Shaul Elovitch, his son and daughter-in-law on Sunday notified the board of Bezeq that they were stepping down as directors of Israel’s biggest telecommunications company, which is contending with a massive police investigation into its affairs.
The resignations came as Israeli-born American businessman Naty Saidoff moved a step closer to gaining control of the embattled company from Elovitch after bank creditors agreed over the weekend to jointly submit his offer to buy Elovitch’s Eurocom Communications, Bezeq’s parent company, in a bailout deal.
Bezeq said Shaul Elovitch and his son Or – both of whom are now jailed in connection with the police’s Case 4000 investigation, regarding the elder Elovitch’s dealings with Prime Minister Benjamin Netanyahu – had agreed to resign, as had Or’s wife, Orna Elovitch-Peled.
Two directors were named in their place – Doron Turgeman, the CEO of Internet Gold, another Elovtich group company, and Rami Barlev, legal adviser to the Eurocom Group. The board, however, did not discuss whether Bezeq CEO Stella Handler should stay on or be replaced by an acting CEO, even though she has also been jailed in connection with Case 4000.
Meanwhile, Bezeq’s woes finally convinced enough institutional investors in the company that corporate governance problems are critical enough for them to intervene. On Sunday, Entropy – a company that advises institutions – said it was seeking to call an extraordinary shareholders’ meeting to propose a slate of outside directors to the board.
“Under the extreme and difficult circumstance in which the company finds itself today, we believe that it is your duty as acting chairman of the board, and it is the duty of the board of directors, to deal promptly and professionally with aspects of corporate governance related to the board and management,” Entropy said in a letter to David Granot.
Granot took over as acting chairman when Elovitch stepped down last June after the Israel Securities Authority launched a probe into securities violations by the company. That investigation gradually evolved into Case 4000, a police probe that has ensnared some of Netanyahu’s closest allies.
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Bezeq shares, which plunged after the launch of the Securities Authority probe last June, ended up 2% at 5.41 shekels ($1.55) in Tel Aviv Stock Exchange trading on Sunday.
Entropy sought to act on Bezeq corporate governance before but failed to muster the minimum 5% of shareholders to force a meeting. On Sunday, the firm had enlisted institutions with a combined 6.5% stake, including the insurance companies Menorah and Clal and investment house Meitav Dash and the pension fund Amitim.
Entropy said it was not only going to propose its own slate of outside directors but seek to boost the board to 12 members from nine and recruit people with relevant industry experience, including candidates with background in telecommunications, regulatory affairs and information technology.
“With the exception of [Shaul] Elovitch, to our knowledge, Bezeq’s board does not count people with knowledge, understanding and experience of the telecoms market,” the Entropy letter said.
Moreover, it cited figures which showed that Bezeq’s board was an outlier in the extent to which it had relatives of the controlling shareholder sitting on its board. Of the companies comprising the TASE’s TA-35 index, only two other companies had two or more family members on their boards. Women comprise just 11% of all directors. Entropy’s move comes five weeks after the New York-based activist investor Elliott Management, which has a 4.8% stake in Bezeq, called for the resignation of all Bezeq directors implicated in the investigation. Granot responded shortly afterwards that he expected changes to the composition of Bezeq’s board.
Under the agreement reached between Saidoff – an Israeli who made his fortune in Los Angeles real estate – and Eurocom Communications bank creditors, Saidoff will acquire 55% of Internet Gold, which controls Bezeq, as well as stakes in satellite operator Spacecom, alternative energy company Enlight and the Midtown Tel Aviv real estate project.
Saidoff will pay 376.5 million shekels for convertible bonds issued bv Eurocoom Communications immediately and make more payments later. Tel Aviv District Court Judge Eitan Orenstein is expected to decide in the next few weeks on whether to approve the bailout.
However, the deal faces two other obstacles. One is resolving the issue of tax liabilities connected with it. The bailout will entail some 500 million shekels in debt write-downs, considered tantamount to taxable income. Eurocom claims some 650 million shekels on accumulated tax-loss credits, but the Israel Tax Authority hasn’t accepted all of them.
Also, Eurocom’s partners in the Midtown project – Electra Investments – is claiming right of first refusal to buy Eurocom’s stake for 144 million shekels, 38 million less than Saidoff is offering.