Just hours after losing a bidding war for Africa Israel Investments, businessmen Naty and Ofer Saidoff set their sights late Sunday on gaining control of Bezeq, Israel’s biggest telecom company.
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The brothers — Israelis who made a fortune in Los Angeles real estate — offered to take control of Eurocom, the closely held holding company controlled by embattled businessman Shaul Elovitch that has a controlling stake in Bezeq.
Shares of Bezeq, which has seen its stock fall as Elovitch contends with an Israel Securities Authority investigation, rose 1.2% percent to 5.37 shekels ($1.54) Monday on the Tel Aviv Stock Exchange.
The Saidoffs began their efforts over the weekend via a complicated debt settlement with the banks to whom Eurocom owes money. Last week the banks asked the Tel Aviv District Court to liquidate the company.
The deal in the works is a classic one for a company in distress, including cash infusions from external sources and the forgiving of some of Eurocom’s 1.7 billion shekels in debt.
The deal would leave Elovitch with just a 10% holding in Eurocom Communications and 10% to 20% in sister company Eurocom Real Estate.
The Saidoffs want Elovitch’s assistance to learn about the assets these companies hold. Since the brothers are not Israeli residents, they would most likely need to have an Israeli partner to complete the deal, in keeping with the Communication Ministry’s terms for being Bezeq's controlling shareholder.
Eurocom Group is structured as a pyramid. Eurocom Communications controls 54.7% of publicly traded company Internet Gold, which in turn holds a 64.8% stake in B Communications. B Comm is Bezeq’s biggest shareholder, with a 26.3% stake.
Thus by taking control of Eurocom, the Saidoffs would effectively control Bezeq through a mere 10% stake, similar to how Nochi Dankner controlled businesses in the IDB group.
Two days ago, representatives of the Saidoffs’ business group submitted an initial proposal for a deal with Elovitch. Under the deal, the brothers would immediately pay Eurocom Communications 360 million shekels, which would go immediately to the company’s bank creditors. Eurocom Communications owes 480 million shekels to Israel Discount Bank, 350 million shekels to Bank Hapoalim and 141 million shekels to First International Bank of Israel.
It’s not clear how the money would be divided between the banks, which hold collateral of varying amounts. Discount Bank has collateral worth 500 million shekels, Hapoalim 200 million shekels.
Eurocom Communications would be left with another 540 million shekels of debt, which it could refinance with lower-interest rate bonds if the company recovered.
The deal also proposes that the banks give the Saidoffs another 150 million shekels in short-term credit, to be paid back when some of Eurocom’s assets are sold off. Another 300 million to 400 million shekels of the company’s debt would be written off.
Eurocom Real Estate would be left with 264 million shekels in debt as well. This debt is owed to a consortium led by Mizrahi-Tefahot Bank, as well as institutional investors including Psagot and Clal Insurance. They hold liens on assets that belong to Eurocom Communications as well, and on Monday they petitioned to gain control of Tel Aviv's Midtown real estate development, and to name a representative to oversee the company’s shares in the company Spacecom.
If the Saidoff brothers take control of the Eurocom group, they will need to inject several hundred millions of shekels into the group’s subsidiaries, which face a cash crisis.
On Monday, the Tel Aviv District Court held a hearing on the banks’ Eurocom petition, during which officials of Discount, Hapoalim and FIBI asked that observers to the company be appointed on their behalf.
During the hearing, the banks signaled they were willing to wait a week to see whether the negotiations with the Saidoffs were progressing, on the condition that the Saidoffs put down $5 million by Wednesday to demonstrate the seriousness of their intent.
Several hours after the hearing, Judge Eitan Orenstein appointed observers to Eurocom Communications on behalf of the three banks.
Orenstein said the appointment was justified given the need to oversee the company’s management, and given its problematic pyramid structure and massive debt.
The Saidoffs had previously sought to gain control of Africa Israel, which is also struggling with debt, but lost out to Israeli German businessman Moti Ben-Moshe.