cash, announced in June, would have put Hutchison back in charge of the telecoms company it founded in 1997 but sold to Israeli holding company Scailex in 2009 for $1.38 billion.

In the past year, Israel's mobile phone market has faced cut-throat competition partly from de-regulation that has put pressure on Partner's earnings and share price.

The Israeli government forced mobile operators to cut fees they charge each other to connect calls and scrap exit fines for customers. It also issued licences for new operators, which led to six new companies and a price war.

Hutchison sold its Partner stake for $17.50 a share three years ago. Partner's Nasdaq shares closed at $3.81 on Monday, down from $4.99 when the Scailex deal was announced in June.

The Hong Kong company had agreed to extend repayment of the $300 million loan it made to Scailex under the original deal by three years to April 2017, but now Scailex will have to repay the loan by 2014. If it cannot, Hutchison will get a 12 percent stake in Partner.

Biron, who rates Partner shares "buy", sees limited ramifications for Partner's underlying operations from the collapse of the deal.

"We continue to believe that the Israeli mobile sector is undervalued at current levels and expect it to consolidate into four groups with a more rationalised pricing," he said. ($1 = 4.02 shekels)

Additional reporting by Donny Kwok in Hong Kong; Editing by David Holmes

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