Israeli telco Cellcom has strongly denied that the company is up for sale at the behest of controlling shareholder IDB Holding.
The statement came in reply to an earlier report claiming investors behind Israeli wireless challenger Golan Telecom have…
Israeli telco Cellcom has strongly denied that the company is up for sale at the behest of controlling shareholder IDB Holding.
The statement came in reply to an earlier report claiming investors behind Israeli wireless challenger Golan Telecom have been presented with a proposal to buy its larger rival.
Observers speaking to TelecomFinance commented that consolidation might be difficult in the current regulatory environment.
Golan’s controlling shareholder Michael Golan and fellow investor Xavier Niel, owner of French telco Iliad, are seriously considering an acquisition, Israeli business paper Globes had said.
According to unnamed sources cited in the report Lazard likely presented Cellcom, Israel’s largest wireless operator, to the Golan investors. One senior source was identified as being close to Golan and Neil, without giving further details.
NYSE-listed Cellcom’s share price rose sharply by 7% on the day the report was published, before falling back and ending the day 2.25% up on its opening price.
Cellcom’s parent, conglomerate IDB, is carrying a reported NIS2bn (US$549m) debt while subsidiary IDB Development owes NIS5.8bn (US$1.6bn).
Speaking to TelecomFinance prior to the publication of Cellcom’s denial, one Israeli-based analyst said IDB’s owner, Nochi Dankner, needed to capitalise some of his assets due to severe financial problems, and that this may push him closer to a negotiation table than in normal circumstances.
“I don’t think anyone fell off their chairs,” he said, referring to the report.
The analyst said that while Golan has grown quickly since its entry into the market in 2012, he wasn’t sure how long it could sustain its current growth levels. Golan still needs to invest in infrastructure, and the analyst pointed out that Cellcom has the nationwide network it needs.
“Bottom line, I could see it happening and believe there is something behind the article, but in truth it could just as easily be no more than water cooler talk,” he said. He concluded by saying that Golan would still have to pay a premium in spite of IDB’s struggles.
Antitrust issues likely
Eran Jacoby, a sell-side analyst at Meitav-Dash, who also spoke prior to Cellcom’s denial, saw the report as a first shot in the dark and thought that any deal was at a very early stage.
He pointed out that a deal may face regulatory difficulties as well given that Golan was introduced as a fifth player to increase competition.
“I believe that eventually there will not be in Israel five cellular operators,” Jacoby said. “Still, given the public mood in Israel, such a move seems far away.”
Cellcom has a market cap of around NIS4bn (US$1.1bn) and Jacoby said that if a sale was allowed it would likely sell for between NIS5bn (US$1.4bn) to NIS6bn (US$1.7bn).
Gilad Alper, an analyst at Excellence Nessuah, could not see a deal between the two getting past regulators. While a transaction made financial sense for Golan, regulators would nix it. In 2011 Israel auctioned off two 3G licences to new entrants taking the market from three operators to five.
“I don’t see how it is possible for the minister of communication to roll-back on [increasing competition],” Alper said.
He predicted that consolidation would only be allowed if one of the wireless operators went bankrupt, and then no one from outside the market wanted to acquire that telco.
“Can Israel sustain five operators? It’s for the free market to decide.”
Golan became Israel’s fifth wireless operator in 2012 launching a 3G network. It also has a roaming agreement with Cellcom and in a local report its eponymous CEO was quoted as saying the fledgling telco had 200,000 subscribers as of January.
Niel is behind Iliad, which operates as Free in the French market. A disruptive market force, Free has experienced rapid growth undercutting the incumbent operators and gaining more than 6 million customers since its launch in early 2012.
