Telecommunications company Cellcom Israel (TASE: CEL), which was put up for sale by highly-leveraged investment company Discount Investment Corp. (TASE: DISI), could find a new home shortly. Private equity firm Fortissimo Capital, managed by its founder Yuval Cohen has signed a non-binding memorandum of understanding to buy control of Celcom. Fortissimo’s bid values Cellcom at NIS 2.6 billion, which compares with a current market cap of NIS 2.2 billion. Discount Investment has given Fortissimo two weeks in which to carry out a due diligence examination, during which the sides can proceed towards closing the deal.
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Discount Investment is run by Nataly Mishan-Zakai. Its main shareholders are Mega Or Holdings (TASE: MGOR), controlled by Zahi Nahmias, and Elco (TASE: ELCO), controlled by brothers Daniel and Michael Salkind. The company has been seeking to sell Cellcom for some time, in order to reduce its considerable debt. Discount Investment has debt of some NIS 2.2 billion in its bonds. It holds 35.6% of Cellcom, a stake worth NIS 792 million at Cellcom’s current stock price. Fortissimo’s bid represents a generous 20% premium over that price.
The prices of Discount Investment’s bonds have strengthened substantially recently, thanks to the announcement of the negotiations on the sale of Cellcom on November 28 and a recent successful exit by technology investment subsidiary Elron Ventures (TASE: ELRN), but the yields on all three series are still in the double digits.
Cellcom stated in its third quarter financials that it had 3.5 million mobile telephony subscribers and a 31% of the Israeli market. The company has fiber-optic infrastructure that provides access to 2 million homes. It posted a profit of NIS 101 million in the first nine months of 2023, down 6.4% on the profit for the corresponding period of 2022, on revenue of NIS 3.28 billion.
Discount Investment was bought in 2020 by a group of investors led by Nahmias and the Salkind brothers after a receiver was appointed to the company then controlled by Eduardo Elsztain. Discount Investment has a current market cap of a little under NIS 500 million, after a 70% decline from its peak in early 2022. This gives the investor group a loss on paper of about NIS 650 million.
Published by Globes, Israel business news – en.globes.co.il – on December 5, 2023.
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