Pelephone-WeCom Deal Faces Collapse Amid Disputes
Translated & summarized from Ice by baba
Pelephone's planned acquisition of mobile provider WeCom for NIS 265 million is facing collapse due to disputes over loan conversions and tax rulings. WeCom's controlling shareholders want a tax ruling before signing, while Pelephone insists on an immediate deal. The deal's complexity is amplified by WeCom's use of Cellcom's network, potentially requiring a large settlement with Cellcom. Failure could lead to Cellcom acquiring WeCom for NIS 130 million.
The story in 5 lines · by baba
- Pelephone's NIS 265 million deal to buy WeCom is stalled by disputes over loan conversions and tax rulings.
- WeCom's owners seek a tax ruling before signing, but Pelephone demands an immediate closing.
- WeCom's use of Cellcom's network poses regulatory and financial challenges for Pelephone.
- Acquiring WeCom would increase Pelephone's market share to 26.5%, boosting its subscriber count.
- If the deal fails, Cellcom may be forced to buy WeCom for NIS 130 million via a put option.
A significant deal intended to reshape Israel's telecommunications market is on the verge of collapse due to sharp disagreements between Pelephone and WeCom, just before a planned signing. The acquisition, where Pelephone, part of the Bezeq group, would purchase 100% of mobile provider WeCom for approximately NIS 265 million, is stalled over the settlement of WeCom's accumulated losses and owner loans.
Pelephone is demanding that these loans be fully converted to equity before the deal closes. While WeCom's controlling shareholders, including business magnate Yariv Lerner and the Clarimerk fund, are not fundamentally opposed, they seek a delay of several weeks to obtain a preliminary tax ruling from the Israel Tax Authority, fearing potential VAT liabilities due to disputed interpretations. Pelephone, however, rejects this condition, refusing to include tax-related contingencies and pushing for an immediate closing.
Adding to the complexity is WeCom's operational and regulatory status. WeCom currently functions as a virtual mobile operator, utilizing Cellcom's network under a long-term agreement valued between NIS 300 million and NIS 350 million. This situation presents a challenge for Pelephone, which operates its own nationwide network, as it would necessitate substantial ongoing payments to a direct competitor.
Regulators, including the Competition Authority and the Ministry of Communications, may scrutinize this arrangement, potentially requiring Pelephone to reach a one-time settlement of hundreds of millions of shekels with Cellcom to terminate the existing contract. The stakes are high for Pelephone, which, as of the second quarter, holds about 23.5% of the market with 2.71 million subscribers. Acquiring WeCom's roughly 300,000 customers would boost Pelephone's subscriber base to around 3 million, increasing its market share to 26.5% and narrowing the gap with market leader Cellcom.
Conversely, if the talks fail, Cellcom could benefit. WeCom's agreement with Cellcom includes a put option, allowing WeCom to compel Cellcom to purchase it for NIS 130 million.
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