ECI Telecom (Nasdaq:ECIL) could use fresh blood, but the putative new shareholders are unlikely to justify the dilution of existing shareholders, UBS Warburg concludes.

The UBS update by the team of analysts, headed by Jonathan Half, follows news that the Dovrat and Ofer families are negotiating to acquire 12.5% of ECI's shares for $50 million.

The move would reduce ECI's debt to around $80 million. On the other hand, the price offered, of $3.5 to $3.75 per share, is 23% below ECI's selling price on the market.

While both the Dovrats and the Ofers have an impressive assortment of assets around the world, neither are great experts on telecommunications, UBS warns.

Shlomo Dovrat, who will apparently be appointed as a director at ECI, has acquired a name as a successful software entrepreneur. The Ofers, on the other hand, engage mainly in shipping, not technology.

In any case the added value of the new shareholders does not justify the discount, UBS deems. If anything the relatively low liquidity of ECI stock with only 44% held by the public, and its current price level, justify a premium, not a discount.

If the deal is done, Koor Industries (NYSE:KOR) would be left with a 30.5% stake in ECI. Clal Industries would retain 12.5% and the public will hold 44.3%.

UBS does not see the charms of that structure. What does ECI need today? it asks. Mainly, technological knowhow.

The investment bank wonders whether Israeli banks to which ECI owes money might be behind the dubious move by the Dovrat and Ofer families.

UBS concludes that the deal is likely to depress ECI stock in the short term. But the shares should rally on investor expectations of value-adding moves. In the end UBS affirmed a Buy rating for ECI and price target of $5.