Bezeq Weighs Sale of Businesses, Including News Website Walla, as Profit Plunges

Buffeted by investigations and boardroom upheaval, company blames increased competition for downturn

The logo of Bezeq Israeli Telecommunication Corp. is seen at the company's headquarters in Tel Aviv, Israel, on Wednesday, Dec. 29, 2010
Bloomberg

Battered and bruised by a year of police and securities investigations, boardroom chaos, a management exodus and growing competition, Bezeq said Thursday that first-quarter profits had plunged and it was considering the sale of some of its businesses.

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First-quarter profit dropped 25.7% from a year earlier to just 260 million shekels ($72.9 million); revenue dipped 3.8% to 2.36 billion shekels. The downturn affected nearly all of Bezeq’s operations, from its core landline telephony business to mobile and satellite television.

Israel’s dominant telecommunications provider said it was formulating a new strategic plan that would help it cope with intensifying competition and focus on its core operations. That could include selling its call center business, its Walla news website and its Bezeq Online call center unit, it said.

Bezeq shares, which have slid 23% in the past year since the company was ensnared in the first securities invitations, closed 5.2% higher Thursday on the Tel Aviv Stock Exchange at 4.46 shekels.

Tavy Rosner, who covers Bezeq for Barclays, noted the quarterly results were in line with estimates, and that “looking ahead we continue to believe that most of the ‘bad news’ is in the stock and we see more upside than downside risk from here.”

Bezeq had been forecast to earn 260 million shekels on revenue of 2.41 billion, according to a Reuters poll of analysts.

Bezeq has endured a perfect storm of setbacks since the Israel Securities Authority revealed it was investigating controlling shareholder Shaul Elovitch and top Bezeq group executives. The case expanded to include allegations, known as Case 4000, that Elovitch traded favorable coverage by Walla in exchange for regulatory favoritism. The affair that poses a threat to Prime Minister Benjamin Netanyahu, who was acting as communications minister when the alleged quid pro quo was made.

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The arrests in the past year of Elovitch, who was Bezeq’s chairman, as well as CEO Stella Handler and other executives suspected of fraud, bribery and other securities offenses has added uncertainty. They all deny wrongdoing.

Elovitch was not only forced out as chairman last June at the outset of the investigation, but creditors of his Eurocom holding group are forcing him to sell the business. Shlomo Rodav replaced him as chairman last month and Handler will officially step down on July 1. No successor has been announced.

Elliott Advisers, the activist investor firm controlled by Paul Singer, last week urged the board to appoint a new CEO swiftly and to consider a share buyback.

Meanwhile, Bezeq’s dominance of nearly all segments of Israel’s telecommunications market has come under sustained attack by rivals since the government opened the market in 2015 to smaller rivals offering far cheaper, though narrower, services.

In Bezeq’s core landline telephony business revenues slid 1.4% to 1.063 billion shekels as it lost 27,000 subscribers and monthly average revenue per subscriber fell by 3 shekels to 53. But operating profit dropped 7.8% to 473 million shekels despite growth in its internet and cloud-computing businesses.

Yes — the satellite television unit that is at the center of the securities probe — saw profit plunge 95% to just 1 million shekels as it lost subscribers and saw average monthly revenues per subscriber decline. Mobile carrier unit Pelephone, on the other hand, gained 21,000 subscribers to 2.546 million, but net profit fell 49% to 9 million shekels amid strong competition.

Bezeq also reported an 80-million-shekel early-retirement plan for 75 workers to be taken in the second quarter.

Walla remains profitable, but because of its role in Case 4000 observers said on Thursday that Bezeq may be seeking to divest it quickly as part of a general housecleaning. They said that may explain why the company chose to announce it as a divestment candidate even though the new strategic plan is still in early development.

Among possible buyers is the RGE group, which controls Israel’s Channel 10 television network. RGE declined to comment

With reporting by Nati Tucker and Reuters.