The struggle for control of Bezeq, Israel’s dominant telecommunications company, got underway Tuesday as three contenders submitted offers to bail out Bezeq’s parent company, the closely held Eurocom Group.
The bids are from Argentine real estate mogul Eduardo Elsztain, who acquired the IDB group four years ago, and two pairs of brothers. Two of the brothers are Los Angeles-based Israelis Naty and Ofer Saidoff, who made their fortune in real estate. The others are Chen and Tzahi Neuman, whose closely held Alon Group has interests in real estate, cars and high-tech.
The creditors of Eurocom Group met Tuesday for the first time to weigh the offers. But each came with problems and may be subject to changes before creditors make a final decision on which offer to accept sometime over the next few weeks.
The winner will gain control of Eurocom Real Estate and much more importantly its sister company Eurocom Communications, which controls Bezeq through a string of firms that include Internet Gold and B Communications. The Eurocom empire also encompasses other businesses like satellite operator Space Communications and solar-energy company Enlight.
Shaul Elovitch, who built the and controls the Eurocom Group, has run into problems since the Israel Securities Authority opened an investigation against him and a handful of associates last year. He will lose control of the group under all three bailout offers.
Elsztain’s offer faces the most regulatory obstacles. As controlling shareholder of the IDB group, he controls Cellcom Israel, Israel’s biggest mobile operator and a competitor to Bezeq’s Pelephone unit. Thus he will have to sell IDB’s 45% stake in Cellcom to win antitrust approval for the Eurocom deal.
Elsztain will also run up against the Business Concentration Law, which requires pyramid-structured business groups like IDB and Eurocom to reduce the number of their tiers to no more than two by 2019.
Elsztain has used loopholes in the legislation to solve his problems at IDB, but if he gains control of Eurocom group he will have more. His options are likely to be delisting Internet Gold or B Comm. Removing Internet Gold’s bonds from public trading by redeeming them would cost him 600 million shekels ($177 million).
Elstain’s offer calls for his spending 1.07 billion shekels in cash in two stages.
The first would have him inject 170 million into Eurocom Real Estate by buying the company’s 37.5% stake in the Midtown Tel Aviv real estate development. The remaining 80 million of Eurocom Real Estate’s debt would be paid out of Elsztain’s pocket later this year.
In the second stage, slated to take place six months after the first, Elsztain pledges to buy Eurocom Communications for 700 million shekels in cash – contingent on Discount Investment Corp. finding a buyer for Cellcom. The rest of Eurocom’s 450 million in debt would be erased, although Elsztain has offered bank creditors a plan to share in the rising value of Eurocom’s assets over the next five years up to 450 million shekels.
Naty Saidoff left Israel 40 years ago but has come back to buy Israeli businesses. He invested a year trying to acquire Africa Israel Investments in a bailout, only to lose out to Moti Ben-Moshe. He has vowed not to make that mistake again, and if Eurocom’s creditors don’t decide quickly he’ll drop out.
In any case, the Saidoff offer is riskier than Elsztain’s for the creditors, who are asking him to improve it.
His offer calls for spending 1.05 billion shekels, but it is structured differently. To cover Eurocom Real Estate’s 250-million-shekel debt, he is offering to inject 75 million shekels into the company. The rest of the debt will be refinanced via an issue of five-year bonds paying 4%.
The Saidoffs are also offering to repay 375 million shekels of Eurocom Communications’ 1.2-billion-shekel debt, most of it immediately. In addition, they are committing to raise more cash by selling Eurocom’s 15.3% stake in Enlight. The rest of the debt will be repaid based on a formula linked to the rising value of Eurocom assets over the next five years.
The Neuman offer calls for paying 1.14 billion shekels in debt, although there are doubts about the brothers’ ability to do that, certainly if they don’t enlist partners.
Of that, 520 million shekels will go toward repaying Eurocom Communications creditors and 250 million for the real estate company’s debt. Another 290 million of debt will be rescheduled over seven years and more debt repaid via a mechanism for sharing with creditors the rising value of Eurocom group assets.