After more than a year of preparations, one of the biggest and most sensitive transactions of the year was unveiled Wednesday: Bezeq will buy the 50.2% of the satellite television operator Yes that it doesn’t already own, in a deal that could be worth up to 1.05 billion shekels ($271 million).
The takeover, which must still be cleared by minority shareholders and the Communications Ministry, would allow Bezeq to package TV, phone and Internet services, Bezeq said Wednesday.
“This is a strategic transaction for Bezeq that will turn it into the complete communications group,” said CEO Stella Handler.
Bezeq’s board approved the plan to buy the stake from Eurocom, a company controlled by the brothers Shaul and Yosef Elovitch, who also own controlling stakes in Bezeq.
Bezeq has long sought to merge with Yes to save costs and allow it to combine TV, phone and Internet sales — something its biggest rival, the cable company Hot, already does and other emerging rivals will do as well. Investors cheered the move, with Bezeq shares closing up 4% at 6.65 shekels in Tel Aviv Stock Exchange trading Wednesday.
Bezeq will pay 680 million shekels in cash for the shares and up to another 200 million shekels for various tax credits because of losses Yes has run up over the year. It will also pay as much as another 170 million shekels in milestone payments based on the satellite company’s performance over the next three years.
Israel’s antitrust commissioner gave its permission for Bezeq to merge with Yes last March, but the deal remains sensitive since the Elovitches are in effect both sellers and buyers. Four different valuations of Yes came out ahead of the sale, which still must pass muster with minority shareholders who, unlike the Elovitches, have no personal stake in it.
About two-thirds of all Bezeq minorities are foreign investors, who will probably seek an independent valuation from ISS, an international company that advises institutional investors.
In its press statement announcing the proposed deal, Eurocom stressed the losses it had taken, amounting to as much as 800 million shekels in the 16 years it was a shareholder in Yes. A spokesman said it was unlikely that the company would ever recover those losses from the merger via the 15% stake it indirectly holds in Bezeq.
UBS analyst Roni Biron, who gives Bezeq a Neutral rating, said he expected the operational merger with Yes to gradually unlock a tax asset of 900 million shekels based on accumulated Yes losses that are eligible for tax relief. These tax benefits will flow to net income and boost dividend payments, Biron said in a note to clients.
Bezeq should also reap savings and other operational benefits of about 1 billion shekels, he said, adding that Yes’ market share in the pay-TV market should rise. “We see market share upside as Bezeq levels up the playing field with Hot and starts offering triple-play (TV, phone and Internet),” Biron said.
The Communications Ministry is in the process of creating a wholesale telecoms market that will allow other companies to use the infrastructure of Yes and Hot. In approving the Bezeq-Yes merger last year, the antitrust commission said Bezeq would first have to clear the way for other companies to compete in the market for television broadcast services.
Cellcom Israel launched its TV service in December, and Partner Communications is expected to join the market as well.
The merger between Bezeq and Yes is a financial one, not an operational one. The two companies won’t combine workforces and will maintain separate headquarters.
But the merger will enable Yes to borrow money on much better terms. It will also relieve Yes of the 1.54 billion shekels in shareholders loans given it by Eurocom, whose financing has left Yes with losses.
Reuters contributed to this report.
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