Cellcom warns on Golan Telecom defection to Hot

Cellcom
Cellcom

Cellcom says the end of revenue fromGolan Telecom will have "a material adverse effect" on its results.

Cellcom Israel Ltd. (NYSE:CEL; TASE:CEL) has notified the Tel Aviv Stock exchange this morning of developments in the negotiations with Golan Telecom. A few weeks ago, following a report in "Globes", Cellcom notified the stock exchange that it was negotiating with Golan Telecom on continuation of the collaboration between them. Negotiations broke down at the end of last week, and Golan announced that it was ending the negotiations with Cellcom and switching to operate on the Hot Mobile network.

Cellcom has reported the termination of negotiations to investors, and states that it has informed Golan Telecom and its shareholders that the agreement with Hot Mobile constitutes a breach of the purchase agreement for shares of Golan Telecom and of the roaming agreement between the two companies, including a commitment to buy services exclusively from Cellcom and to make no material changes in the business to be purchased. Cellcom was due to have acquired Golan Telecom, but the move ran into regulatory difficulties. Cellcom claims that the breaches it mentions entitle it to compensation totaling some NIS 900 million. It also states that "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."

The full text of Cellcom's announcement is as follows: "Cellcom Israel Ltd. (CEL) (CEL.TA) (hereinafter: the "Company") has taken note that the controlling shareholder of Hot Mobile Ltd. ("Hot"), another Israeli cellular operator, announced a non-exclusive long term agreement for the provision of hosting services to Golan Telecom on the network used by Hot, and financing arrangements to be provided by Hot and its controlling shareholders (the "Hot Agreement"), subject to the Israeli regulators' approval and instructions. The Company has notified Golan Telecom and its shareholders that the Hot agreement constitutes material breaches of the Share Purchase Agreement ("SPA") and National Roaming Agreement ("NRA") between the Company and Golan Telecom, including a service exclusivity obligation and obligations not to materially change the business to be purchased. The Company further notified Golan Telecom and its shareholders that the breach of the SPA and the breach of the NRA (resulting with the transfer of any Golan's customers traffic on Hot's network), if not cured, would allow the Company to terminate the SPA and demand the immediate payment of the NIS 600 million + VAT National Roaming Gap (as defined in the SPA), demand the recovery of additional substantial discounts provided to Golan Telecom under the NRA and conditioned upon such exclusivity, which under preliminary calculations amount to approximately NIS 300 million, and demand compensation for future payments until the end of such exclusivity. The Company notified Golan Telecom and its shareholders that should Golan Telecom and its shareholders 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.

"The Company cannot estimate the chances of regulatory approval of the Hot Agreement, or its impact on Cellcom's ability to collect amounts owed by Golan Telecom or to generate future revenues from Golan Telecom. 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."

Cellcom's share price is currently down 4.57% on the Tel Aviv Stock Exchange.

Published by Globes [online], Israel business news - www.globes-online.com - on June 13, 2016

© Copyright of Globes Publisher Itonut (1983) Ltd. 2016

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