Three-way Battle Suddenly Erupts for Control of Israel's Bezeq

Elliott Management amasses 4.8% stake; IDB boss Elsztain may challenge Saidoff takeover of Bezeq parent Eurocom

The logo of Bezeq Israeli Telecommunication Corp. is seen at the company's headquarters in Tel Aviv, Israel, on Wednesday, Dec. 29, 2010.
Ahikam Seri/Bloomberg

A struggle for control of Bezeq, Israel's dominant telecommunications provider, erupted Tuesday as the New York-based activist investor Elliott Management disclosed it had acquired a 4.8% stake and Argentine investor Eduardo Elsztain said he was seeking control of Bezeq's parent company.

The two moves came as a third contender for the prize, the Israeli-American real estate entrepreneurs Naty and Ofer Saidoff, moved a step closer to a debt agreement with bankers for Eurocom, the closely held company that controls Bezeq.

Elliott Management, which is controlled by the U.S. investor Paul Singer, also called for sweeping changes at Bezeq. In a letter to Bezeq's interim chairman David Granot on Tuesday, Elliott called for the removal of at least one tier of the three-tiered corporate pyramid that controls Bezeq.

Elliott also called for the immediate resignation of all directors who were implicated in an investigation led by the Israel Securities Authority and executives affiliated with parent company Eurocom.

Such directors should be replaced with independent and professional directors elected from of a slate of candidates proposed by an independent special committee of the board, Elliott said.

The titanic battle shaping up between three Jewish investors – none of them based in Israel – lifted the shares of companies in the Bezeq group Tuesday. Bezeq rose 5.2% to close at 5.42 shekels ($1.58), while its parent company B Communications gained 7.75% to 63.15 and Internet Gold jumped 13.3% to 34.64.

Investors celebrate

Bezeq is worth about 15 billion shekels, based on the its current value on the Tel Aviv Stock Exchange.

The Bezeq group has come into play over the last six months after controlling shareholder Shaul Elovitch and a group of executives reporting to him came under investigation by the Israel Securities Authority and are expected to face indictments.

The share-price fall puts Eurocom, Elovitch's investment vehicle, at risk of default. On Sunday, Eurocoms bank creditors presented a court with a debt plan that would give the Saidoff's control of the company, and thus control of Bezeq.

Elsztain, who entered the Israeli business scene when he won control of the IDB group through a debt bailout, made known his interest in Bezeq through a stock-market announcement issued by IDB's Discount Investment Corp., which controls Cellcom Israel – a Bezeq rival.

In the brief statement, Discount said the company was preparing the final outlines of an offer for a debt bailout for Eurocom Communications and/or Eurocom Group. Discount said there was no certainty it would make an offer.

Apart from having to sell its 56% Cellcom stake in order to win antitrust approval, Discount would have to eliminate some of the tiers in the Bezeq group and conform with the 2013 Business Concentration Law that reins in the size of pyramid-structured business groups.

Market sources said Tuesday that Discount would have to delist Internet Gold and pay creditors some 600 million shekels. But the company has 1.5 billion shekels in cash and a dividend flow that should let it repay its debt through 2020 without raising new funds. Selling Cellcom, which has a market value of 1.5 billion shekels, would raise more cash for a Eurocom deal.

Singer is a billionaire investor who formed Elliott Management 40 years ago and now manages $34.1 billion. Last May it raised more than $5 billion in about 24 hours. Elliott, according to the pitch letter obtained at the time by Reuters, has begun focusing on investing in securities of distressed companies, using a corporate activism approach.

Apart from philanthropic activities, Singer most prominent connection to Israel is Startup Nation Central, an organization that hooks up Israeli tech companies with foreign partners. The organization has been run by Eugene Kandel, a former chief of Prime Minister Benjamin Netanyahus National Economic Council, since 2015.

Singer's position in Bezeq complicates the plans of the Saidoffs and Elsztain, who are both seeking to gain control of the company via Eurocom. They were counting on dividends from Bezeq for cash flow but an activist investor like Elliott Management wont allow them to set policies for the company so freely.

Born in Israel, the Saidoffs made their fortune in Los Angeles real estate and only recently became serial bidders for troubled Israeli companies. They made an abortive bid for Jerusalem Economic Corporation in 2016 and last year lost out to Moti Ben-Moshe for control of Africa Israel.