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Internet Gold agreed Sunday to buy 60 percent of 012 Golden Lines for $84 million as the telecommunications market further consolidates to compete with Bezeq as a multiple service provider. The deal assigns Golden lines a market value of $140m.
"The long distance calling and Internet sectors are cut throat competitive markets and it is logical that there should be mergers there," said Richard Gussow, senior analyst at Excellence Nessuah. "From now, however, I wouldn't expect further mergers there because there is no one left, but you might see some action among the cable providers and cellular companies."
The merger brings two of Israel's five major Internet providers together, competing with Bezeq subsidiary Bezeq International and Barak and Netvision, which are both part of the IDB Group.
With IDB also owning cellular provider Cellcom, Gussow added that the creation of two multi-service providers in Bezeq and the IDB Group may put pressure on the other companies in the market to form partnerships and joint ventures, particularly cellular provider Partner Communications and cable company HOT, which seem left out at this point.
Following the merger, the Internet Gold group would be an ideal candidate to add the additional elements of providing Internet service and international calling to such a joint venture, he suggested.
Sources close to the Internet Gold deal agreed, saying there definitely is space to do something with HOT or Partner to create a third major communications group.
Meanwhile, the deal also gives Internet Gold access to the fixed line market, which 012 entered earlier this year, gaining a license to offer telephone service to business customers using voice over broadband (VoB) technology, thus becoming the second company to compete with Bezeq in that market after HOT Telecom started offering telephone service in late 2004. Since then, Cellcom has also started offering fixed line service to the business community, and 012 subsequently extended its pilot license to offer VoB telephone service to private customers two months ago.
Internet Gold said it would continue to focus on the penetration into this market.
However it's in the Internet and international calling markets that the newly merged company will immediately see the fruits of its combined position. Once approved and the deal goes through, the merged company would have combined annual revenues of $1 billion and over one-third of the market, Internet Gold said.
The company said a formal agreement would be signed in the coming days and that the pact then would be forwarded for approval from the respective boards of directors and to government regulators.
Approval will also give 012 Golden Lines owner Eliezer Fishman the cash boost he needs to compensate for heavy losses he made on speculative investments in the Turkish lira, a reason market sources said such a quick deal was struck with the Elovitch family, whose company Eurocom Communications Group controls Internet Gold. On closing the deal, Fishman will continue to own the remaining 40% of Golden Lines.
The agreement calls for 012 Golden Lines to be merged with Internet Gold's Internet and international calling unit Smile.Communications, and for the combined operation to be managed by 012 CEO Stella Hendler. The group as a whole, including its Internet media and advertising, e-Commerce and paid content services subsidiary smile.media will continue to be managed by CEO Eli Holtzman.
"I have no doubt that this merger between our companies will create a new market force which will assist us in further strengthening our position in the communications market," Holtzman said. "Both companies have many versatile development plans in Israel and abroad and the two respective management teams are exceptional human resources which will drive the merged company into a new business era."