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Long distance company Barak International Communications and ISP NetVision are holding merger talks, TheMarker has learned. A senior official for one of the shareholders confirmed the report.

The talks are being conducted against the backdrop of the shareholders¿ belief the companies will not be able to continue as niche companies in the long term. It is clear to the shareholders in both companies that a merger could improve the companies' financial standing and the merged entity's capability to raise funds. The merged entity would then also be an attractive takeover target for the merged cable companies in the future.

The key obstacle at the moment is redemption of Barak¿s $170 million in bonds, with interest payments beginning in May 2003 and the capital repayment due in 2007. "Absolutely nothing can be done concerning ownership of Barak without solving the bond problem," the senior official stated.

Market analysts believe such a merger would be a wise move. It would essentially create one company from two profitable ones, as Netvision is profitable and Barak is expected to reach profitability this year. The merged entity would therefore have good debt repayment capability.

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Repayment of Barak's bonds requires approval of the bondholders, but, although the process is a long one, it is not expected to interfere with the merger.

The major shareholders on both sides of the merger ¿ Clal Industries, Elron, and Discount Investments, as well as Barak¿s international shareholders ¿ are expected to continue to finance the merged company. Shmuel Dankner is expected to return his 10% holding in Barak and cease financing the company.

Neither Barak nor Netvision would comment on the reports.