Israeli operator Cellcom (TASE:CEL) has said it is assessing a possible acquisition of smaller rival Golan Telecom, which has been put up for sale.
Israeli operator Cellcom (TASE:CEL) has said it is assessing a possible acquisition of smaller rival Golan Telecom, which has been put up for sale.
In a statement to the Tel Aviv Stock Exchange, Cellcom said it was considering acquiring either Golan or its assets following an approach by Rothschild, which represents Golan’s owners.
On 26 August, Golan’s shareholders said they were alert to potential consolidation in the Israeli mobile market, similar to mergers which have occurred elsewhere, and therefore had mandated an investment bank to review its options.
Israel has five mobile network operators and a clutch of MVNOs, a high number of players for a market serving 8 million people when compared to similarly-sized countries.
In mid-August, Cellcom’s CEO Nir Sztern blamed his company’s disappointing Q2 results on “the influence of the fierce competition” which he said had caused “an erosion in revenues and profitability”.
Cellcom and rival Bezeq have both agreed deferred loans recently to cut their financing costs.
The share price of Cellcom rose more than 21% overnight following Golan’s disclosure. Elsewhere, Cellcom rival Partner Communication’s (TASE:PTNR) stock rose 14.1% overnight, before dropping back more than 3% today following Cellcom’s disclosure that it was looking at an acquisition of Golan. Meanwhile, incumbent Bezeq’s (TASE:BZQ) shares fell 2.15% today.
Tide is turning
Golan was created by French-Israeli businessman Michael Golan and his partners – notably Xavier Niel, the founder of France’s challenger Iliad – and began operating in 2012. Golan took a similar approach to Iliad, undercutting its larger rivals on price, and in three years has built a subscriber base of 800,000.
Its creation was fostered by Israel’s Ministry of Communications, which was aiming to increase competition in the market place by introducing a fifth operator. Rivalry in the country is now tough and the established operators say they are struggling.
According to a report in Tel Aviv newspaper Haaretz citing an industry source, Golan is acting now because it understands the political environment is changing and that it will not get the regulatory breaks it received in the past.
Under the terms of its 3G licence it won in 2012, Golan was obliged to build out a network covering 40% of the country, but instead it came to an agreement with Cellcom to piggyback on its network.
Haaretz reports that Golan has even removed some of the towers it has previously erected. Building its own network would be a costly undertaking for Golan, and therefore its owners are looking at selling now, the report said.
