April 14 will mark the eighth anniversary of the most important deal in Shaul Elovitch’s life – the deal that could be his downfall. When that date comes around again, he’ll no longer be the controlling shareholder of Israel’s dominant telecom company, Bezeq. Another tycoon will have taken his place.
For the past week, Elovitch has been living in Nitzan Prison like a common criminal, facing huge debts and a police recommendation that he be indicted in the second case in which Prime Minister Benjamin Netanyahu is suspected of offering a quid pro quo for positive news coverage.
Eight years ago, after Elovitch sold the Smile 012 internet service provider to Yossi Maiman for 1.2 billion shekels ($343 million), everything looked a lot different. Elovitch had plenty of cash and wasn’t entangled in any legal problems.
The acquisitions of Bezeq and Spacecom, in which Elovitch invested much of his personal fortune, and the allegedly corrupt actions that grew out of pressure to make good on his Bezeq investment, led him to where he is now.
Elovitch bought control of Bezeq through B Communications from Haim Saban, Mori Arkin and London-based Apax Partners for 6.5 billion shekels. A year later, B-Com acquired more Bezeq shares for 300 million shekels. So in all, the Bezeq stock cost B-Com 6.8 billion shekels.
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Elovitch financed the Bezeq acquisition with money from the Smile deal and 5.5 billion shekels in loans from a consortium led by Bank Hapoalim, and from institutions led by the Migdal insurance and financial group. In other words, the Bezeq acquisition was heavily leveraged, ultimately sealing Elovitch’s fate.
In the end, the high leveraging, pyramid structure, faulty corporate administration, financial engineering, vast dividends and cutting of dubious deals to service the huge bank debt meant money wasn’t reaching Bezeq’s parent company, the Eurocom Group, which had reached a state of insolvency.
Had he not bought the controlling stake in Bezeq, Elovitch, who already held a controlling stake in the Yes satellite TV company, wouldn’t have needed the financial manipulations that landed him in legal trouble.
Elovitch also should have parted with his holdings in Spacecom sooner, to avoid a situation where he couldn’t offload that asset. One time such a deal was thwarted by regulations; later this was due to the explosions of two of the company’s satellites, which caused Eurocom a 700-million-shekel loss.
The Bezeq acquisition and Elovitch’s personal-debt problems were starving Eurocom Cellular Communications and Eurocom Digital Communications. These were the businesses that had made Elovitch rich.
When he did the Bezeq deal, these business were still creating a 150-million-shekel cash flow for him and were valued at close to a billion shekels. Amid changes in the cellular-telephony industry, Nokia – for which Eurocom held the Israeli franchise – lost much of its strength. Yet had Elovitch focused on these companies, they probably wouldn’t now be saddled with bank debt of 600 million shekels.
Elovitch also could have sold his stake in Enlight Renewable Energy, in which Eurocom invested tens of millions of shekels, and benefited from the rise in its value. The current market value of that stake is 130 million shekels.
The pressure to pay back the banks also blocked Elovitch from reaping the benefits of the many real estate projects in which Eurocom was involved; Eurocom had to sell these assets to reduce its debt.