Are foreign investors on the way to taking over Bezeq Israeli Telecommunication Co. Ltd. (TASE: BEZQ)? According to senior capital market sources and representatives of large investment funds, a group of foreign investors is organizing for this purpose following last week's appeal by the Elliott Associates fund. The aim of the plan is not a long-term takeover; it is designed to enhance the asset's value by replacing Bezeq's board of directors.
Since the reports began about interest by Elliott Associates, Bezeq's share price has spurted 12%. Some of the foreign funds held no Bezeq shares, and have only acquired shares in the company in the past few days.
As reported in "Globes," since Elliott Associates' published its letter to Bezeq, the foreign investors have been working out cooperation aimed at a takeover of Bezeq through its board of directors. Some of the funds are also taking action to acquire Eurocom Communications or Bezeq through an acquisition of Internet Gold Golden Lines Ltd. (Nasdaq: IGLD; TASE:IGLD), and are negotiating with the banks for the purpose of submitting an acquisition bid. Up until now, Elliott Associates has been conducting both direct talks and talks through entities on its behalf with foreign shareholders holding 15-20% of Bezeq's shares.
According to the information obtained by the funds, on the basis of which they are considering a bid for Eurocom and Bezeq, severing the connection between the Elovitch group and Bezeq will add tens of millions of shekels to Bezeq's revenue as a result of party at interest deals and cooperation forced on Bezeq, which new ownership will render unnecessary. In addition, investors are convinced that they will be able to find a way to eliminate the structural separate quickly, which the banks believe will save NIS 500 million in costs for the company. Bezeq's estimates are lower (NIS 400 million in savings), but in any case, the potential for enhancing the company's value is huge, according to the banks.
Investors believe that now, under new ownership without Shaul Elovitch, especially when international groups willing to invest a great deal of money are concerned, the government will take action to eliminate structural separation in Bezeq.
The banks are also explaining to investors that eliminating structural separation will enable Bezeq to take advantage of the tax assets approved for it in the framework of the deal for the acquisition of DBS Satellite Services (1998) Ltd. (YES), which will mean tens of millions of shekels in regular revenue per quarter. The benefit is estimated at NIS 800-900 million over eight years.
At the same time, while elimination of structural separation will create business opportunities for Bezeq, it will also cause the company's buyers quite a few difficulties. Elimination of structural separation between Bezeq and Bezeq International Ltd., or between Bezeq and any other company in the group, will make it necessary to reach understandings with the workers' committees that have arisen in recent years in each of Bezeq's subsidiaries. In other words, Bezeq's workers' committee has different interests than those of the workers' committees of Bezeq International, Pelephone, and Yes. Most of the workers' committees are represented by the Histadrut (General Federation of Labor in Israel), except for the workers' committee of Yes, which is represented by the National Labor Federation in the Land of Israel.
The workers' committee at Pelephone also contacted potential investors, and made it clear to them that they should also be consulted before a deal is closed for Bezeq, and should not be regarded in any way as part of Bezeq's workers.
In any case, it appears that elimination of structural separation at Bezeq is definitely something that the investors are taking into account and regarding as an extremely significant factor in a deal, through which it will be possible to save hundreds of millions of shekels.
Making light of the risks
It was also reported to investors that since Yes announced its price cut, it has gained 6,000 new subscribers, making the measure a success. The banks are thereby giving a picture that balances the expected damage to Yes's profit caused by price erosion, which is likely to reach NIS 250-300 million a year.
In addition, the banks are asserting that Bezeq's profit will reach NIS 1.3 billion next year, not NIS 1 billion, as reported in the company's internal discussions. This estimate does not take into account the fact that regulatory decisions can cause Bezeq very large losses, such as on the subject of wholesale telephony prices; if the Ministry of Communications lower the user prices for Bezeq's competitors, the damage to Bezeq is likely to grow.
It therefore appears that the banks are marketing a very rosy portrayal of Bezeq, and making light of the risks that the group poses to them.
In any case, an opinion is forming among investors that the Saidoff group is cooperating with Elovitch, and they can therefore be expected to oppose a deal with that group.
Published by Globes [online], Israel Business News - www.globes-online.com - on January 21, 2018
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