Pelephone Acquires WeCom for $70 Million Amid Tax Dispute Resolution
Translated & summarized from Ice by baba
Pelephone has agreed to acquire WeCom for 265 million shekels, resolving a tax dispute that threatened the deal. The acquisition aims to boost Pelephone's market share and subscriber base in Israel. WeCom operates using Cellcom's network, presenting Pelephone with a complex existing contract to manage. The deal is one of the most significant in the Israeli mobile sector recently.
The story in 5 lines · by baba
- Pelephone will acquire mobile carrier WeCom for 265 million shekels, resolving a tax dispute.
- The deal aims to increase Pelephone's market share and subscriber base in Israel.
- WeCom uses Cellcom's network, creating a complex contract for Pelephone to manage.
- The acquisition could bring Pelephone closer to 3 million subscribers and a 26.5% market share.
- WeCom's owners had a put option to sell the company to Cellcom for 130 million shekels.
Israeli telecommunications firm Pelephone has finalized an agreement to acquire the mobile carrier WeCom for 265 million shekels (approximately $70 million). The deal, which faced potential cancellation due to recent disagreements between the parties, was ultimately secured after they resolved a key obstacle concerning the taxation of converting owner loans into company shares.
Pelephone, a subsidiary of Bezeq, aims to expand its mobile market presence and customer base through this acquisition of full ownership in WeCom. WeCom operates as a smaller mobile provider, utilizing Cellcom's antenna network infrastructure under a long-term agreement.
The acquisition was reportedly in jeopardy just a day prior due to disputes between Pelephone and WeCom's controlling shareholders, businessman Yariv Lerner and the Clarimerk fund. Pelephone insisted on settling owner loans and converting them to equity before the purchase completion. WeCom's owners agreed in principle but sought to delay the signing to obtain a preliminary tax ruling from the Israel Tax Authority, fearing VAT liabilities from the conversion process. Pelephone, however, wished to avoid a contingency clause in the agreement requiring a wait for the tax decision.
Adding complexity, WeCom has a long-term agreement with Cellcom, its direct competitor, for network access, valid until 2032 and valued between 300 to 350 million shekels. Pelephone will need to manage this existing contract, potentially involving significant compensation to Cellcom if the arrangement is terminated.
This acquisition is significant for Pelephone's market position. As of the second quarter's end, Pelephone held approximately 2.71 million subscribers (23.5% market share). WeCom had about 300,000 customers (2.6%). The merger would bring Pelephone closer to 3 million subscribers and a 26.5% market share, narrowing the gap with Cellcom's 3.69 million subscribers (32% market share).
Notably, WeCom also held a put option with Cellcom, allowing it to compel Cellcom to purchase it for 130 million shekels, an option that could have become relevant if the Pelephone deal had fallen through. With the tax dispute resolved, the acquisition proceeds to its next stage, marking a notable transaction in Israel's mobile market.
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