Today's dramatic announcement that Partner Communications Ltd. (Nasdaq: PTNR; TASE: PTNR) controlling shareholder Haim Saban is relinquishing his shares in the telecom company is creating a new situation in the merger talks between HOT Telecommunication Systems Ltd. (TASE: HOT) and Partner. These talks follow the failure of Hot's merger talks with Cellcom Israel Ltd. (NYSE:CEL; TASE:CEL) in the first half of the year in several meetings with IDB Development executives in London. Dexter Goei, a financial expert and the number two man in Hot controlling shareholder Altice after Patrick Drahi, handled the unsuccessful talks with IDB for Hot.
Rumors have been circulating recently about a deal between Hot and Cellcom, probably in order to exert pressure on Partner to agree to a merger with Hot. The pressure is aimed at Hutchison and Haim Saban.
This is not the first time that a possible merger between Hot and Partner has been mentioned. Between 2000 and 2010, then Partner CEO Amikam Cohen tried to close a merger deal between the companies on several occasions, but encountered resistance every time. It is possible that the vision of Cohen, who still represents Hutchison in Israel, will materialize this time, but one thing is certain: Cohen will do everything he can to avoid Hutchison's reentry into the unstable local communications market.
The Competition Authority will not approve it quickly
The probability that a merger between Cellcom and Hot will materialize is next to zero. Partner and Hot are partners in a mobile telephony network, and dissolving the partnership in the network in order to merge Hot with Cellcom is unlikely. Partner will not buy Hot's share of the network, and the likelihood of finding an external buyer for half of Partner's network to replace Hot is next to nil.
The possible merger is therefore between Partner and Hot, and the two sides are well aware of it. This merger is also extremely questionable, however, and it is by no means certain that the Israel Competition Authority will approve it, for several reasons. First of all, a merger between Hot and Partner (or even with Cellcom) will require the sale or shutting down of Partner's television activity, and the Competition Authority will strongly oppose this. The question of whether one of the television companies will be willing to buy this activity is an open one, because Partner is losing money on it, while Cellcom's television activity is on the profit/loss borderline. Hot is a monopoly in the television field and the largest television player in Israel, and closing down of a competitor as part of a merger with a monopoly is unacceptable.
Secondly, the two companies also compete with each other in infrastructure and Internet. The Competition Authority regards this competition as a blessing for consumers, so there is no reason for it to allow one of the companies to terminate its activity. Partner is deploying fiber optic infrastructure, while Hot is upgrading its speeds and competing with it. Ending this competition without any substantial benefit for the public is inherently repugnant to the Competition Authority.
A merger between Partner and Hot should not create a problem in mobile telephony. Competition in the market is at a peak and there are many players in the market, so any damage to competition in this sector will be very small.
What is Hot signaling to Partner's owner
The reports of a merger between Hot and Cellcom are therefore designed to signal to Hutchison and Saban that if they do not merge with it, the alternative of a merger with Cellcom still exists. Hot does not really want to buy Cellcom, because it realizes that it would be forced to separate its mobile network from Partner, and this deal is almost impossible. Neither of them has the money to pay the other for half of the network.
Another question is the character of the merger: acquiring 30% of the shares (currently held by Saban, with the rest held by the public) or all of the shares held by the public. Market sources believe that Drahi will not buy Saban or Hutchison's shares in Partner and be content with a 30% holding in the company; he will want a full merger between the companies. He will therefore have to either make a full offer to purchase to all of the shareholders or choose a full merger through a share swap between the companies. He will probably prefer this option, because it is known that his own financial situation is none too steady. For Drahi, there is a sign to the public shareholders in Partner that he is the best option for them; otherwise, he has an option for a deal in Cellcom.
Published by Globes, Israel business news - en.globes.co.il - on September 23, 2019
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