This morning, Cellcom CEO Avi Gabay dropped a bomb and announced his departure from his position at Cellcom. As the hours passed, the real reasons behind the move became clear, chief among them Gabay’s desire to move from managing a communications company to owning one. What happened during the day Make some order.
Avi Gabay resigned from his position as CEO of Cellcom. When will it take effect?
The departure is immediate. In the shadow of Gabay’s involvement in the attempt to acquire the rival Partner, he can not continue in his position until the election of another CEO. In any case, Gabay will not be involved in the near future in negotiating with the current controlling shareholder of Partner Hutchison. , Gabay’s partner in the investor group.
Cellcom’s share climbed more than 30% under Gabay and the company radiated stability. Why is he leaving?
There are several reasons for this. First, it seems that Gabay has decided that he is no longer interested in the position of director and he is interested in becoming the owner of a communications company. In addition, the CEO’s relationship with the controlling shareholders of Cellcom ran aground. Among the brothers Zalkind and Tzachi Nachmias, shareholders in Discount Investment, which controls Cellcom, disliked Gabay’s over-independence and the fact that they were not involved as expected. Convince Gabay to withdraw from the resignation notice.
Globes learned that even before joining the group of investors to acquire a partner, Gabay, who knew that the shareholders did not plan to hold Cellcom in the long term, formulated an offer to acquire Cellcom together with a financial entity from the capital market and was rejected. Apparently a crack began in the relationship between Gabay and the controlling shareholders. At one point it was clear that the relationship would not last long as Gabay continued to demonstrate independence and in fact continued on the same line from the moment he entered, according to which he makes the main decisions in the company.
Who will take his place at Cellcom?
Not yet determined. The leading candidates are Golan Telecom CEO Ilan Siegel and Dynamics chain CEO Eli Addi, as deputies.
So what is Gabay doing now?
Gabay heads a group of investors interested in acquiring control of Partner from the Hutchison Fund, which currently owns it. Beside him are businessmen Mori Arkin and Shlomo Rodev, most recently with extensive experience in the communications market, both at Bezeq and Partner. Rodev and Gabay have maintained contact since the days they worked together at Bezeq. Arkin was the Israeli partner in the Apax-Saban group, which controlled Bezeq, and from there the acquaintance between them.
What are they willing to offer for a partner, and against whom are they competing?
It seems that both Gabay and Rodev see the Golan Telecom model before their eyes. That is, the formation of a group of investors together with financial entities that come to buy the company and improve it, and then sell it. In this matter Gil Shoren serves as a model. Sharon, together with Electra, bought Golan for NIS 350 million plus a loan they received from Cellcom for the purchase, and sold it in a relatively short time to Cellcom for NIS 560 million.
The main competitor for the acquisition of Partner is the American Apollo Investment Fund, which has been managing for several months now with the current controlling shareholder in the company, the Hutchison Fund.
How did Partner become a hot commodity on the shelf?
Since September 2019, Partner has been operating as a company without a controlling interest. The Israeli-American businessman billionaire Haim Saban then gave up his controlling shares in Partner, thus setting a loss of about half a billion shekels on his investment in the company. Saban offered the shares to Hutchison of Hong Kong, which previously controlled Partner.
Saban, who was previously part of the controlling interest in Bezeq Communications and made a handsome profit in it, returned to investing in the Israeli communications market when he acquired control of Partner from Ilan Ben-Dov in a deal completed in early 2013, after Ben-Dov-controlled companies ran into financial difficulties. As part of the transaction, Saban purchased 30.7% of Partner shares from Ben-Dov’s Skylex, for NIS 250 million, and another 2% of the shares held by Bank Leumi, for NIS 83 million. Subsequently, Saban invested additional sums in the company.
As part of the deal, Saban “inherited” Ben-Dov’s debt to Hutchison – a shareholder loan previously granted to him to buy the company. Saban’s debt was due to be repaid in January 2020, and towards the due date he negotiated with Hutchison over the loan recycling, but in the end these contacts did not mature into an agreement. A situation arose in which Saban’s debt amounted to NIS 1.1 billion (according to the exchange rate at the time), while the market value of Partner’s shares (which are pledged to secure the payment of the debt) amounted to only NIS 730 million. Subsequently, Saban shares (27%) were transferred to receivership prior to their transfer to Hutchison, subject to obtaining a control permit from the Ministry of Communications.
A few months later, Hutchison realized that the chances of getting a control permit were nil, and Globes reported that the company from Hong Kong was preparing for the possibility that it would have to sell the shares. This is due to the difficulty of granting control to Chinese companies due to American opposition. Hutchison holds shares through a trustee appointed by the court and has no representation or influence on the board of directors. The American investment fund Apollo has been named as interested in the possibility of purchasing the shares from Hutchison.
What are Gabay and his partners looking for in the communications market, and what are the differences between Partner and Cellcom?
The gaps between Cellcom and Partner, as they are reflected in the communications market today, are mainly due to strategic decisions made in companies in the past, and changes in ownership over the years. Cellcom is dragging down debts that have accumulated in the amount of billions of shekels from the period of the beginning of the previous decade. At the same time, Partner was relatively stable when the previous owners adopted a policy of repaying debts and brought it into debt of less than NIS 1 billion.
The two companies invest in the same areas, but differently. Cellcom chose to invest in the IBC fiber optic venture while Partner decided to deploy fiber independently. Cellcom first entered the field of television in 2014 and therefore entered a very complex model while Partner entered the field only in 2017, but in an advanced and simple model that brought it to a growth rate that almost catches up with Cellcom.
At the same time the two companies are suffering from a crisis resulting from very tough competition in the cellular market that no one can predict when it will end.