Nice work if you can get it / Bezeq owners earn 300% in 4 years

Exactly four years ago, the state telecommunications company Bezeq was privatized and delivered to a group of private investors. The firm subsequently experienced a painful streamlining, options scandals that led to the resignation of the CEO and the current global financial crisis. Despite the internal and external turbulence, however, it turns out that Bezeq's controlling shareholders made one of the most profitable deals in recent Israeli history. Even for a world-class tycool like Haim Saban, who has admitted that he invested in Bezeq mainly out of Zionism, the profits are very far from being chump change.

According to the calculations of TheMarker, the internal rate of return - that measure of the quality of an investment - for Bezeq controlling shareholders in the four years since privatization was 55%. That is a phenomenal rate of return, particularly for a mature company such as Bezeq. The Saban-Apax-Arkin consortium realized a pretax profit of NIS 4.9 billion in just four years, giving Saban and the Apax Partners a pretax profit of NIS 2.21 billion each, with Mori Arkin chalking up profits of NIS 490 million, on paper. With the exercise of options and dividends, the new owners were making a profit of 300%.

What makes the privatization of Bezeq one of the most successful privatizations in Israel? First, there's the enormous, steady stream of dividends that Bezeq has been issuing ever since it made the switch from public to private - NIS 7.92 billion, all told. About NIS 3 billion of that was from accumulated profits from before the privatization, for which the company performed an NIS 1.8 billion reduction of capital in early 2007. The remaining nearly NIS 5 billion in dividends resulted from current operations. Since the privatization, the board of directors has seen to it that 100% of cumulative profits are distributed as dividends twice a year.

In August and September, the controlling shareholders sold off a total of 245 million Bezeq shares for NIS 7.5 and NIS 7.83 each, respectively, netting them NIS 1.9 billion. They had purchased the shares from the state in October 2005 according to a value of NIS 3.7 per share.

Since the start of May 2005, when the tender for the acquisition of Bezeq was held and its market value was fixed at NIS 14.2 billion, that value has soared to NIS 22.2 billion. Unlike nearly all of the Israeli companies with which it shares space on the Tel Aviv-25 index, Bezeq has been unshaken by the global financial crisis. Since the collapse of Lehman Brothers, on September 15 of last year, Bezeq shares have gained 52%.