Fortissimo Capital to acquire control of Cellcom at $700 million valuation
The private equity firm has signed a memorandum of understanding to acquire a 35.6% controlling stake in Israel’s largest cellphone operator
Israeli private equity fund Fortissimo Capital is closing on a deal to acquire Israeli telecommunications company Cellcom. Calcalist has learned that Fortissimo signed a memorandum of understanding on Monday with Discount Investment Corporation (DIC), which owns Cellcom, to acquire a 35.6% controlling stake in Israel’s largest cellphone operator.
Fortissimo is set to pay approximately NIS 925 million for the shares (approximately $248 million), reflecting a company value of NIS 2.6 billion ($700 million) for Cellcom. This is an 18% premium over Cellcom’s market cap of NIS 2.2 billion ($590 million) on the Tel Aviv Stock Exchange as of Tuesday morning.
The parties are determined to close the deal quickly. In the next two weeks, Fortissimo, managed by Yuval Cohen, will receive exclusivity for the acquisition of control of Cellcom, headed by CEO Daniel Sapir, and will perform a targeted due diligence. At the end of these two weeks, the deal should be finalized.
DIC, headed by CEO Nataly Mishan-Zakai, who also serves as Cellcom's chairman, held talks with several parties to sell control of Cellcom. Some parties contacted were unable to provide the necessary capital for the transaction. Among the various parties contacted were a group of investors led by investment firm Value Base, as well as Discount Capital, the investment arm of Discount Bank. Gil Sharon, the outgoing chairman of Bezeq, owner of competitor Pelephone, also tried to form a group of institutional investors to acquire control of Cellcom.
Fortissimo was able to advance to the memorandum of understanding for the transaction thanks to the large amount of cash in its coffers. Last year, it raised a sixth fund in the amount of $1.1 billion.
Cellcom is the largest cellular company in Israel in terms of subscriber numbers, with 3.5 million cellular subscribers. As of the end of the third quarter of this year, its market share is 31%. Additionally, Cellcom operates Cellcom TV, which has an estimated 14% market share. Cellcom also owns a chain of cellphone and computer stores, importing Apple and Samsung products.
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Moreover, Cellcom owns a 23.3% share of the IBC company, operating in the field of optical fiber deployment. Also, this year, Cellcom entered the electricity sector, signing an agreement with Meshek Energy to sell electricity to private customers.
Cellcom concluded the third quarter with revenues of approximately NIS 1.1 billion ($290 million), a slight increase of NIS 10 million ($2.68 million) compared to the corresponding period last year. The third quarter of this year was Cellcom's strongest on the top line in the last two years. Net profit amounted to NIS 53 million ($14.1 million), a drop of 29% compared to a net profit of NIS 41 million ($10.9 million) in the third quarter of 2022.
Since the beginning of the year, Cellcom's stock has fallen by 27%, but the competitor Partner's stock has fallen by a sharper rate of 35%.
Fortissimo, focused on investing in Israeli companies, is the second-largest private equity fund in Israel after Fimi, managed by Ishay Davidi. The total amount raised by Fortissimo in the six funds it has raised since its establishment in 2004 is $2.7 billion. Fortissimo's sixth fund, raised last year, amassed $1.1 billion, mostly from foreign institutional investors. Fortissimo became the second fund in Israel, after Fimi, to raise over a billion dollars for a single fund.
The pending acquisition of Cellcom will be Fortissimo's first significant investment from its sixth fund. Fortissimo is also currently negotiating to acquire control of the transportation company Gett at a value of $200 million.
