Photo: Hanay / Wikimedia Commons / CC BY-SA 4.0
TEL AVIV, Israel – Pelephone, the cellular arm of the Bezeq Group, signed a binding agreement on Monday to buy 100% of cellular operator Wecom for NIS 265 million, after a tax dispute between the sides threatened to derail the deal. The deal has not closed. Pelephone said it is now seeking approvals from the Communications Ministry and the Competition Commissioner.
The photograph shows a Pelephone store in Haifa. It is an archival photo, not related to the signing.
The sides cleared the main obstacle in the past two days, according to the announcement. The dispute was over the tax treatment of converting owner loans that had been put into Wecom into equity. The controlling shareholders of Wecom, businessman Yariv Lerner and the Clairmark fund, did not oppose the conversion in principle, but asked to delay signing by several weeks to get a preliminary tax ruling and avoid possible VAT charges. Pelephone had wanted the loans converted to equity before closing.
“The completion of due diligence and the signing of a detailed binding agreement are another positive step toward completing the Wecom acquisition,” Pelephone CEO Ilan Sigal said. “We are now working to obtain the required regulatory approvals from the Communications Ministry and the Competition Commissioner.”
Wecom is a relatively small operator, with about 300,000 customers, or about 2.6% of Israel’s cellular market, and it runs its service on the Cellcom antenna network under a long-term agreement. Pelephone, which operates its own network, had about 2.71 million subscribers at the end of the second quarter, about 23.5% of the market. Adding Wecom’s customers would take Pelephone to roughly 3 million subscribers and a market share of about 26.5%, according to figures published before the deal. Cellcom, its direct rival, held about 3.69 million subscribers, or about 32%, in the same period.
Why it matters: the deal would shrink Israel’s crowded cellular market by one operator and narrow Pelephone’s gap with Cellcom. Pelephone will also have to deal with Wecom’s existing contract with Cellcom, and earlier estimates put the cost of settling it at hundreds of millions of shekels. Still unknown: whether the regulators will approve the deal, on what conditions, and when it can close.
JBizNews Desk | Tel Aviv, Israel
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