York Capital Converts Its Gilat Satellite Bonds to Shares

Gilat Satellite Networks Ltd. (Nasdaq: GILT) has surprised many people. I wrote about it about a month ago, and it seems that what I said has come to pass. A lot of effort has been invested in the company since its crisis of January 2003, a management crisis that was exacerbated by the market climate at the time. Its share has risen over 70% since the beginning of the year, and it seems to me that the company’s chauffeur knows how to drive.

Yesterday, Gilat made a very significant announcement for those who believe that the way up is still clear. York Capital Management converted its bonds to shares in the company, to become the largest shareholder. It turns out that York Capital bought 500,000 Gilat shares in May, and now owns 33% of the company. The conversion slashes Gilat’s debt, and therefore reduces its interest payments by $6 million a year.

No one can better state the importance of York Capital’s act more than Gilat chairman and CEO Amiram Levinberg, who said, “York's decision to shift its position from a debt holder to a shareholder is a strong vote of confidence in Gilat and significantly strengthens Gilat's balance sheet."

Why did York Capital do what it did? Experts will say that this was a vote of confidence, but I believe that the move was intended to give the private equity fund a say in Gilat’s decision-making. York Capital’s experts understand well what is happening in the satellite communications industry and its intensifying competition, and that cable, wireless, and media companies are about to enter the satellite communications sector.

Last week, I wrote about News Corp (NYSE:NWS) and Liberty Media Corporation chairman Dr. John C. Malone, and it seems to me that York Capital’s move is the first step towards either setting up its own satellite communications division, or interesting potential large buyers in Gilat. In any event, they did not do this merely as a vote of confidence.

Published originally by Globes [online], Israel business news - www.globes.co.il © Copyright of Globes Publisher Itonut (1983) Ltd. 2006. Republished on Seeking Alpha with full permission.

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