Bezeq, the Israeli telecom giant at the center of a corruption case involving Prime Minister Benjamin Netanyahu, said Wednesday it planned to cut its dividend to 70% of net profit from 100% to bolster its finances. The company was also hit with an unusually large antitrust penalty.
“The board of directors sees importance in maintaining a balance between securing the company’s financial strength and stability, while preserving its AA credit rating over time, and providing shareholders with value by distributing dividends,” Bezeq said.
The company, which is dealing with securities and criminal investigations as well as a prospective change in ownership, also said its board had approved the appointment of two interim directors to replace controlling shareholder Shaul Elovitch and his son, Or, who were arrested last month with then-CEO Stella Handler in connection with an investigation by the Israel Securities Authority.
As expected, the Elovitches were replaced on an interim basis by former Bezeq Chairman Shlomo Rodav and Doron Turgeman, CEO of Bezeq’s Internet Gold, who were nominated by B Communications, the Elovitch company that controls Bezeq.
Separately, the company suffered another setback after the Antitrust Authority said Wednesday it was imposing an unusually large 30-million-shekel ($8.7 million) penalty for what it said was Bezeq’s abuse of its “monopolistic position” to block rivals from using its network as required under the 2015 telecommunications reform. Handler herself may be subject to a fine of 700,000 shekels, the authority added.
Bezeq shares, which have fallen 17% since the securities authority launched its investigation, ended down 1.7% lower Wednesday at 5.11 shekels.
The credit-rating agency Midroog recently warned it might lower Bezeq’s rating if the dividend policy didn’t change, but Barclays analyst Tavy Rosner said the cut seemed unnecessarily deep “unless the company expects a deterioration of its financial situation.” One of the attractions of Bezeq for investors had been its robust dividend yield even as the company copes with multiple regulatory and competitive uncertainties, he noted.
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The securities authority has recommended indictments for Elovitch and others in connection with Bezeq’s acquisition of Elovitch’s stake in their joint-venture satellite-television broadcaster Yes. More recently, police have been pursuing allegations about trade-offs of friendly news coverage by Bezeq’s Walla news site in exchange for regulatory favors, a case that threatens to ensnare Netanyahu.
Meanwhile, the U.S.-Israeli real estate entrepreneur Naty Saidoff is near to closing a deal to buy control of Eurocom Communications, the investment vehicle through which Elovitch controls Bezeq and other companies. The offer has been accepted by Eurocom’s creditors and is due to go to court for approval later this month.
The rapidly changing situation at Bezeq has spurred into action minority investors concerned about governance issues. The New York-based activist investor Elliott Management, which has a 4.8% stake, has called for all Bezeq directors implicated in the investigation to resign. Entropy, a shareholder advisory firm representing Israeli institutional investors, seeks a special shareholder meeting to appoint three outside directors.
Bezeq said Rodav and Turgeman would serve on the board until a shareholder meeting was held, probably in early May, when the company plans to appoint eight directors in addition to the three outside directors currently on the board.
The antitrust fine was imposed in connection with a reform of the telecom sector that had required Bezeq to make its underground cable network available to competitors who wanted to lay fiber-optic cable in it. The aim was to save competitors costs and make them more effective rivals to Bezeq, which dominates landline telephony.
The authority said it found that Bezeq prevented competitors from installing cable in the so-called last mile of its network, which links it to buildings like homes and office towers. According to the authority, Bezeq also insisted that competitors use long and complicated routes for their cables, raising costs and reducing the quality of service.