February 18, 2020

The Largest Merger in the Cellular Industry is Underway: Cellcom acquires Golan Telecom

Cellcom will pay $ 590 million to Electra Consumers, and will waive a NIS 130 million debt; Electra will make a profit of NIS 300 million before tax. Gil Sharon, CEO of Golan Telecom, will receive NIS 59 million for his shares

Golan Hazani - February 18, 2020

Cellcom acquires Golan Telecom. This is the first major merger in the mobile communications industry since the Kahlon reform, which has led to a major crisis in the industry in recent years.

Cellcom will pay NIS 600-630 million for Golan, divided as follows: NIS 413 million in cash upon completion of the transaction, and an additional NIS 177 million within three years from its completion – in total:  NIS 590 million. Cellcom will waive Golan’s debt to it in an amount of NIS 130 million.  In addition, Cellcom will pay an additional consideration, payable in cash at the closing date of the transaction: the balance of the cash held by Golan at the closing date of the transaction, less financial debt.

An additional amount that Cellcom will pay will be the received from the product of the number of months from the date of completion of the transaction until the end of 2020, in the amount of NIS 7.6 million, as well as amounts Golan invested in the 5th generation infrastructures in the framework of the joint network, from the date of signing of the MoU until the date of completion of the transaction.

The deal reflects for Golan Telecom a value of NIS 666 - 700 million. The amount of the proceeds is in line with Calcalist's publication of last week regarding the negotiations. A memorandum of understanding has been signed.  Signature of the transaction is contingent on a due diligence review.  The parties intend to complete the transaction by the end of the year, however failure to obtain all the approvals stipulated under the conditions, shall nullify the transaction.

The deal was signed only two days after Bezeq's attempt to outbid Cellcom by offering NIS 710 million for the acquisition of Golan. Electra Consumer’s board of directors, headed by Danny Salkind, who, together with his brother Mikey are the controlling shareholders of the Elco Group, decided to favor Cellcom's offer.

Such preference was necessary because when calculating the waiver of the fine, we are dealing with a consideration of NIS 720 million for Golan - a sum that is higher than what Bezeq offered. In addition, the chances of getting regulatory approval for a deal with Bezeq were much lower due to Bezeq's enormous power in the telecommunications market in Israel. A third reason is the NIS 600 million fine that Golan was supposed to pay to Cellcom in the event of dissolution of the partnership in the cellular network.

In fact, the talks between Golan and Cellcom for the acquisition were still under way during the tenure of Cellcom's previous CEO, Nir Stern. Stern left Cellcom unexpectedly last month and moved on to manage Paz. Avi Gabbai who was appointed in his stead decided to freeze the talks until signing an agreement with the employees. The signing was concurrent with expedited negotiations that ended yesterday with the signature on a memorandum of understanding.

A First Move that Resulted in the Signature

The signing of the transaction marks the culmination of a year in which talks were held between the cellular companies about possible mergers, however with no progress. It was HOT that set the market in motion in the past month, by submitting a bid for the acquisition of Partner for NIS 3.5 - 3.6 billion - a bid that resulted in speeding up the deal between Cellcom and Golan.

The person leading the company towards acquisition was Gil Sharon, who also received about 10% of Golan shares in the framework of the acquisition. Sharon will receive for his shares NIS 41 million in cash and an additional deferred payment of NIS 18 million.

Sharon will not remain in the merged company that will become the largest cellular company in the market. The person who will run the new company is Avi Gabay.

The Golan Telecom employees will receive a portion of the proceeds of the transaction due to them by virtue of the options they hold.

Cellcom reported a total of 2.76 million customers in the third quarter, to which 923,000 Golan customers will be added, making it a company of 3.7 million customers. The average monthly income per subscriber at Cellcom was NIS 53.2, while Golan reported an average monthly income per subscriber of NIS 49.5, so the figures are quite close.

Halperin Is Expected to Approve

The market assesses that the Competition Authority headed by Michal Halperin will approve the merger, but it should be remembered that Halperin recently hinted that investments in infrastructure do not constitute an automatic trigger for the approval of mergers and the reduction of competition in the cellular sector. In fact, Halperin and the Communications Ministry are the only bodies that may thwart the final signing of the deal. Cellcom also operates television transmissions with 276,000 subscribers.

For Cellcom’s CEO, Avi Gabay, who took office last month, this is a significant second move in the company after he signed a new agreement with the workers' committee and records an enchanted first month as far as he is concerned. The committee itself was informed about the details of the negotiations.

The Cellcom share responded to Calcalist’s publication with a 5% rise, which became more moderate at trading closure with a 1.3% increase, while Electra Consumption dropped by 0.8%, having previously dropped by 2.5%. Discount Investments, which controls Cellcom, rose by 1.5%.

Cellcom, whose value reached in August a low of below NIS 1 billion, is already being traded at a value of NIS 2.2 billion. However, one must keep in mind that the company raised NIS 300 million in shares in December. The company ended 2019 with a loss, after having posted a net loss of NIS 52 million, in the first nine months of the year of NIS, attributable to the shareholders. Today, it carries a net debt of NIS 1.9 billion and recorded a free cash flow (FCF) of NIS 335 million.

Cellcom will try to raise additional debt to finance the deal, although the cash from the offering may suffice for most of the amount. Discount Investments, controlled by Eduardo Elstein, is expected to oppose to the issuance of additional shares, since it does not wish its shares to be diluted.

Electra's Profit

For Electra Consumption, which is traded at NIS 1.6 billion and managed by Zvi Schwimmer, this is an impressive deal that takes place three years after it acquired Golan Telecom for NIS 350 million. Electra will record a pre-tax profit of 300-330 NIS million on the deal.

The parties will try to sign a detailed agreement within a month and are already scheduled to apply to the regulators for an approval of the deal, even before the detailed agreement. In fact, the Memorandum of Understanding will expire only if the preconditions for the transaction, approval by the regulation or material non-deterioration of Golan are not fulfilled by the end of 2020. The deferred payment will be monthly, approximately NIS 7.6 million per month, and 8.2 million Cellcom shares will be deposited with a trustee, which the latter may sell to make the deferred payment of the transaction.

Avi Gabay, CEO of Cellcom stated: "The acquisition of Golan will enable Cellcom to make significant investments in the communications realm for the benefit of the Israeli public. The difficult situation that has prevailed in recent years in the telecommunications market requires action that will strengthen Cellcom and the entire telecommunications market.

[Chart:  the Cellcom-Golan Telecom Deal

NIS 413 million – the amount to be paid by Cellcom to Golan Telecom upon completion of the transaction


NIS 177 million – the amount to be paid by Cellcom three years from the moment of completion of the translation

NIS 130 million – the debt Cellcom will waive towards Golan Telecom


NIS 720 million