Acquisition of NetVision Rationale, details and outline and additional agenda for General Meeting of Shareholders

Size: px

Start display at page:

Download "Acquisition of NetVision Rationale, details and outline and additional agenda for General Meeting of Shareholders"

Marybeth McDowell
5 years ago
Views:

1 Acquisition of NetVision Rationale, details and outline and additional agenda for General Meeting of Shareholders 1 July 18, 2011

2 2 Outline Acquisition of NetVision rationale, details and outline Additional agenda for the General Meeting of Shareholders

3 3 The telecommunications market is converging and traditional boundaries between different services are being blurred Technological convergence IP Voice fixed line network DATA fixed line network Voice cellular network Data cellular network Consumer convergence Fixed line Cell phone The telecommunications market is converging on three levels: Technological convergence to IP technology Consumer convergence Consumers prefer to receive a bundle of services from one provider Product compatibility customers increasingly need content to be available on different platforms Fixed line DATA ISP Cellular DATA TV Convergence of products the ability of equipment to provide a set of fixed line and mobile solutions Access Convergence of products Mobile Fixed line Internet Media Telephony Laptop / Tablet Home gateway Smartphone A mobile phone that can also be used as a desktop / laptop computer when connected to a screen or keyboard A mobile phone that can also be used as a remote control A computer which is also a Media Center

These trends generated consolidation in telecom companies and mobile fixed line mergers worldwide Europe US Asia Mobile and fixed line mergers in Spain, Russia, the Netherlands, Ukraine and several

France Telecom merged its mobile and fixed line operations (Orange) US AT&T offers a bundle of mobile + fixed line + TV.

4 These trends generated consolidation in telecom companies and mobile fixed line mergers worldwide Europe US Asia Mobile and fixed line mergers in Spain, Russia, the Netherlands, Ukraine and several other countries UK BT entered the mobile segment France the leading companies in the fixed line and mobile segment began offering a full range of services. France Telecom merged its mobile and fixed line operations (Orange) US AT&T offers a bundle of mobile + fixed line + TV. AT&T and Verizon entered the television segment CenturyLink merged Qwest s mobile and fixed line operations into the Company s fixed line operations Verizon Wireless announced it would enter the fixed line segment through the use of its cellular network South Korea all telecommunications companies expanded their activities in the fixed line and mobile segments, as well as IPTV Japan the leading operator NTT DoCoMo provides a telephony solution via VOB (through the use of Femtocell) Netherlands Spain Russia France 4 Source: the companies websites and publications in the media

5 5 In Israel, the mobile - fixed line consolidation trend resulted in the formation of telecommunications groups Segment (private) Multi-channel TV X X X X X Internet X X X X X ISP X X X Fixed line / VOB X X International calling X X X Cellular X X X Without acquiring NetVision, Cellcom might find itself in a relative disadvantage in comparison to the other major telecommunications groups in the Israeli market The recent changes in the telecommunications market clearly indicate a trend of consolidating fixed line and mobile services 012 Smile was purchased by Partner Mirs was purchased by Patrick Drahi, with the intention of merging it into HOT The result of these mergers is the formation of telecommunications groups which are able to offer bundled mobile and fix line services The acquisition of NetVision is expected to enhance the Company s ability to successfully compete in the rapidly changing Israeli market, where the Company s main competitors are also in the process of forming major telecommunications groups

6 Acquisition of a leading company with significant market shares The acquisition of NetVision will enhance Cellcom s ability to compete with the telecommunications groups NetVision s market share NetVision s core businesses are complementary to Cellcom. The acquisition will enhance Cellcom s ability to compete with telecommunications groups that will offer bundles of services The alternatives to the acquisition of NetVision may not be easily available to the Company due to the limited number of major players in the Israeli telecommunications market NetVision has a strong standing and reputation in the markets in which it competes Demonstrated by its market share in the ISP and the international calling segments ISP International Calling calls Local fixed line telephony 36% 32% 6 Source: NetVision s financial reports

7 7 The process for determining NetVision s value and approval of the transaction On March 13 th, 2011 Cellcom s Board of Directors authorized the Audit Committee to appoint, together with NetVision, an external, professional and experienced Appraiser for the purpose of preparing a joint valuation of NetVision, and to appoint another external, professional and experienced consultant for the purpose of preparing a Fairness Opinion The Company s Audit Committee consists solely of external and independent directors The joint valuation of NetVision was prepared by an independent Appraiser The Audit Committee approved the transaction on June 13 th, 2011 The Board of Directors approved the transaction on June 15 th, 2011

8 According to the joint valuation, NetVision s value is NIS ~ 1,538M The range of NetVision s value 1,700M 1,615 1,500 1, ,461 1,538 The valuation is as of March 31 st and used the DCF approach In order to take into account possible risks, three scenarios were tested: - Basic scenario the regulatory structure does not change and the current market players continue to operate in the same framework (probability 40%) - Optimistic scenario the Israeli Ministry of Communications acts to increase the competitiveness of the market (probability 40%) - Pessimistic scenario MOC actions to increase competitiveness of the market don t bear fruit, while regulatory restrictions on Bezeq are lifted. Bezeq enhances its dominant position in the market (probability 20%) The valuation was based on the core business of the Company. Additional assets that were added to the valuation: book value of subsidiaries, non-operational assets and an estimation of the company s activities in the OTT TV segment NetVision s share of the estimated synergies that arise from the merger with Cellcom were added (~27% of the synergies) 8 The valuation was reduced by financial commitments, the value of the cash out of employees stock options, allowance for legal expenses, and minority interests The DCF model used a discount rate of 13% According to the valuation, the value of NetVision is NIS 1, m Cellcom received a Fairness Opinion report that determined that the valuation was fair

9 The NetVision-Cellcom merger is similar to the Smile- Partner merger in deal multiples On March 2011 Partner announced the acquisition of 012 Smile Smile is the main competitor of NetVision and is active in the same market segments. The companies operating structure is similar and the companies have similar market share in the ISP and ILD segments The Smile-Partner merger is comparable to the NetVision-Cellcom merger due to several reasons: In both mergers, the acquiring company is a cellular operator with similar structure and size Both acquired companies have similar market shares and have entered the VOB segment Both companies exhibit similar operating results and profitability Comparison of multiples derived from the acquisition price: EV 1,538 1,490 (1) NetVision Smile Revenue 1,313 1,191 Revenue multiple In 2010, NetVision s EBITDA was lower due to its entrance into the VOB market. In order to accurately compare the two acquired companies, 2011F data was used The revenue and EBITDA multiples are similar in both mergers (1) EBITDA EBITDA multiple (1) The published figures for Smile are for 11 months of 2010 and were therefore prorated for 12 months. The figures for NetVision are for the 2011 forecast which was published in the valuation.

10 10 Merger outline The merger will be executed by the following process: - Cellcom created a merger subsidiary (Merger Sub) Cellcom - Merger Sub will be merged into NetVision Cellcom created Merger Sub - NetVision will become a full subsidiary of Cellcom NetVision Merger Merger Sub Following the Israeli Antitrust Authority s approval that the merger does not require its approval, the merger is conditional on receiving the following additional approvals: - Approval of the General Meeting of Shareholders on July 27 th, Approval of the Israeli Ministry of Communications - Approval of third parties whose approval is required All employee stock options will be chased out for cash, to a maximum amount of NIS 10m - The above mentioned amount was taken into account in the NetVision valuation In the merger agreement, it was agreed to pay NIS 1, m, in addition to an effective annual interest of 5% from April 1 st 2011 until the completion of the merger

11 Summary 11 In the past years we are witnessing technological and consumer convergence between the mobile and fixed line segments, which have generated mergers between mobile and fixed line telecommunications companies in Israel and around the world The NetVision-Cellcom merger is in line with the current trend of cellular fixed line mergers In Israel, the result of these mergers is the formation of telecommunications groups which offer cellular and fixed line services. Without acquiring NetVision, Cellcom might find itself at a relative disadvantage in comparison to the other major telecommunications groups in the market Therefore, the acquisition of NetVision is expected to enhance Cellcom s ability to successfully compete in the Israeli telecommunications market According to the joint valuation, the value of NetVision is NIS 1, m In the merger agreement it was agreed to pay NIS ~ 1,538m, in addition to effective annual interest of 5% from April 1 st 2011 until the completion of the merger Cellcom received a Fairness Opinion report that determined that the valuation was fair The multiples and business logic regarding the merger are similar to those in the Smile- Partner merger All employee stock options will be chased out for cash, to a maximum amount of NIS 10m After the completion of the merger, NetVision will become a full subsidiary of Cellcom Following the Israeli Antitrust Authority s approval that the merger does not require its approval, the merger is conditional on receiving the approval of the General Meeting of Shareholders, the Israeli Ministry of Communications and third parties whose approval is required

12 12 Outline The acquisition of NetVision rationale, details and outline Additional agenda for the General Meeting of Shareholders

13 13 Management services agreement with Discount Investment Corporation Ltd. Original agreement signed in 2006 Services provided under the agreement- management, finance, business and accountancy services Consideration - NIS 2m plus VAT per year, adjusted to changes in CPI. In NIS 2.2m (equivalent to approximately $651,466) Due a recent amendment to the Israeli Companies Law an agreement with controlling shareholder requires re-approval by the Audit Committee, Board of Directors and Shareholders every three years In addition, an amendment to the agreement - to clarify that the management fees shall not include any person who serves solely as a director of a subsidiary of DIC (and does not serve as a director of DIC itself) and does not receive any compensation, other than director's fees

14 14 Amendments to the Company's Articles of Association and to the indemnification letter of directors and officers Recent amendments to the Israeli Companies Law and Securities Law authorize the ISA to impose administrative sanctions against companies and office holders for certain violations of these laws Legal expenses and compensation to injured parties for damages payable in these proceedings are permitted to be reimbursed via indemnification or insurance Only if authorized by articles of association requires amendment of articles Requires amendment to our indemnification letter to directors and officers In relation to controlling shareholder, must be approved by the Audit Committee, Board of Directors and Shareholders every three years The purpose is to enable the Company to attract and retain highly qualified directors and officers from time to time

15 Liability insurance for directors and officers who are controlling shareholders Originally approved in 2007 Due to recent amendment to the Israeli Companies Law agreement with controlling shareholder requires re-approval by the Audit Committee, Board of Directors and Shareholders every three years Current policy is for premium of $1,026,000; coverage of up to $100m per claim and in the aggregate, and an additional 20% of the aforesaid sum in connection with defending lawsuits in Israel only; renewed in February 2011 for a term of 18 months Required approval - renewal, extension or substitution of the policy during a period of three years if for the benefit of the Company, officers, directors and certain other employees terms similar or more favorable then in effective insurance policy coverage will not exceed the amounts above premium will not exceed an amount representing an increase of 10% in any renewal or extension or substitution, as compared to the premium in the previous policy Purpose to enable the Company to attract and retain highly qualified directors and officers from time to time 15

16 16 Thank you

Partner Communications Company Ltd. Company presentation Q1 2010

Partner Communications Company Ltd. Company presentation Q1 2010 g This presentation includes forwardlooking statements within the meaning of Section 27A of the US Securities Act of 1933, as amended, Section