An opportunity to break up Bezeq

Eli Tsipori

The banks' move on Eurocom is meant to cover up for their sins, but there is a public interest that takes precedence over theirs.

1. One thing must not happen as a result of the court petition filed by the credit banks against Bezeq Israeli Telecommunication Co. Ltd. (TASE: BEZQ) controlling shareholder Shaul Elovitch. Control of Bezeq must not pass to another business concern, whether Meir Shamir, who has expressed interest in the company, or a local or foreign fund seeking a quick profit from Bezeq's shares, as Apax Partners, managed by Zehavit Cohen, did, together with Haim Saban and Mori Arkin.

The fact that Elovitch controls a giant company like Bezeq with a controlling interest of only 26%, and that Eurocom Group indirectly owns only 10% of the shares, has constituted an absurd regulatory distortion since Bezeq was privatized. The creditor banks' court petition is an opportunity to put a stop to it.

2. The estimated difference between Elovitch's assets and debts to the banks is NIS 400 million. That is small change in banking terms, not something they would have previously taken to court. They would have tried to compromise, reschedule, and hope for an improvement in the state of the collateral. The public atmosphere has changed, however, and the banks realize that if a debt settlement with Elovitch is unavoidable, it is best done under court auspices and at its recommendation, not by at their initiative in a sale of the shares to Meir Shamir, for example, while writing off the NIS 400 million.

Going through the court will make it appear that the debt settlement has been forced on the banks, at least where the media is concerned. They want it to seem that after jumping through hoops trying to reach an arrangement with Elovitch, they stood up on their hind legs, refused any settlement or write-off, and went to court for lack of choice.

The truth, however, is completely different. The creditor banks would have been very happy to close a deal with Shamir and write off NIS 400 million (for which they have already made a provision). They would have gotten money from Shamir and been able to get rid of the Bezeq and Elovitch file. Fear of an angry public reaction pushed them into court, however, and they are now acting in accordance with PR considerations, not necessarily practical ones.

The big winners from this saga are, once again, the lawyers, trustees, and receivers, who will now juggle the Elovitch case for many months, gaining millions of shekels in the process.

Eurocom Communications' debts

3. It can only be hoped that the banks' court petition will not conceal their screw-up - their failure to demand a personal guarantee from Elovitch for his debts. This is now empowering Elovitch to refuse any settlement requiring him to reach into his own pocket, which presumably swelled considerably during the seven years of plenty at Eurocom, a company that formerly dominated the mobile telephone market in Israel (as the importer for Nokia).

We will once again reach the exasperating situation in which the companies of a big, or fairly big, businessperson reach a state of insolvency, while the businessperson and his or her children and grandchildren have their financial futures assured for generations ahead, without any personal responsibility, and in the case of Elovitch, without any personal guarantee.

4. Going to court will probably require the sale of Eurocom's assets, headed by its shares in Bezeq. There are two ways of doing this. The first is to sell the controlling interest to a businessperson or group of businesspersons, or to a private equity fund. The second is selling the shares on the open market and dispersing the controlling interest in cooperation with the regulators.

The banks, of course, prefer the first option, because they are likely to get more money out of it (the investment will be made on the top floor of the pyramid - in the Eurocom group - where their debt is found), as opposed to dispersing the shares at market prices and sending the proceeds up the pyramid to their level. There is a public interest in this case, however, that takes precedence over the banks' interest. The public interest does not require a minimum controlling core in huge companies like Bezeq. Such a controlling mechanism creates distortions, and eventually also leads to inherently dubious party-at-interest deals - and in the case of Bezeq and Elovitch to an investigation by the Israel Securities Authority and a recommendation for an indictment.

At the same time, the public interest can also be combined with the banks' interest to maximize the proceeds by selling Bezeq in parts, and this can now be done through the courts. Initially, Bezeq can be forced to sell Pelephone Communications Ltd. and Walla!, and a possible sale of DBS Satellite Services (1998) Ltd. (YES) can also be explored (it will not be easy). In the first stage, the value will be improved, and in the second stage, Bezeq shares will be sold on the market. This will achieve two purposes: dispersal of Bezeq's power and dispersal of its controlling core.

Published by Globes [online], Israel Business News - www.globes-online.com - on December 21, 2017

© Copyright of Globes Publisher Itonut (1983) Ltd. 2017

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