August 26, 2020

Golan Telecom's Bonanza: It Generated a Cumulative Profit of About Half a Billion Shekels for Electra Consumer Products

Golan Telecom's sale to Cellcom has been completed • Another big beneficiary from the deal is CEO Gil Sharon, who will receive about NIS 60 million

The importer and distributor of electronics, Electra Consumer Products (ECP), has issued a statement about the completion of the sale of Golan Telecom to Cellcom, in what amounts to one of its most successful investments in recent years.

According to Electra Consumer Products (9,550), the completion of the transaction is expected to yield to it a pre-tax capital gain in the amount of NIS 230 million in the third quarter of the year, so that cumulatively, the total profit resulting from its investment in Golan, including "the withdrawal of the company's portion of the Golan profits from the date of acquisition until the date of completion" amounts to about half a billion NIS.

The ECP share responded positively to the company's statement on that topic and jumped to more than 50% since the beginning of the year, reflecting the company's current value of more than NIS 2 billion.

As mentioned in the statement issued by ECP on that topic, it will receive about NIS 575 million for its holdings in Golan Telecom (approximately 90%), out of a total amount of about NIS 650 million that Cellcom will pay for the acquired company, including a dividend of NIS 33 million distributed by Golan in recent days.

The balance of the bulk of the sum, amounting to about NIS 60 million, is expected to be pocketed by  Gil Sharon, CEO and Chairman of Golan Telecom, who brokered the deal for its acquisition by ECP, which was completed in April 2017, for a consideration of about NIS 350 million. Sharon has recently been appointed to serve as chairman of Bezeq and is expected to start his new position in the coming days.

ECP also noted in a statement it issued on the subject that its profits from the investment in Golan Telecom "reflect a return of more than 9 times (more than 800%) for ECP", as well as an IRR yield of about 90%.

It also arises from the statement issued by ECP that "the basic amount of the consideration determined in the memorandum of understanding will be reduced by NIS 77 million, so that it will amount to NIS 513 million (instead of NIS 590 million) and will be paid in full in cash at the time of completion."

Improved Revenue and Profit Erosion

Since Golan Telecom was acquired by ECP it has generated substantial profits, and during the years it was in its ownership, it has helped it deal with the damage suffered by the parent company in its other segments of operation.

In ECP’s financial statements for the first half of the year, published last week, Golan Telecom showed an improvement of about 2% in its revenues, which reached NIS 267 million, and a slight erosion in its operating profit, which amounted to NIS 50 million.

At the end of the first half of the year, ECP also presented 918,000 subscribers, compared to 906,000 subscribers at the end of the first half of 2019, and the average monthly income from each subscriber (ARPU) was NIS 48 - similar to the corresponding semester of last year.

ECP further stated that at the end of the first semester, Golan Telecom presented a cash flow of about NIS 68 million from current operations, and that during the reporting period it invested NIS 27 million in held-to-maturity securities.

According to the plans of Cellcom (1,195), even after the acquisition, Golan Telecom is expected to remain a virtual operator, and it will continue to offer its existing communications packages and will continue to operate as an independent brand. Shai Amsalem, Golan Telecom's CFO, will serve as Deputy CEO. Cellcom CEO Avi Gabay stated that "the completion of this acquisition will allow us to accelerate synergies between the companies for the benefit of customers and shareholders."

The main activity of ECP, which is controlled by the Elco Group of the brothers Daniel and Michael (Mikey) Salkind, concentrates on importing and distributing electrical consumer products and operating marketing networks for the sale of electrical consumer products.

ECP's total revenues in the first half of the year increased by 4% and neared NIS 1.4 billion, while its net profit jumped by 45% to NIS 57 million.

ECP attributed the improvement in revenues to the electricity retail and cellular communications sector, which was offset by a decline in the electrical consumer goods sector, while the operating department saw a 130% jump in electricity consumption profits for the first half of the year, reaching NIS 48 million, mostly from “an increase on gross profits and an increase in other revenues".

Notable figures that the Golan Telecom investment has yielded to ECP:

Expected pre-tax capital gain in the third quarter: NIS 230 million

Total profit derived from the investment: approximately NIS 500 million

Return on investment: more than 800%

IRR yield:  about 90%

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