Cellcom and Golan Agree to Negotiate Debt Dispute

Judge sets next hearing for January 29 and meantime freezes windup proceedings against Golan.

Cellcom shop photographed in January 2014.
Baz Ratner/Reuters

Cellcom Israel and Golan Telecom accepted on Monday a Tel Aviv District Court proposal that they work with a mediator to negotiate a resolution to their dispute over 600 million shekels ($157.2 million) in debt Golan owes Cellcom.

The two agreed to mediation after Judge Eitan Orenstein expressed concern about Golan’s financial conditions and its ability to repay the debt, as well as another 100 million shekels Cellcom’s attorneys said Golan had run up for using Cellcom’s network.

The decision gives Golan breathing space to continue to wind up negotiations to sell itself, most probably to the Elco Group. But the hearing Monday also pointed up the cellular operator’s difficult financial situation.

The two companies are in court after Cellcom, Israel’s biggest mobile company, last week turned to the courts to get a wind-up order for Golan over the 600 million-shekel debt. Golan, an upstart that entered the market in 2012 when reforms made it easier for new companies to compete, has been using Cellcom’s network to carry its calls.

Orenstein expressed concern that Golan hadn’t presented up-to-date financial reports, including its second- and third-quarter statements. “It’s very disturbing that an accountant hasn’t presented a cash flow report. You have a deficit in working capital and operating losses,” he said, ordering Golan to have its books ready for the court by the next hearing January 29.

Orenstein termed Golan’s contention that it didn’t have any debt with Cellcom a “contortion” but he conceded it seemed unlikely the company would be able to repay it in full.

Hila Gerstel, a retired judge, will serve as mediator for the talks between the two companies during which time the status quo between them will be maintained, including any progress on Cellcom’s liquidation order, Orenstein said. Any changes can only be made with the court’s approval, he said.

“During in the interim we’re going to lower the flame, including with the media. Try to reach an accord in despite of the hard feelings. You have a mutual interest in doing so,” the judge said.

Orenstein’s decision may serve to speed up talks with publicly traded Elco, which is reportedly offering to buy the company with its 800,000 subscribers and 10% market share for a price of between 300 million and 350 million shekels.

That would be the preferred outcome for Cellcom as well, which would like Golan to have a controlling shareholder with deep pockets. In addition, the two sides have negotiated in principle a future network-sharing agreement. Shares of Cellcom closed 3.2% higher at 32.34 shekels on the Tel Aviv Stock Exchange.