There couldn’t be a more glaring contrast in the Israeli business world.
Shaul Elovtich, Bezeq’s controlling shareholder, is sitting in jail as the police and Israel Securities Authority investigate an array of offenses while his creditors wind up the final terms for wresting control of his Eurocom group.
Meanwhile, Naty Saidoff – the kibbutznik who left at a young age to make a fortune in Los Angeles real estate – is about to realize his long-time dream of acquiring a major asset back in his home country by acquiring Bezeq, Israel’s dominant telecommunications operator.
Over the weekend, the bank creditors of Eurocom Communications – the holding company through which Elovitch controls Bezeq – gave their backing to Saidoff’s 1.05 billion shekel ($300 million) offer for the company. The final decision on the offer rests with Judge Eitan Orenstein of Tel Aviv District Court who is expected to rule March 20 after he has returned from overseas.
Saidoff’s offer is a rich one, a premium of about 30% over the market value of the assets he’s buying, which include a 55% stake in Internet Gold, the company that controls Bezeq. Moreover, acquiring Bezeq will put him into the media spotlight for the first time in his career, which has been spent owning and operating closely held companies.
Along the way to his dream, Saidoff faces several important challenges.
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The first is establishing himself as a legitimate figure with the Israeli banking sector and capital market. In the United States, Saidoff has worked with the local units of Bank Leumi and Israel Discount Bank, but in Israel he is an unknown.
In particular he will have to ensure good relations with Lilach Asher-Topilsky, Discount’s CEO. Her bank is Eurocom’s biggest creditors and it has dealt with Saidoff with a degree of suspicion as the Eurocom bailout was being pieced together.
Support of the banks will be critical because the terms of the bailout effectively make them his partners in Eurocom. Much of their future payout of the Eurocom debt they hold hinges on his ability to boost the value of the company’s assets over the next five years.
Regarding the capital markets, the companies he will be controlling – Internet Gold, B Communications, Bezeq and Spacecom -- have between them some 10 billion shekels in bonds. He will need to win investors’ confidence, a process he began with his abortive bid for Africa Israel Investments last year.
Saidoff will be getting control of Eurocom before he has received a license to own a telecommunications company. The deal taking over Eurocom is structured such that the company will issue 376.5 million shekels in bonds convertible to shares giving 100% control, which means for a period of at least several months he won’t technically control Bezeq or Spacecom – until he gets the license.
There are plenty of fires to be put out by Bezeq, not the least that its CEO, Stella Handler, is also in jail, and the company is under investigation. Shaul Elovitch, his son Or and daughter-in-law Elovitch- Peled have announced their resignations from the board, leaving the company without a controlling shareholder in charge either.
Already on Sunday, Saidoff seemed to acting to assert control. Last in the day B Communications, an Elovtich company, said it wanted to replace the Elovitches with three directors – Doron Turgeman, Tamir Cohen and Shlomo Rodav – all of whom are known to TheMarker as Saidoff candidates.
Meanwhile, Saidoff and his aides are going to have to get a deeper understanding the Bezeq in order to build a business-financial plan that can win back the confidence back the confidence of foreign and Israeli investors. The investigations and arrest have taken a serious toll on Bezeq and its image.
Saidoff will have to find a new CEO and senior management and appoint directors all the while ensuring union cooperation. He will also have to make the difficult decision over whether to retain Elovtich’s policy of distributing 100% of Bezeq’s profits as dividends, which amounted to 1.5 billion a year.
One the one hand, a decision to reduce the dividend to 70% or 80% of net will save the company from a lowering of its credit rating as the ratings agency Midroog warned earlier this month could happen. On the other hand, reducing the dividend from Bezeq will mean Saidoff will have less cash flow to pay off Eurocom’s debt.
At the same time, Saidoff will have to convince the Communications Ministry to let him go ahead with ending structural separation of Bezeq’s operating units. That would enable him to merge satellite TV unit Yes, mobile unit Pelephone and Bezeq International into the parent company and save the group considerable operating costs.
By the end of 2019, Saidoff must decide how to collapse the Eurocom group pyramid in two no more than two tiers to meet the deadline set by the Business Concentration Law. Eurocom Communications own 55% of Internet Gold, which owns 65% of B communications and owns 26.3% of Bezeq.
Bezeq will take time to recover, but Saidoff faces some 525 million shekels of Eurocom debt that has to be paid off over the next few years. Eurocom Communications debt alone is 350 million and the interest ion it will rise sharply if he fails to pay it off or refinance it by the end of 2019. He is also committed to injecting 75 million shekels into Eurocom Real Estate to pay off its debt.
To finance all this, Saidoff will have to decide which of the Eurocom assets he wants to sell – its 15.3% in Enlight, an alternative-energy company, 55% in satellite operator Spacecom and/or a 37.5% stake in the Midtown Tel Aviv real estate project.