Bezeq Hit With a $550 Million Lawsuit

Petition asserts company failed to fully disclose implications of 2012-13 telecoms reforms

Stella Handler, CEO of the Israeli Bezeq telecommunication company, appears in the Israeli Justice Court in Tel Aviv in one of the graft probes threatening the Israeli prime minister on February 21, 2018.
AFP/Jack Guez

As Stella Handler marked her last day as CEO of Bezeq on Monday, the telecoms company was hit by a 2 billion shekel ($550 million) class action suit filed against it and 13 company officials, including Handler herself and Bezeq’s former controlling shareholder Shaul Elovitch.

Tel Aviv Economic Court Judge Dania Keret Meir approved the giant class action suit, clearing the way for it to be adjudicated.

Israel’s biggest telecommunications company has been reeling in the face of police and Israel Securities Authority investigations, Elovitch’s loss of control to his creditors and an exodus of top management. 

>> Read mnore: Bezeq’s in a Free Fall, but Does Anyone Want to Buy It? | Analysis

But the lawsuit itself deals with the more obscure issue of Bezeq’s alleged failure to adequately report on two key regulatory changes in 2012 and 2013 – the reform of the so-called wholesale market for landline telephone service and a reduction in interconnection fees. 

The Israel Securities Authority said it was joining in the suit and said it would be subsidizing court costs.

The plaintiffs assert that both reforms had a major impact on the company’s financial results and are seeking compensation for losses to shareholders allegedly kept out of the picture due to inadequate disclosure. 

Bezeq shares, which have been rallying on hopes for major cost-cutting measures by its new management, slid 0.8% to end at 4.49 shekels on the Tel Aviv Stock Exchange on Monday.

The class action suit was originally filed in January 2015 by attorneys Ronen Adini and Effi Shasha in the name of a company called Yaad Holdings, which had invested in Bezeq shares. 

The suit alleges that Bezeq acknowledged in court proceedings the negative implications of the Communications Ministry’s reforms in its activity, but failed to share this assessment with shareholders through timely disclosure. Moreover, they alleged that some Bezeq executives were selling shares at the time, which showed they were bearish about the company.

The suit estimates the lower interconnection fees alone lowered Bezeq’s net profit by 80 million shekels a year and reduced the value of the company by 5% after February 28, 2013, the date when the company was first notified by the ministry it would hold hearings on the reforms. 

Regarding the wholesale reforms, it estimated they reduced Bezeq’s value to shareholders by 2.3 billion shekels, or 84 agorot a share.

Together the two reforms subtracted 4.2 billion shekels from the value of the company, of which 2.3 billion was sustained by shareholders.

In response, Bezeq and the executives named say the company reported the issues properly and that the Communications Ministry and other sources provided information as well in real time. In any event, they claim the losses cited by plaintiffs are speculative and that they suffered no losses.