Hot in merger talks with Cellcom

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Hot believes that a merger may be worthwhile even at the cost of exiting its joint network partnership with Partner.

Low-key negotiations between Hot and Cellcom are continuing, even though the companies failed to reach agreement in recent months, sources inform "Globes." Information obtained by "Globes" shows that simultaneously with its negotiations with Cellcom, Hot has not completely given up on a possible merger with Partner. Partner is preparing for the possibility that Hutchison will not be granted a permit to renew its control of the company, and will therefore be forced to sell its holdings in Partner to another concern.

Hot is currently weighing the possibility of dissolving its partnership with Partner in their joint (PHI) mobile communications network. One of the mysteries involving this year's negotiations between Cellcom and Hot concerns the liquidation of this network. If one of the parties exits this agreement, it will create a difficult situation, because the agreement was designed to last for many years. As far as is known, the side that cancels the agreement will have to pay compensation to the other party.

Which company is best for Hot to merge with? One consideration is whether it is worthwhile for Hot to dissolve its partnership with Partner, make regular payments for maintaining the network for a number of years, and stop paying for the company's proportional use of the network. Legally, a situation is likely to emerge in which Hot does not dissolve the partnership and continues paying the regular expenses, but stops paying its proportional share for using the network.

For Hot controlling shareholder Patrick Drahi and his financial righthand Dexter Goei, the question is whether or not dissolving the partnership with Partner and merging with another company is worthwhile.

In such a situation, a reasonable assumption is that the parties will enter a difficult legal proceeding. Hot is confident, however, that if things work out commercially, dissolving the partnership will be worthwhile.

A concealed bonus: Possible damage to Partner

Beyond the clear profit for Cellcom and Hot from a merger, both of them will also indirectly profit by damaging the interests of Partner, their competitor. It is likely that Partner will have problems maintaining the network independently without its partnership with Hot Mobile.

The annual cost of maintaining the network is believed to be in the NIS 500-600 million range, to which must be added the regular relative costs of each company. If Partner has to maintain the network by itself in the current state of the mobile telephony market, it will not be easy for it to go on making a profit.

Another point that could be an important consideration for Hot is being connected to Israel Electric Corporation's (IEC) IBC fiber-optic project, in which Cellcom is a partner. Hot needs to be connected to a fiber-optic network. An independent investment will not be worthwhile for Hot under the current market conditions; as part of a merger between the companies, however, it will be a good solution.

Cellcom and Hot did not respond to the report.

Published by Globes, Israel business news - en.globes.co.il - on December 3, 2019

© Copyright of Globes Publisher Itonut (1983) Ltd. 2019

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