Shaul Shani is about to make history. After leading the acquisition of ECI Telecom Ltd. six years ago by his Swarth Group and British private equity firm Ashmore Investment Management Ltd. (LSE: ASHM) for $1.24 billion, he is now in talks to acquire the 80% of ECI that he does not own. The main difference between the negotiations to acquire ECI relates to its price: Swarth and Ashmore acquired ECI in 2007 when it had a market cap of $1 billion; Shani is now seeking to acquire it at a company value of $300 million.
The collapse in ECI's value over the years is well known, and unfortunately it does not only affect its owners, but also its employees. ECI had more than 3,000 employees when Swarth and Ashmore acquired it. After several rounds of layoffs, some immediately following the acquisition and more right now, it has 1,700 employees. Just over half of the company's workforce is reportedly in Israel.
ECI is going through hard times. There have been reports in the past year that the company is almost bankrupt, and that it has been struggling to pay its suppliers. Israel market sources believe that the only reason the company has kept afloat is Swarth and Ashmore's deep pockets, which have had to inject hundreds of millions of dollars into the company and guarantee payments to suppliers to avoid lawsuits and keep the company operational.
It has been difficult to know what has been going on at ECI under Ashmore and Swarth's ownership. For Ashmore, which has $77 billion in assets under management, the holding in ECI, worth a few hundred million dollars, and which have may already been written off, is immaterial. Swarth Group's stake in ECI has fallen sharply following Ashmore's capital injections into the company, and is currently 10-20%. Disagreements between Ashmore and Swarth have reportedly prevented Ashmore from making another capital injection into the company.
Shani's spokesman Rani Rahav said, "Shani is in talks with Ashmore to acquire its stake in ECI in order to fully own the company."
Published by Globes [online], Israel business news - www.globes-online.com - on December 8, 2013
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