Cellcom Asks Court to Liquidate Rival Golan Telecom Over $156 Million Debt

Golan, which has put itself up for sale, has not only failed to repay its debt but hasn't been fully covering its current obligation either.

A customer uses a mobile handset outside a Cellcom Israel Ltd. store in the Ramat Gan district of Tel Aviv, Israel, August 18, 2011.
Ariel Jerozolimski, Bloomberg

Cellcom Israel, the country’s biggest mobile operator, said on Tuesday it had asked the Tel Aviv District Court to order the liquidation of its upstart rival Golan Telecom for failing to pay 600 million shekels ($156 million) it owes for using Cellcom’s network.

Judge Eitan Orenstein ordered Golan, which has been using the Cellcom network infrastructure for its roaming services, to respond to the petition by Friday and set a hearing for the following Monday.

“The company cannot estimate what the decision in such requests will be, or their impact on the company’s ability to collect amounts owed by Golan or to generate future revenues from Golan,” Cellcom said in a statement.

Reuters reported that a spokesman for Golan, which is controlled by French businessmen Michael Golan and Xavier Niel, the majority owner of French telecoms group Iliad, declined to comment.

The debt has been a bone of contention between the two companies. Golan, which has put itself up for sale, has not only failed to repay its debt but hasn’t been fully covering its current obligation either – transferring 10.6 million shekels a month to Cellcom, just about half of its contractual obligations.

Cellcom blamed a 17.5% drop in its third-quarter profit on Golan’s failing to pay the full monthly amount due and suspended paying a dividend. Shares of Cellcom rose 0.3% to 30.74 shekels on the Tel Aviv Stock Exchange.

Golan was the biggest and most aggressive of the new cellphone companies that entered the market four years ago when then Communications Minister Moshe Kahlon eased barriers to competition. Phone rates plummeted as did profits and while Golan captured some 10% of Israel’s mobile market it failed to make a profit.

Golan started with a single-price package of 99 shekels a month, which in 2012 was far less than its rivals were offering and has since reduced rates to as low as 29 shekels. But two years after it began operations, it also began to violate the terms of its license by taking down the antennas that were supposed to be the basis of its network and came to rely wholly on Cellcom.

With officials apparently anxious to preserve cellular competition, they failed to force Golan to meet its license terms, but also refused to relicense it as a virtual operator. By March 2014, Golan quietly put itself up for sale and subsequently retained the Rothschild Bank to manage the process.

Cellcom offered to buy Golan for about $300 million last year, but regulators blocked the proposed merger, saying it would weaken competition by eliminating a major player and a price leader. Golan was put back on sale subsequently and has since drawn interest from three bidders, which are reportedly valuing the company at between 300 million to 350 million shekels.

They include businessman Zvi Barenboim in partnership with Zvi Yochman’s Sky private equity fund and a group comprised of publicly traded Elco Group and Gil Sharon, the former CEO of Golan rival Pelephone. However, the most promising potential buyer is XPhone, which already has a cellular operating license and is anxious to obtain Golan’s estimated 800,000 subscribers.

Cellcom has an interest in seeing Golan sold – earlier this week it warned it was close to taking legal action if the sales negotiations didn’t progress – and so do Golan’s shareholders. Faced with the alternative of a windup order, selling the company offers the prospect of getting some of their money out of the business.

However, parties to the talks have accused Michael Golan of stalling and failing to provide the bidders with the most up-to-date information on the company. “Michael Golan has been zigzagging,” said one source close to the talks who asked not to be identified.

Last week Michael Golan was pulled out the negotiations – some sources said at the behest of Cellcom – leaving Niel and two other minority shareholders, Patrick and Gerard Pariente. Media reports say Michael Golan continues to play a behind-the-scenes role in the talks.