Gil Sharon set to gain NIS 65m from Golan Telecom sale

Gil Sharon

Sharon was responsible for Electra Consumer Products' 2017 acquisition of Golan Telecom, and received 10% of Golan Telecom's shares in the deal.

If the negotiations for Cellcom's acquisition of mobile telephony company Golan Telecom are successful, Golan Telecom chairman and CEO Gil Sharon will receive NIS 65 million for his shares in the company, sources inform "Globes." If this exit happens, it will "compensate" him for the loss of the employment agreement worth a similar amount that he was to have received four years ago at Discount Investment Corporation, which created a storm in the capital market at the time. Sharon holds 10% of the shares in Golan Telecom, which is believed to be about to be sold to Cellcom at a valuation double that at which Electra Consumer Products acquired the company three years ago.

Under the terms of the deal under discussion by the parties, Cellcom will pay Electra Consumer Products and Sharon nearly NIS 600 million in cash for full ownership of Golan Telecom, and will also forgive Electra Consumer Products' NIS 130 million debt to it (Cellcom lent Electra Consumer Products the money for the purposes of acquiring Golan Telecom in 2017). Cellcom will also make future payments of tens of millions of shekels. Electra Consumer Products will provide Cellcom with a seller's loan amounting to 30% of the proceeds in the deal, convertible into Cellcom shares at a later date.

The acquisition of Golan Telecom is essential for Cellcom in order to create a strong communications group able to cope with difficult market conditions, and in order to thwart the merger being negotiated between Hot and Partner (if one merger is approved by the Israel Competition Authority, it will make obtaining approval for further mergers in the communications market difficult because of damage to competition). Furthermore, a network-sharing agreement with Golan Telecom currently gives Cellcom NIS 200 million in yearly revenue, while an acquisition of Golan Telecom by a different mobile telephony company is liable to result in the cancelation of the existing agreement between Golan Telecom and Cellcom.

Sharon, a former CEO of Bezeq group mobile telephony company Pelephone, helped Electra Consumer Products, a subsidiary of the Elco group, controlled by the Salkind family, in its acquisition of Golan Telecom in early 2017. He was later appointed chairman and CEO, and acquired 10% of Golan Telecom's shares, which he purchased for a token amount. A year before that, Sharon suffered a setback when he was denied the astronomical compensation that he sought as part of his job as CEO of Discount Investment, the holding company controlled by Eduardo Elsztain, Cellcom's controlling shareholder. At the end of the affair, Discount Investment and Sharon withdrew from the deal between them because of difficulties in getting the large compensation package approved.

The salary agreement devised by Elsztain and Discount Investment for Sharon was one of the most lucrative ever in the local capital market, and aroused opposition and criticism among the company's minority shareholders and bondholders, the financial press, and also from then-Israel Securities Authority chairman Shmuel Hauser, who said that the proposed salary was "excessive and unreasonable." The five-year agreement involved a cost of NIS 70 million, including NIS 14 million a year in salary and benefits, mostly in shares in Discount Investment and its subsidiaries, Shufersal and Cellcom, that Sharon was to have received. Sharon later agreed to a 40% reduction in the shares he was to have received in Shufersal and Cellcom, bringing the annual cost of his salary down to NIS 11 million.

Golan Telecom under Sharon: Efficiency and operating profit

One year after being forced to give up his wonderful salary at Discount Investment (which paid him NIS 1.6 million in compensation), Sharon is working towards the acquisition of Golan Telecom by Electra Consumer Products, in the clear knowledge that Golan Telecom will do exactly what it did before the deal - sell packages consisting solely of mobile telephony at a competitive price and, most importantly, will retain the same small and efficient structure, with a minimum of expenses.

Sharon is one of the most experienced CEOs in the communications market, and his experience in the mobile telephony market is unmatched. He designed the deal with an eye towards anticipating and serving the interests of all of the players in the market. He knows how to tread the fine line between Golan Telecom being a price player and its need to continue making an operating profit. The company therefore continues to offer low prices, but is not the cheapest player in the market. Last year, Sharon had the highest salary in the Electra Consumer Products group. As chairman and CEO of its Golan Telecom subsidiary, the cost of his compensation was NIS 5.4 million in salary, bonus, and stock-based compensation.

Published by Globes, Israel business news - en.globes.co.il - on February 13, 2020

© Copyright of Globes Publisher Itonut (1983) Ltd. 2020

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