Four Groups Expressing an Interest in Buying Control of Golan Telecom

But offers are all for less than 300 million shekels, a quarter the price Cellcom Israel had offered, and the mobile provider says it isn’t interested.

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

Four groups have expressed interest in buying Golan Telecom, the upstart mobile provider, after the government earlier this year rejected its proposed merger with its bigger rival, Cellcom Israel, TheMarker has learned.

One of the bidding groups includes Roman Abramovich, a Russian oligarch best known as the owner of the Chelsea football club, and startup entrepreneur Oded Kobo. Abramovich has invested in a clutch of Israeli startups, including at least one founded by Kobo.

A second group is led by two telecommunications industry veterans – Gil Sharon, who was until recently CEO of the Bezeq mobile subsidiary Pelephone, and Shlomo Rodav, who at various times was chairman of Bezeq and Partner Communications, Israel’s second-largest mobile provider.

Sources wouldn’t name the two bidding groups, but all of them are reportedly offering no more than 300 million shekels ($78 million) for Golan – and in the case of the two unnamed groups, reportedly far less.  That is less than a quarter of the 1.2 billion shekels Cellcom offered last October to buy Golan.

Golan Telecom responded that it wasn’t interested in any offers and was determined to fight the Antitrust Authority’s decision in April to reject the Cellcom merger. “We remain in the agreement with Cellcom and are readying to make an appeal against the decision of the regulator. Therefore the matter [of counter-offers] isn’t relevant to the company.”

In any case, sources said the company’s controlling shareholder, Michael Golan, is unlikely to entertain such low offers for the company, which equal something close to the capital he and his fellow shareholders have invested in the company.

The counter-offers for Golan come amid a period of ferment for Israel’s cellular industry. The veteran operators have seen their customer base and rates erode sharply since the government introduced more competition into the industry in 2012, allowing Golan Telecom and others to break what was once the three-sided monopoly.

But the competition this year has finally pushed the three industry veterans – Cellcom, Partner and Pelephone – into losses and they have stopped investing in upgrading their networks. Golan, meanwhile, is saddled with a 600 million-shekel debt to Cellcom for using its network.

None of the four bidders is believed to have any interests in the telecommunications sector right now, which means they should be able to overcome any antitrust scrutiny. Regulators are intent on keeping Golan Telecom independent to ensure there are at least five rivals competing in the market and because it has played a role as price leader.

However, the Sharon-Rodav group doesn’t plan to keep Golan Telecom intact. Their plan, the details of which are not entirely clear, calls for selling Golan’s Telecom’s subscribers to the other four cellular companies. To ensure that the market doesn’t lose one of its five competitions, the two would ensure a certain number of the subscribers would be sold to Xphone, which has been angling to enter the market.

“The idea is the fruit of Mssrs. Rodav and Sharon’s dark imaginations and would be rejected outright and without any hesitation by Golan’s shareholders,” the company said.

Moreover, regulators are likely to look askance at the Sharon-Rodav plan. The stated policy of the finance and communications ministries is that if Golan Telecom were to go under, the other companies should compete for its estimated 850,000 subscribers.

“It’s Bolshevism, an attempt to engineer the market,” one senior regulatory official, who asked not to be named, told TheMarker.

Meanwhile, Golan is pursuing two strategies concerning its future. Apart from appealing the Antitrust Commission’s rejection of the Cellcom merger, the two companies are weighing revising their joint operating agreement.

Under Golan Telecom’s license, it was allowed to piggyback on Cellcom’s network until it could build its own. But Golan Telecom never got far with development and meantime ran up a debt with Cellcom.

In May, however, Cellcom said it was in talks with Golan about turning the agreement into a Mobile Virtual Network Operator, or MVNO, arrangement, meaning it would lease bulk access to Golan Telecom at wholesale rates.

That option, too, may well meet up with opposition from regulators, who don’t regard MVNO companies as serious competitions to companies with networks.

Eran Jacoby of the research and consulting firm Rosario Capital said the government had assigned too much importance to Golan Telecom’s role as “maverick” in the cellular market.

“Golan Telecom is no longer a maverick,” he said. “The costs it is carrying raise serious doubts about its ability to survive as an independent company. It isn’t a pure telecoms company because it doesn’t have physical assets and isn’t doing anything [like its rivals] to become a multifaceted telecommunications group.”