Bezeq Israel Telecom, the nation’s largest telecommunication firm, is scheduled to hold an annual shareholders meeting on Thursday to select new directors to its board. The outcome of the meeting will be keenly watched by investors, as it will signal whether the company is setting out on a new road of improved corporate governance.
Bezeq executives and its controlling shareholder Shaul Elovitch, who holds a stake in the firm via units of his company, Eurocom Group, have been embroiled in investigations by the Israel Securities Authority and the police into connections between Prime Minister Benjamin Netanyahu, the Communications Ministry and Elovitch. They all deny wrongdoing.
Activist investor Elliott Advisers — which owns a 4.8 percent stake in Bezeq, making it the company’s largest independent investor — has called for a shakeup of the board and its ownership structure. Bezeq’s board of directors, the investor said, as it is currently composed, “is no longer fit for purpose” and their ability to function properly regarding their obligations as board members is in question. Under the watch of the directors, Elovitch is suspected of having performed dodgy dealings with the telecommunications regulator and shady deals between his company and Bezeq units.
At the shareholder meeting to be held on April 26, votes will be cast for the selection of 13 to 15 directors, among which are regular directors nominated by the company and thus indirectly by the controlling shareholder, independent directors, a director designated by the employees, and external directors.
“The main battle is expected to be wrangled over the external directors’ appointments, and it is possible that no external director will be elected, especially not the institutional investors’ candidates,” said Shirin Herzog, head of the Mergers and Acquisitions, Securities and International Transactions Department in the Israeli law firm Ron Gazit, Rotenberg & Co.
Bezeq shares that are traded on the Tel Aviv Stock Exchange have declined some 26 percent in the past 12 months amid the investigation, allegations of corporate misgovernance and increased competition in the company’s key lines of business.
“Bezeq needs to show investors it is cleaning up its corporate governance act,” said Roni Biron, co-head of research at Excellence Nessuah, a Petah-Tikva based brokerage. “An independent board where the majority of directors are not affiliated with the controlling shareholder would signal to investors that governance is improving.”
A Tel Aviv court on Sunday put out liquidation and receivership orders for Israel’s Eurocom Group which will come into force on May 3 and pave the way for the assets of Eurocom to be put up for sale in separate bidding auctions.
Bezeq “is at critical business, financial and regulatory crossroads,” Herzog said. “The oversight of a company management and the setting of its strategy are the duties of its board of directors.”
The choice of Bezeq’s directors will also be a test case for the Israeli capital market, she said. “Institutional investors have taken pioneering active steps and the market is still learning how to deal with this new kind of proactive investors. They may not succeed with Bezeq, but it is a learning process and a sign that Israeli capital markets are undergoing a maturing process. Israeli regulators could promote this process by setting the framework for the dos and don’ts of institutional investors in this space.”
Bezeq is a diversified telecoms operator active in a variety of sectors in the Israeli market: Bezeq Fixed-Line, which provides internet and telephony services; Bezeq International,which provides international call services; Pelephone, which provides cellular services; Yes, which provides pay TV services; Walla, which runs an internet news portal service; and an online call center.