Billionaire Paul Singer’s fund weighs in on Bezeq saga, seeks board shakeup

Billionaire Paul Singer’s fund weighs in on Bezeq saga, seeks board shakeup

Elliott Advisers, which owns 4.8% stake in Israel’s largest telecom firm, calls for immediate director resignations, change in ownership structure

Paul Singer, seen at the Annual Meeting 2013 of the World Economic Forum in Davos, Switzerland, January 23, 2013. (Wikimedia Commons)
Paul Singer, seen at the Annual Meeting 2013 of the World Economic Forum in Davos, Switzerland, January 23, 2013. (Wikimedia Commons)

Activist investor Elliott Advisors (UK), an affiliate of Elliot Management Corporation, founded by US billionaire Paul Singer, is looking to shake up the board of directors at Israel’s largest telecommunication firm Bezeq, adding its voice to a complicated situation that includes an investigation into company dealings and directors and a likely change of ownership.

On Tuesday, Elliot said it has held a stake of some 4.8% in Bezeq, since mid-2017, making it the company’s largest independent investor.

In a letter to Bezeq’s interim board chairman David Granot, the investor called for the restructuring of the holding group that controls Bezeq, for improved corporate governance at the telecom firm, and for the immediate resignation of some members of the Bezeq board.

The letter comes as Bezeq and its controlling shareholder Eurocom Communications Ltd., owned by Israeli business tycoon Shaul Elovitch, are embroiled in an investigation by the Israel Securities Authority into the dealings between Elovitch and Bezeq executives and their relations with the Communications Ministry. Elovitch’s lawyers have said he is innocent. Eurocom holds a stake in Bezeq via units.

Shaul Elovitch, Bezeq’s controlling shareholder (Calcalist screenshot)

The Elliott letter also comes amid a struggle that is developing between two international tycoons, Argentine billionaire Eduardo Elsztain and US-Israeli businessman Naty Saidoff, to gain control of either Eurocom or Bezeq.

Elovitch is under pressure by creditors to sell Eurocom, which reportedly owes Israeli banks some NIS 1 billion. Israel Discount Investment Corp., controlled by Elsztain, said on Tuesday said it was considering making an offer to the creditors for Eurocom and or its units, while on Monday, Eurocom asked a Tel Aviv court to allow a debt settlement that would give control to Saidoff.

“We have invested considerable time and effort into researching and analyzing Bezeq, and believe there is significant value to be unlocked if the right steps are taken to improve the company’s corporate governance,” Elliott said in the letter to Bezeq’s Granot.

Elliott said it has “closely monitored” the discussions regarding the legal actions taken by creditors against Eurocom and the potential change of control at the firm. The ownership structure of Bezeq should be “simplified,” Elliott said, and any new control permit for Bezeq, if any, should be issued only to a “well-capitalized professional investor or consortium with relevant expertise in telecom investments and committed to the highest standards of corporate governance.”

The investor further said that the board of directors of Bezeq, “as currently composed, is no longer fit for purpose,” given that a number of its members are under investigation for “serious financial misconduct” and/or are affiliated with Eurocom, which is subject to legal actions by its creditors.

“In these circumstances stakeholders of Bezeq may doubt both the independence of these directors and their ability to focus properly on their obligations as Board members,” the letter said. “We believe that it is in the best interests of Bezeq and all its stakeholders, including independent shareholders who own 73.7% of the shares, for decisive and immediate action to be taken to strengthen the Company’s corporate governance.”

Call for immediate resignation

Elliott called for the immediate resignation of all the directors at Bezeq and its units who are implicated in the Israel Securities Authority investigation or who are affiliated with Eurocom, and for their replacement with independent and professional ones. And in the event of any change in the Bezeq ownership, the directors nominated by the new controlling shareholder “should be chosen according to their relevant experience in businesses at this scale, and their clean, established record.”

“Bezeq has strong business fundamentals, an exemplary workforce, and great potential,” Elliot said. “We are eager to work with you to ensure this Company has the board composition — and commitment to proper governance — that it deserves.”

Bezeq declined to comment.

“Elliott’s intervention can speed up a process of positive internal change at Bezeq,”
Gil Dattner, an equity analyst at Leumi Capital Markets, the brokerage arm of Bank Leumi Le-Israel Ltd. said by phone. “It is not clear however how significant the influence of this fund will be, as its stake in Bezeq is limited and the controlling stake for the company is being sold. So, I’m not sure we will see quick changes in Bezeq until the ownership issue is resolved.”

Founded in 1977, Elliot Management Corporation is a private investment firm with some $34 billion under management. Its founder, Paul Singer, set up Start-Up Nation Central, a Tel Aviv-based nonprofit organization that aims to connect business and government leaders with Israeli technologies.

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