Cellcom Israel Bumps Up Against Opposition to Golan Bid

  • Finance minister says damage to competition would be `tragedy'
  • Combined company would have more than 3.75 million subscribers

Cellcom Israel Ltd., Israel’s largest mobile phone provider, declined after senior government officials vowed to block its accord to buy competitor Golan Telecom Ltd. for 1.17 billion shekels ($300 million). Earlier, the deal had sent the company’s stock soaring to its highest since January.

Finance Minister Moshe Kahlon, who as communications minister introduced the increased competition that brought Golan to the market, said the merger would be “a bad mistake” because prices would jump. The damage to consumers would be “a tragedy for the ages,”
he said.

“Approving the merger will send us back to the days of no competition and the consumers will become the victims,” Kahlon said.

Although Kahlon’s reservations were echoed by other senior officials in the cabinet and Finance Ministry, they do not have any direct role in the decision. The deal must be approved by the Ministry of Communications and antitrust commissioner, Cellcom said in a statement announcing the accord filed to the Tel Aviv Stock Exchange. 

Cut Costs

Golan, one of five network operators in Israel, began offering low-cost services in 2012, leading to a price war in the industry that cut costs to consumers by as much as 90 percent. The company, partly owned by French entrepreneur Xavier Niel, provides cellular services to about 900,000 customers and is expected to reach 500 million shekels in revenue by the end of the year, the bourse statement said. Cellcom, operating in a country of 8.3 million people, had approximately 2.85 million subscribers at the end of the second quarter.

“The acquisition of Golan Telecom will allow us to add a low-cost brand to our portfolio,” Cellcom’s chairman Ami Erel said in the statement. Golan will continue to operate as an independent company, Cellcom said. It will pay for the deal through equity and debt, which may include a rights offering.

Shlomo Filber, the ministry’s director general, told Bloomberg in an interview published Oct. 26 that he would not object to consolidation in the industry. The ministry issued a statement on Thursday saying it had not yet received the documents of the deal, and would make a decision in cooperation with the antitrust regulator.

Amir Levi, budget chief at the Finance Ministry, said he will do all he can to stop the deal because Golan is important for competition in the market. “We made it clear that we won’t be able to allow it,” Levi told Israel Radio. Minister of Public Security Gilad Erdan, a former communications minister, published a letter on his Facebook page that he had sent to the Communications Ministry opposing the deal. A spokesman for the antitrust authority declined to comment.

Increase Profitability

A unit of Bezeq The Israeli Telecommunication Corp. had also sought to buy Golan. A merger would increase profitability for the remaining mobile providers, according to analysts at Excellence Nessuah Brokerage and Bank Leumi Le-Israel Ltd.

“The expectations are that the chances of such a deal being approved, mainly by the antitrust commissioner, are low,” Gil Dattner, an analyst at Bank Leumi, said by phone.

Analysts were divided over the deal’s potential benefits to Cellcom, whose shares jumped as much as 7.3 percent before declining 2.7 percent to 28.50 shekels in Tel Aviv. The company’s stock has declined 16 percent so far this year, compared to a 8 percent rise in the benchmark TA-25 Index. Partner Communications Co. surged 8 percent.

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