The share price of Partner Communications Ltd. (Nasdaq: PTNR; TASE: PTNR) is almost unchanged today, after two sessions of sharp rises: yesterday it shot up 7%, after a 5.2% climb last Thursday. Despite the renewed enthusiasm for the share in the past few days, Partner is still down 32% so far this year, following the increased competition in the Israeli mobile telephony market, with the entry into the market of Xfone.
"In the past few days, Partner has behaved somewhat differently from its main competitor (Cellcom Israel Ltd. (NYSE:CEL; TASE:CEL) has risen 3% in two sessions), and the reason for that lies in reports that Haim Saban (controlling shareholder in Partner) is the closest to buying credit card company Leumi Card," says Rosario Research and Consulting CEO Eran Jacoby.
"Investors are starting to look at mobile carriers like this: telecommunications services are gradually becoming a commodity, and are crying out for new growth engines. Investors understand that the big asset is all the data in the possession of the mobile carriers and the credit card companies." Partner recently announced that it was considering entering the credit card business, and that in general it was "in the process of examining new growth engines."
Jacoby says that if one looks at mobile carriers and credit card companies as customer clubs rather than as service providers in their different fields, the synergy between the two becomes clear, arising from their ability to know much more about a customer and to offer what customers need based on their location. "The market is giving credit for the fact that the companies hold highly valuable information," he adds.
Synergy that will take time to realize
At this stage, it is not known whether the acquisition of a credit card company, if it happens, will be carried out directly by Partner, or by Saban in some other structure. Saban Capital Group owns 29.4% of Partner. In any event, Jacoby says, even if the synergies are clear, there are also operational synergies that it will take time for the companies to realize, and there are questions about what will and will not be allowed by the regulators when it comes to implementing these synergies. "In the longer term, in five years' time, a mobile carrier should become a customer club. I think that this will happen one way or another at Cellcom as well."
Looking at the market more generally, Jacoby says, "Competition in mobile telephony has not relaxed, and it's tough in the television market too. The Israeli communications market is far from equilibrium, and there is no solution on the horizon, and that of course has had its effect on all the stocks since the beginning of the year."
Partner has a market cap of NIS 2.5 billion, so that the value of Saban Capital Group's holding in the company is NIS 744 million, a value considerably lower than the loan that the group has to repay Partner's former controlling shareholder, Hutchison of Hong Kong, at the start of 2020.
The loan is a $300 million (more than NIS 1 billion) seller's loan that Ilan Ben-Dov's Scailex took in 2009 when it bought Partner from Hutchison (controlled by billionaire Li Ka-shing), the collateral being the Partner shares acquired.
When control of Partner passed from Scailex to Haim Saban in 2012, the new owner also took on the debt to Hutchison. The loan bears 2% annual interest. There has been speculation recently that Saban might relinquish the holding in Partner and return it to Hutchison, and thereby fix the loss he has so far incurred on paper on his investment in Partner at about NIS 500 million. As recently reported by "Globes", however, Saban Capital Group is in talks with Hutchison on extending the loan period.
Published by Globes [online], Israel business news - www.globes-online.com - on July 16, 2018
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