Cellcom Israel Ltd. (NYSE:CEL; TASE:CEL) is tired of playing around with Golan Telecom Ltd. and has filed for the company's liquidation. While it is still difficult to estimate the final outcome, this issue will certainly occupy the Israeli communications industry in weeks to come.
Cellcom has decided to file for liquidation following Golan's NIS 600 million debt, which it had hoped to collect from the company's buyer. Cellcom has probably despaired of ever finding a buyer and decided to pursue liquidation.
"Globes" found out that Patrick Pariente arrived in Israel last week to take over the reins of the Golan Telecom sale negotiations, but some of the parties involved in the talks said that nothing has really changed; Michael Golan, removed from running the talks, still seems to be pulling the string from behind the scenes. The Pariente brothers control a 20% stake in Golan Telecom and Patrick is the one who is pushing to arrange and complete the sale.
The picture emerging over the past few days is that in the past week Cellcom was preparing the liquidation request, while still giving talks with Golan shareholders and Pariente a chance.
Until yesterday, it had seemed that Elco Holdings Ltd. (TASE: ELCO) , together with former Pelephone Communications Ltd. CEO Gil Sharon, was the most likely potential buyer, alongside the Hezi Bezalel's group, which is still in talks with Sky Fund to join the deal as a partner. Yet both groups have claimed that nothing is really happening other than idle talk and that they cannot understand what Golan Telecom wants from them.
Moreover, both groups claim that the Golan Telecom refuses to provide information for the company's due diligence, which raises concerns of pitfalls that will only be revealed in the future.
Golan Telecom had not believed that Cellcom would turn to liquidation, because it has too much to lose. But while Cellcom itself considers selling the company to be preferable to liquidation, the latter will have its own perks. If liquidated, Golan actually disappears from the market, which returns to four players, potentially leading to a moderate rise in prices.
Hezi Bezalel has announced his intentions to be part of the cellular market, whether by acquiring Golan or independently. Bezalel's asset is the frequencies he has acquired and which Cellcom needs, and he also has a signed networking agreement with it, which awaits implementation.
Cellcom estimates that if Golan is liquidated, it could gain the lion's share of the company's subscribers, who are already using its network. In such a scenario, clients will abandon Golan en masse, concerned that they will no longer be provided with service. Cellcom will thereby also be giving a helping hand to its competitors, who could gain tens of thousands of Golan clients free of charge, and possibly even more.
In this case, Cellcom takes the risk that its competitors would also profit from this move; however, it is also imperiled by the prospect that an appointed trustee or liquidator will sell the company cheap, with little chance of Cellcom being repaid its NIS 600 million debt.
Moreover, Cellcom might lose Golan as a network user paying hundreds of millions of shekels each year. The person who acquires Golan will be able to try and reach a better arrangement with one of Cellcom's competitors and use its network for a lower price.
A new buyer will get the company free of debts and obligations. However, he will have to transfer tens of thousands of clients to a different provider and will require Cellcom's cooperation, making this a substantial risk.
In any case, it seems that Cellcom has preferred to take this risk and stop fooling around with pointless negotiations, and therefore filed a liquidation request to the court.
Published by Globes [online], Israel business news - www.globes-online.com - on November 29, 2016
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