Cellcom claims compensation from Golan for breaching merger agreement

Israeli operator Cellcom is demanding ILS900 million ($233 million) from smaller competitor Golan Telecom as compensation after it pulled out of merger talks to work with another company.

Last year, Cellcom attempted to negotiate a merger with Golan but a potential deal was stymied by opposition from the country’s regulators as well as its prime minister, Benjamin Netanyahu, as it ran against attempts to foster greater competition in the market.

After this setback, Cellcom was trying to negotiate an arrangement whereby Golan could continue to use its networks. However, Golan has now opted to partner with cable TV provider Hot, which is also Israel’s fourth largest mobile operator. Owned by French cable firm Altice, Hot has stated that it is looking to sign a ten-year agreement with Golan.

Cellcom confirmed that it “has taken note” of the deal Hot has made “for the provision of hosting services to Golan Telecom on the network used by Hot, and financing arrangements to be provided by Hot”, adding that the agreement essentially violates the share purchase agreement (SPA) and national roaming agreement (NRA) that Cellcom has in place with Golan.

Such a violation “resulting with the transfer of any of Golan’s customer traffic on Hot’s network, if not cured” would mean that Cellcom was within its rights to terminate the SPA and claim compensation.

While it did agree to acquire Golan for ILS1.17 billion, Cellcom stipulated at the time that if the deal did not close then Golan would have to pay it a ILS150 million termination fee on top of ILS450 million for the use of its network. Factoring in ILS300 million that Golan received from Cellcom as part of the roaming agreement, the total due is ILS900 million.

Cellcom stated that “should Golan fail to remedy all such breaches within the time frame set in the agreement, the company will take all actions available to it under the SPA, NRA and applicable law, against them. A substantial reduction of the future revenues from Golan Telecom will have a material adverse effect on the company’s revenues and results of operations.”

Launched in 2012, Golan is an ultra low-cost operator, with a market share of around 10%. It is aiming to leave the market; to that end, Leader Capital Markets analyst Sabina Levy was quoted as saying that “the agreement with Hot is just part of the negotiation process with Cellcom that is meant to strengthen Golan’s bargaining position.”

Cellcom leads the Israeli market with a share of around 27%, while Golan is the market’s smallest operator, behind Hot Mobile as well as numbers two and three, Orange (Partner) and Pelephone (Bezeq).

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