Israeli Investigators Raid Bezeq Telecoms Offices in Securities Probe

Controlling shareholder Shaul Elovitch is focus of suspicions that include possible criminal offenses

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Bezeq Chairman Shaul Elovitch.
Bezeq Chairman Shaul Elovitch. Credit: Dudu Bachar

Israel Securities Authority investigators searched the offices of Bezeq and its Yes subsidiary on Tuesday, and questioned controlling shareholder Shaul Elovitch for what it said were suspicions of securities and criminal violations.

Elovitch and others were being questioned at the Securities Authority’s Tel Aviv office and at least some of them were expected to be detained. Trading in Bezeq and its parent company B Communications was suspended for about two hours on the Tel Aviv Stock Exchange in the morning, and its sister company Internet Gold halted a planned bond offer.

The Securities Authority revealed few details about the probe except to say thar it “deals with suspicions of violations of the securities law and the penal code relating to transactions connected to the controlling shareholder.”

Investigators felt compelled to announce the investigation, even though it is in its early stages, because of heavy trading on Bezeq shares Tuesday morning that signaled word about the probe had been leaked.

In a statement, Bezeq acknowledged that its offices had been raided but said to the best of its knowledge the probe was directed against controlling shareholders and not the company itself. “The company does not have any additional information about the nature and circumstances of the investigation,” it said.

Shares of Bezeq, by far Israel’s biggest telecommunications group, with a market capitalization of 17.9 billion shekels ($5 billion), ended 4.8% lower at 6.17 shekels. Bcom fell 5.6% to 72 shekels and Internet Gold 6.2% to 37.71. Internet Gold called off a 150 million-shekel private placement of bonds that had been scheduled for Wednesday.

“As long as the investigation continues, I think there will be an overhang over the share that will affect sentiment,” Roni Biron, cohead of research at Excellence Nessuah, said in a note to clients.

While the Securities Authority did not provide any details about its suspicions, sources said they were likely connected to Bezeq’s buying of Elovitch’s stake in the satellite television company Yes two years ago. Shmuel Hauser, the authority chairman, told the Eli Hurwitz Conference on Economy and Society that there would be no leniency toward violators.

Elovitch's friendship with Netanyahu has raised watchdog's suspicions

One of Israel’s richest men, Elovitch sits atop a group of companies structured as a pyramid. At the pinnacle is his closely held Eurrocom Group, which has an 80% stake in BCom and 61% of Internet Zahav. Bcom, in turn, controls 26.3% of Bezeq. Elovitch has other interests, including the satellite operator Spacecom and Enlight Renewable Energy and import rights for the Panasonic, Nokia and ZTE brands, among others.

He is friends with Prime Minister Benjamin Netanyahu, which has aroused suspicions in the State Comptroller’s Office that the prime minister, especially when he was also holding the communications portfolio, favored Bezeq in setting regulatory policy.

When Elovitch acquired Bezeq in 2010, it was on condition that control of Yes, in which he had a 50.2% stake, be turned over to a trustee and eventually sold to a third party. Elovitch eventually convinced the Antitrust Authority to change its stance and then won approval from Bezeq shareholders in March 2015 to buy the stake, which valued the satellite TV company at 1.6 billion shekels.

Many institutional investors that owned Bezeq shares objected at the time to the deal. The Securities Authority now suspects that Bezeq’s board was given erroneous information about Yes, especially about its valuation. Since the deal, the Israeli multichannel TV market has become highly competitive and Yes has been bleeding subscribers.

Bezeq is now lobbying the government to end the legally mandated structural separation of its fixed-line, mobile and satellite TV units, which it says adds to its costs and hampers its ability to compete. However, the Securities Authority probe is almost certain to delay any approval by regulators.

The probe creates “a more challenging political backdrop for Bezeq with regards to the removal of its structural separation,” said Excellence’s Biron. “In the absence of a regulatory catalyst, Bezeq’s underlying business remains under pressure.”

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