REUTERS - Cellcom agreed on Thursday to buy rival Golan Telecom for 1.17 billion shekels ($300.9 million), as Israel's largest mobile phone provider seeks to add a low-cost brand to its portfolio.
Golan, owned by French businessmen Michael Golan and Xavier Niel, is one of the four other mobile network operators in Israel besides Cellcom. It launched operations in 2012 as the government issued new licences to boost competition in a sector that was dominated until then by three players.
Golan introduced rock-bottom prices that its competitors struggled to meet. In August it hired an investment bank to explore options, including putting the company up for sale.
Israel's mobile phone market has been expected to consolidate amid concerns that cut-throat competition is undermining firms' ability to invest in infrastructure.
The government is now considering allowing consolidation that would enable prices to rise and permit companies to make more profit to plough back in to infrastructure. But it remains to be seen whether it will allow the country's biggest operator to buy a rival.
"There is no assurance that the agreement shall be approved by the Israeli regulators, which the company estimates to be challenging," Cellcom said on Thursday.
Golan has about 900,000 customers and is expected to end 2015 with revenue exceeding 500 million shekels and adjusted EBITDA (earnings before interest, tax, depreciation and amortisation) of 204 million shekels. Cellcom has 2.85 million subscribers.
"The acquisition of Golan Telecom will allow us to add a low-cost brand to our portfolio," Cellcom Chairman Ami Erel said.
Nir Sztern, Cellcom's chief executive, said his firm would maintain Golan as a separate company.
Up to 400 million shekels of the purchase price will be paid in the form of a convertible 5-year note issued to the sellers by Cellcom. The note will be repaid through the issuance of ordinary shares of Cellcom.
Cellcom will finance the deal through a combination of equity and debt. In addition to the convertible note, Cellcom plans to issue 200 million shekels of equity and the pay the remainder from internal sources and a debt financing.