Gad Zeevi has promised to pay Mikhail Chernoy $100 million if will not exercise the option Zeevi gave him to buy 10% of Bezeq. The two businessmen signed an agreement to this effect in October 1999, and it is revealed today in "Globes".
The agreement's centerpiece is a five-year $150 million bank guarantee Chernoy gave to Zeevi to help buy 20% of Cable & Wireless (Nasdaq: CWP; LSE: CW) of Britain. Chernoy received the option to buy 10% of Bezeq for five years from the date the Zeevi and Cable & Wireless agreement was signed. Chernoy was given the exclusive right to extend the option for an additional five years. He can exercise the option upon meeting one of two conditions:
- Chernoy receives from the Israeli authorities all the permits necessary to acquire a stake in Bezeq. It is believed that Chernoy will face difficulties from the Israeli regulators;
- Zeevi sells all his Bezeq shares to a third party. It is doubtful that Chernoy will want to exercise his option under those circumstances, unless he wants cash from the sale of Bezeq shares.
Unless Chernoy announces he is extending the option, it will automatically be terminated. This article it important, because the agreement specifically stipulates that in the event that the option is terminated, all the terms detailed therein will apply, including:
- Zeevi will return the bank guarantee in full to Chernoy;
- Zeevi will pay Chernoy the higher of two amounts – $100 million or 10% of the value of Bezeq. The agreement states that this is a payment for the bank guarantee. Zeevi thereby promises in effect to pay Chernoy interest of at least $100 million on a five-year $150 bank guarantee, amounting to 11% a year.
The agreement also states that if Zeevi sells his Bezeq shares to a third party, Chernoy will be allowed to terminate his option under the same terms. Zeevi has therefore effectively given Chernoy a lien on his Bezeq holding.
Another article in the agreement stipulates that any dividend Zeevi receives from Bezeq during the first five-year period of the agreement, will be used to reduce the bank debt used to finance the acquisition of the Cable & Wireless shares, and simultaneously proportionally reduce the bank guarantee provided by Chernoy.
Published by Israel's Business Arena on 12 August 2001