In Surprise Move, One of Two Bidders for Israel's Golan Telecom Drops Out

Move marks setback for Cellcom Israel, which is negotiating a network-sharing pact with the bidders of the mobile network operator.

Michael Golan at the Golan Telecom headquarters in Tel Aviv, June 9, 2013.Eyal Toueg

Just a day after it confirmed that two groups were vying to buy control of Golan Telecom and were negotiating terms of a network-sharing agreement, Cellcom Israel said on Thursday that one of them had dropped out.

Cellcom had not identified the group of investors when they were in talks and didn’t when they pulled out on Thursday, but it is known to be a group led by Gil Sharon, a former CEO of the mobile phone operator Pelephone, together with the Elco Group.

That leaves only one company, Marathon 018 Xfone, a small operator of internet and international dialing services, left as a potential buyer for Golan Telecom, an upstart mobile company that has been on the bloc for more than a year.

“The group of investors notified the company today that it is withdrawing from its intention to purchase Golan Telecom and consequently from the negotiations with the company,” Cellcom said in a statement.

While Cellcom is not a direct party to the Golan sale, it revealed on Wednesday that both buyers were in talks about arranging a network-sharing agreement with Cellcom if they eventually bought Golan.

Golan has no network of its own and has run up debt of some 600 million shekels ($160 million) piggybacking on Cellcom’s network since it began offering service in 2012. Cellcom estimated the network-sharing and hosting agreement would generate as much as 250 million shekels a year for it.

News that the Sharon group had withdrawn from the talks sent Cellcom shares down 1% to end at 29.18 shekels on the Tel Aviv Stock Exchange. The stock had been rising all day, in tandem with the rest of the stock market, before turning sharply lower in late afternoon after the announcement was released.

Cellcom itself offered to buy Golan Telecom for 1.17 billion shekels nearly a year ago, only to be rebuffed by antitrust authorities. The Sharon group was reportedly weighing a much lower offer of 300 million for Golan Telecom, but it appears now that group had second thoughts even at the much lower price.

Sources said on Thursday that Elco – a holding group with interests in electrical and electronics manufacturing and retailing as well as real estate – was characterizing the decision to withdraw as final. But the sources said it could also be tactical move as part of the negotiations.

The Sharon group was regarded as the financially stronger of the two bidders. Xfone is not believed to have the financial resources to buy Golan Telecom and would have to forfeit the 17 million-shekel fee it paid for its own mobile frequency plus another 17 million shekels for the discount it received from the government.