French Investment Banks Looking for Buyer for Golan Telecom

Owner Michael Golan denies his company is for sale.

Two French investment banks are looking for a buyer for Golan Telecom and among the candidates are the company’s rival cellular operators, TheMarker has learned.

One of the banks is Rothschild and the other is believed to be Lazard, sources said. The two banks have priced Golan relatively high, with a price tag of over a billion shekels.

Representatives of the banks have met recently with senior executives of all four of the major Israeli cellular operators, which operate their own infrastructure — Pelephone, Cellcom Israel, Partner Communications and Hot Telecom — but no deal seems to be imminent.

Michael Golan, the owner of the upstart cellular company, denied his company is being sold. “It should be made clear that not only is the company not up for sale, no one has been authorized to act to sell it,” he said in a statement issued by his attorney. The company said it “would continue to lead the communications and consumer revolution of Israel.”

Nonetheless, Adam Chesnoff, the chairman of Partner, has met in recent days with Xavier Niel, who owns a 30% stake in Golan.

Some sources said the feelers about selling the company are going on “over his [Golan’s] head,” although he is the biggest shareholder in the company with a 45% holding. Golan’s brother, David, owns almost 5%, and Niel holds 30%. Another 20% is in the hands of the brothers Patrick and Gerard Pariente. While the company continues to vehemently deny any talk of a sale, there are other options available, such as moving into related businesses, like television and fixed line telephony, or by buying a competitor. There have been reports in the press that Niel was interested in buying Cellcom.

The rival cellular operators would be very happy to neutralize Golan by having someone buy it out, but a merger with any of Golan’s competitors would likely be blocked by regulators. In addition, the companies are believed to regard the price being sought for Golan as too high compared to its true long-term value.

Golan, which stormed the Israeli market in May 2012, offered some of the lowest charges for cellular services, with unlimited packages priced at 99 shekels ($28.50) a month. Golan helped break the lock hold of the three existing cellular operators and set off a price war that has slashed their profits. Golan has attracted 430,000 subscribers.

Nearly two years later, the company is still undercutting rivals, today offering an unlimited package now for 59 shekels a month, which has forced competitors such as Hot to cut their prices as have the virtual cellular operators.

But Golan is losing money, Michael Golan confirmed an interview with TheMarker. But, he explained, the company is performance is in line with its business plan, which sees reaching breakeven on the basis of earnings before interest, taxes, depreciation, and amortization, or EBITDA, at the beginning of next year.

Market at bottom

“We’re not losing any more than we thought we would lose. Three years from the launch to reach the breakeven point is not bad for the cellular market. No one believed we would reach 7% of the private market by now,” said Golan.

The cellular market is at its bottom, said a senior executive in one of the cellular firms. European markets that went through a period of increased competition stabilized at rates of 20 euros a month, but in Israel the price is equivalent to about 11 euros, he said. These rates will push all the players into long-term losses so that the price war is irrational, said the executive, who asked not to be identified.

“In such a situation someone loses and there are mergers,” he said.

Right now, it is unlikely that the Antitrust Commissioner would approve a merger between the cellular companies, but the executive predicted that merger talks would get underway toward the end of next year.

In the long run, Hot Mobile is the most likely candidate to buy Golan, since it is the smallest of the major cellular companies and in the first nine months of 2013 Hot Mobile had an operating loss of 291 million shekels.

Golan may be losing money, but yesterday it received a big boost from the Communications Ministry, which approved returning 270 million shekels in bank guarantees Golan had deposited as part of the bidding process for a licenses. It got back the money after reaching the minimum number of subscribers set in the license terms. Some industry sources said they expect Golan to ease off a bit on the competition now it has freed up this cash.

Moti Milrod