Matav Cable Systems

(Nasdaq:MATV) today announced a merger with Israel's two other cable TV companies,

Golden Channels




Matav will own 25% of equity in the merged company, to be called Gvanim. It will have the right to appoint three of its ten directors.

Tevel is controlled by

Discount Investments

(48.5%). Golden Channels is controlled by businessman Eliezer Fishman (39%) and Tevel. Matav is controlled by the Dankner Family (73%). Its market value stands at $303 million.

The merger terms, which are subject to the approval of the Antitrust Commissioner, stipulate that Gvanim will have to honor all the obligations, licenses, copyrights and agreements of all three companies.

Merger negotiations began almost a year ago. Matav's financial reports for 2000 indicate the necessity of this step. The company reported a NIS 211 million loss, NIS 50 million of which derived from Matav's Internet division, named Nonstop. Matav has recently been negotiating to sell Nonstop to the Internet service provider



Another NIS 117 million of the loss is attributed to Matav's 15.6% share in

Partner Communications

(Nasdaq, LSE:PTNR).

In addition, Matav reported a 1.5% drop in income from NIS 454.4 million in 1999 to NIS 448 million in 2000. As if this were not enough, the rating company


downgraded Matav's bonds from AA to BBB+. "The risks of dealing in multi-channel television in Israel have increased considerably," Maalot wrote.

Maalot's report further bolsters the argument that the cable companies had to merge in order to remain viable. It stated that multichannel broadcasts in Israel and abroad are characterized by high leveraging and negative cash-flows due to heavy investment in infrastructure.

In addition, heavy regulatory intervention in this area has raised uncertainty levels.

Maalot surmises that the increased risk also derives from "satellite competition, high client mobility (low transference cost for the client), a relatively rigid expense structure, delay in merging cable company activities and the enormous investment in infrastructure and broadcasting material."