“Blackberry for the masses.” These are the two words that Amit Haller, the founder of IXI Mobile (IXI) uses to describe the device his company has developed. IXI, a start-up which has been struggling to survive for the last five years is set to become, in effect, a public company upon its merger with shell company Israel Technology Acquisition Corporation (OTC Bulletin Board: ISLTU.OB; ISLT.OB; ISLTW.OB) (ITAC). ITAC announced at the beginning of the month that it would merge IXI’s activities with its own at a current company value of $42 million (the value of the shell as listed on the OTC BB) .
Founded in 2000 by the entrepreneurs, Haller and Gidi Barak, IXI developed the “Ogo” handset, a device similar to the Blackberry, designed primarily for teenagers, students and small businesses. The Ogo can send and receive email, and browse the Internet, as well as deliver instant messaging through services such as MSN Messenger, Yahoo! Messenger or AOL. The company’s customers are cellular operators and Internet service providers (ISPs), which buy the handsets from IXI and then market them to the aforementioned key target groups, teenagers, students and small businesses.
When Haller compares the Ogo to the famous Blackberry, he repeatedly comes back to the issue of price. “The Ogo is the Blackberry for the masses, since it enables any teenager, student or small businessman, from plumbers to junior sales people, to connect to networks at a very low cost,” he explains, during the investors’ conference that IXI held last Sunday, together with ITAC management.
The Ogo costs up $99 (and is free, if supplied by the service provider), while the monthly service charges range from $4-18. The price of the Blackberry, ranges from $200-350 and its monthly service charges range from $40-50. “The Blackberry is not targeted at the ‘mass market’; the Ogo is,” says Haller.
The Ogo was first launched in the US in September 2004, when AT&T became IXI’s first customer. The company has virtually no operations in the US today, following the acquisition of AT&T by Cingular Wireless, which decided to discontinue AT&T’s data activities. IXI’s main client in Europe is Swisscom Mobile, the largest cellular operator in Switzerland, which launched its Ogo service last November. IXI strengthened further its European presence following a product launch in Germany. The Ogo will operate on the network of UK mobile company Vodafone Group PLC (NYSE: VOD) and will be available as of April. The Ogo will sell for €1 only, (conditional on the buyer signing a 24 month loyalty agreement), with service charged at a monthly rate of €9.99. The deal is valued at $18 million. IXI’s total revenue, from the first US launch to the present day, is $20 million.
While the Ogo has considerable potential, it is likely to face stiff competition. Firstly, Nokia and others may, in the future, consider developing a similar device of their own. “Nokia is still not there, because it has not yet managed to beat the Blackberry,” says Haller, “I hope they will penetrate this market in the future, since they could develop it for others. Until then, we have a window of between a year to eighteen months during which we need to grab market segments before the big players move in.” Blackberry manufacturer Research In Motion (NasdaqNM: RIMM), could also become a more aggressive competitor, if it decides to lower prices or develop, as Heller describes it, a “handset for the masses.”
$18 million times two.
When TAC chairman and CEO Israel Frieder talks about the shell company he launched eight months, the sparkle in his eyes is unmistakable. ITAC became the second Israeli specified purpose acquisition corporation (SPAC) to be listed on the US capital market, but was the first to take over the operations of another company. “We started in July last year,” he recalls. “At first we aimed to raise $18 million but we eventually doubled that figure,” is how he describes the floating of the shell company which raised $38 million (including the Green Shoe option).
Frieder was formerly Kardan NV (TASE: KRNV;AEX:KARD) president and CEO, ECI Telecom (Nasdaq: ECIL), vice president for business development and Tadiran Communications (TASE: TDCM) president. “When I left Kardan and heard about the SPAC industry, I wasn’t sure if this was entirely a legitimate business, at least not in Israel,” he recalls with a smile. “I called the then legal adviser to Tadiran and he told me that “not only is it legitimate, but is also one of the best ways of making an IPO for a company of a size of up to $100 million.”
The “SPAC industry,” to use Frieder’s favorite term, began to gain momentum at the start of 2005. Several entrepreneurs, usually well-known names, invest small sums in a company that has no content, and then float it on the capital market. They then have a period of 18 months in which to find and takeover an existing company that has activities. “SPAC may be a pioneer entity in Israel, but worldwide it is a rapidly expanding trend,” says Frieder.
Frieder’s claim speaks for itself. Since 2003, 47 SPAC companies have been floated in the US, and have raised a total of $3.2 billion. Not one SPAC was floated during 1997-2002. In 2005, 68 SPAC companies filed draft prospectuses, ahead of a share issue.
”When we conducted due diligence on IXI Mobile, we also did it on ten other companies,” says Frieder. “ We didn’t hide this from the IXI management, and we finally chose IXI for three main reasons. Firstly, the management team headed by Amit Haller and Gidi Barak; secondly the company’s staff and thirdly the fact the Haller and Barak didn’t ask for cash. They were satisfied with the shell’s shares.
”Even when we offered to include cash in the deal, they said they believed in IXI and that when ITAC stock reaches five or 10 times its current value, they will know what to do with their holdings in the company. Their absolute faith in their own company, helped us finally chose IXI over other companies,” concludes Frieder.
Published by Globes [online], Israel business news - www.globes.co.il - on March 16, 2006
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