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Cellcom Nears U.S. Debut

Israel's largest cellular-phone carrier hopes to raise more than $300 million in an IPO.



, Israel's largest cellular-phone carrier, hopes to raise more than $300 million through an initial public offering that will see the company listed on the

New York Stock Exchange


The company plans to issue 19 million shares at an estimated price of $16 to $18 each, and Cellcom will likely begin U.S. trading within the next few days under the symbol CEL. That price range would value the IPO between $304 million and $342 million.

Underwriting the sale is Goldman Sachs, which also owns 5% of the company, along with Citigroup, Deutsche Bank Securities, Merrill Lynch, Jefferies and William Blair & Co. The underwriters will have the option to purchase 2.85 million additional shares to cover overallotments.

Cellcom, which operates cellular-phone networks across Israel, has about 2.8 million subscribers, giving it a market share of roughly 34%. The company has recently started providing 3.5G services such as video and music content streaming and high-speed Internet.

According to documents Cellcom has filed with the

Securities and Exchange Commission

, it expects to have tallied revenue of about $1.3 billion in 2006, compared with $1.1 billion in 2005. Operating income grew 38% year over year to about $227.

In a recent research note to investors, UBS analysts Darren Shaw and Joseph Wolf state that the offering is "attractively priced" and should bring more investors in to the Israeli cellular market.

Cellcom and

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Partner Communications

(PTNR) - Get Partner Communications Co. Ltd. Sponsored ADR Report

, the second-largest cellular company by customer base, are the two major cell-phone rivals in Israel. Shares of Partner, a unit of

Hutchison Telecommunications


, added 25% over the last three months as the hype built around Cellcom's approaching IPO.

Investors will be closely eyeing Partner's shares as Cellcom makes its debut. Partner closed Friday at $13.40.

"This IPO is getting a lot of attention," says Danny Farhi, head of the foreign investors desk at Excellence Nessuah, a Tel Aviv brokerage and investment house. "We have been getting a lot of calls from U.S. institutional investors inquiring about Cellcom, even those that haven't had any significant position in Israeli equities."

Farhi believes the price range of $16 to $18 a share is reasonable and reflects investor confidence in Israel's economy. "It shows that Israel's overall risk factor is becoming lower and that investors are optimistic about it."

For many analysts, the inherent problem in Israel is that cell phones are already very widely owned, making it difficult for operators to find growth engines other than new subscribers.

"The cellular market in Israel is saturated," Farhi says, "but these companies continue showing impressive revenue growth through new products and technologies offered to their existing customer base."

According to Farhi, Partner has the lead in providing 3G and 3.5G cellular services in Israel, a fact that has been forcing Cellcom to increase investments in its own next-generation products.

In its prospectus, Cellcom says it plans "to continue to invest in the deployment of our high-speed UMTS/HSDPA network, which covered 80% of the populated territory of Israel at the end of 2006. We also plan to expand our content and data services, products and capabilities through in-house expertise and strategic relationships with leading cellular content providers."

Cellcom is currently 78.5% owned by Discount Investment Corp., a subsidiary of IDB Development. Bank Leumi and Goldman Sachs each purchased a 5% stake in the company last year. After the IPO, Discount Investment will own 60.5%.