Israel's Hot Telecom in Talks to Pay at Least $124m for Golan Telecom

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Patrick Drahi. Credit: Tomer Appelbaum

Talks are underway to merge Golan Telecom, the upstart cellular company, with Hot Telecom, TheMarker has learned.

The talks are being conducted in France between Hots parent, the European telecommunications company controlled by the French-Jewish entrepreneur Patrick Drahi, and Xavier Niel, whose 30% stake makes him the second-biggest shareholder in Golan after Michael Golan himself.

The merger would join the fourth-largest player in the mobile market — Hot with its 1.2 million subscribers – with the No. 5 Golan and its 900,000 customers. Together the two would still be smaller than the three industry veterans — Partner Communications, Cellcom Israel and Bezeqs Pelephone unit.

As a result, said a source close to the negotiations who asked not to be named, a tie-up between the two companies stands the best chance of passing antitrust scrutiny.

Golan said in August it was putting itself up for sale or seeking a merger, setting off reports that one of the veterans would make a bid. Since Moshe Kahlon, as communications minister in 2012, eased the way for more competition in the industry and opened the way companies like Hot and Golan, industry profits have plunged.

Ironically, there is a long-standing business rivalry between Drahi, whose strength is in cable television, and Xavier, who was a pioneer in offering the Internet using DSL technology. The rivalry moved to mobile when Dahry bought the cellular operator SFR, which competes with the cellular arm of Niels Free Internet service provider.

The two have been dancing a tango for many years — one step forward, two back — or the reverse on cooperating in France. The failure or success of this effort [in Israel] could be an indicator of whether the two have left behind the differences, said the source.

Golans possible sale price involves several factors that have yet to be settled. Companies like it typically are sold at six times earnings before interest, taxes, depreciation and amortization, or Ebitda, which would value Golan at 480 million shekels ($123.8 million). However, for a buyer like Hot there are synergies and cost savings from a merger that could add 15% to Golans value.

On the other hand, Golan has 350 million shekels in debt to Cellcom. Moreover, it is also not clear whether the frequencies Golan now owns would automatically be transferred to the buying company.

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