Shares of companies controlled by Shaul Elovitch fell sharply on Tuesday after the Israel Securities Authority said it was widening its probe into the relations between Bezeq and its Yes satellite TV unit to include satellite operator Spacecom.
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“The investigation into the Bezeq Israel Telecommunication Company has been expanded to the provision of satellite communications services between Spacecom Communications and DBS Satellite Services [Yes]. The investigation involves suspicions of offenses against the Securities Law and the Penal Code,” the ISA said in a brief statement.
Trading in the shares of Elovitch companies was suspended on the Tel Aviv Stock Exchange just before the announcement was made. Trading in Spacecom shares and bonds briefly resumed just before closing to drop 15.5% to 21.10 shekels ($5.92). Shares of Elovitch companies resumed earlier, leaving Bezeq Communications down 2.6% to 61.21, Internet Gold down 1.8% to 31.30 and Bezeq itself down 1.3% to 5.82.
Bezeq shares have fallen 10% since news of the original probe surfaced three weeks ago. That is focused on Bezeq’s 2015 acquisition of the shares in Yes it didn’t already own from parent company Eurocom, which is owned by Elovitch.
The ISA declined to divulge further details about the expanded probe, but it is believed to involve an 11-year, $263 million agreement reached in March by Yes to buy satellite services from Spacecom, which is 56%-owned by Eurocom.
The two sides reached the agreement several months after Spacecom’s Amos 6 satellite was destroyed in a launchpad explosion. Yes had been leasing lines from Spacecom’s Amos 2 satellite for its TV broadcasts, but the aging satellite was due to go out of service and it needed a replacement
Yes management reached an agreement to use Amos 3 and Amos 7, a satellite Spacecom leased from AsiaSat after the loss of Amos 6.
But because the two companies are both controlled by Eurocom, minority shareholders had to agree to the pact. Bezeq, as Yes’ parent company, warned them that with a deal with Spacecom Yes faced an “existential danger to its existence.”
A board committee of outside directors reviewed the agreement in consultation with the U.S. company Comsys, which ultimately approve the terms. But Entropy, a shareholders’ advisory service, only gave its backing after raising serious objections.
Among other things, the company was critical of Yes for not exploiting its status as a major Spacecom customer – in the three years through 2016 it accounted for about a fifth of all of Spacecom’s revenues – to win better terms. Instead, the cost of the new contract was 19% higher than one it had signed in 2013, even though the satellite market had grown more competitive in the intervening years.
Moreover, Entropy questioned whether a deal with Spacecom was critical to Yes’ business, citing the options of using other satellite providers or other broadcast media altogether, such as the internet.
In addition, Eurcom was in the midst of trying to sell Spacecom itself to the Chinese company Xinwei. Eurocom had sought to get $280 million for the company but was forced to lower that to $190 million after the Amos 6 loss. Entropy noted, “Approval of an agreement with Yes is a major step in the ability of the controlling shareholder, Eurocom group, to complete Spacecom’s sale.” In fact, the deal fell through.