ECI Bought Out in $1.2B Deal

Two weeks after the company confirmed it was in talks to be bought out, ECI Telecom Ltd. has agreed to go private in a deal worth $1.2 billion. (See ECI Announces Buyout.)

The telecom equipment maker announced that its board of directors approved a buyout by Swarth Investments LLC and other funds that have appointed Ashmore Investment Management Ltd. as their investment manager. The parties agreed to a purchase price of $10 per share, which represents a 9.4 percent premium over Friday's closing price.

Rumors of a possible buyout first circulated two weeks ago, when news reports out of Israel linked ECI to Swarth. ECI confirmed the talks soon after, naming the potential buyers and the $10 per-share price. (See ECI in $1.2B Takeover Talks.)

The board today recommended that shareholders vote in favor of the transaction, but it won't need much help in getting the deal approved. The company announced that shareholders representing a 44 percent stake in ECI -- including Koor Industries Ltd. , Clal Industries and Investments Ltd. , and a group led by Carmel Ventures -- have already agreed to vote for the deal.

Koor and Clal are controlled by IDB Group , and together they hold a 41 percent stake in ECI. Koor holds a 28 percent stake in ECI, and stands to gain 598 million shekels ($142.4 million) on the sale of its shares. Clal holds a 13 percent stake in the company, and expects to net 277 million shekels ($66 million).

That leaves about a 3 percent stake held by Carmel Ventures, where ECI Chairman Shlomo Dvorat is a founder and general partner.

While the ECI board has endorsed the deal as being "in the best interest of shareholders," at least one analyst thinks the company could have done better.

In a research note filed on June 18, Jefferies & Company Inc. analyst George Notter wrote that $10 per share was "not exactly a 'full' valuation."

"In our view, the valuation seems a bit light given the company's operating margin structure, top-line growth prospects, and industry average EV/Sales multiples in the range of 1.9-2.0x EV/2008 sales. Our price target remains $11.00 -- a valuation which more accurately reflects, albeit conservatively, the intrinsic value in the business," Notter wrote.

ECI could still look for a better price, as the company has 30 days to solicit bids from other potential buyers. If it doesn't find a more attractive offer, ECI expects the Swarth deal to close by the end of 2007.

— Ryan Lawler, Reporter, Light Reading