HOT Seeks to Buy Partner for 3 Billion NIS in Giant Merger

In the past, the Communications Ministry hinted that it would not take fondly to a merger between two major companies due to the negative impact on competition

Shelly Appelberg
Nati Tucker
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Offices of the Israeli telecommunications company HOT.
Offices of the Israeli telecommunications company HOT.Credit: Ofer Vaknin

Israeli telecommunications company HOT is seeking to buy out rival Israeli telecommunications giant Partner for 3 billion shekels, according to a proposal submitted to the latter company’s board of directors. The merger would create Israel’s largest telecommunications company

HOT, controlled by French-Israeli businessman Patrick Drahi, is seeking to buy both the public’s share of Partner’s shares as well as the 28% held by the Chinese firm Hutchinson.

Partner’s price gained 5% on the Tel Aviv Stock Exchange on Tuesday. Partner, one of Israel’s largest telecommunications companies, had been trading at a market cap of 2.84 billion shekels. The proposal represents a 5% premium over the company’s market value.

If the buyout receives approval from Israel’s Communications Ministry, Partner’s shares would be delisted from trade. However, it would continue reporting to the stock exchange due to its 1.7 billion shekels in publicly traded bonds.

The Communications Ministry is yet to receive an official request regarding the merger. In the past, it hinted that it would not take fondly to a merger between two major companies due to the negative impact on competition.

Partner had a net profit of 7 million shekels in the third quarter of 2019, a 73% decline from the parallel quarter of 2018.

Partner and HOT are already collaborating in the cellular communications market; the two companies have a shared cellular network.

In order for the merger to be approved, Partner would have to forego its multichannel television operation, Partner TV, which competes with HOT’s multichannel television service.

HOT is considered a monopoly in Israel’s multichannel television market. The other major player is Yes. Cellcom is a relatively new player in this field, but is credited with introducing competition.

Even though a Partner-HOT merger would raise concerns of harming competition in the companies’ other fields, cell phone service and landline service, it may be a logical step so the two companies can collaborate on building an optic fiber network. It would also enable the joint company to become a third, aggressive competitor against Israel’s major landline companies, Bezeq Telecommunications and Cellcom-IBC.

Others argue that it’s clear that a Partner-HOT merger would be good for shareholders, particularly Drahi, but that the regulator should block it. By this argument, Partner is supposed to build itself up into a strong, independent player in Israel’s telecommunications industry, and that a merger would prevent this from happening.

To date, Israel’s Antitrust Authority has strongly objected to mergers within the communications industry.

Those who support the merger will try to convince it to relax its position, given the great investments the industry needs over the next several years.