Stock Devaluation Hobbles Acquisition of Bezeq's Controlling Shareholder

The battle for control of Israel's largest telecommunication company Bezeq continues, but the company's stock devaluation—almost 30% down over the past two months—is dragging out the process.

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Last week, private equity firm Searchlight Capital Partners has made an acquisition offer to Bezeq's controlling shareholder, Israel-based communication company Internet Gold Golden Lines Ltd., to acquire its controlling stake in subsidiary B Communications (BCOM) Ltd., which in turns holds a controlling stake in Bezeq.

The controlling shareholder in Internet Gold, Eurocom Group, went into liquidation in April as a result of its NIS 1.2 billion debt. Lengthy attempts to find a buyer failed as an internal power struggle and a far-reaching police investigation into the actions of its owners and executives threatened Eurocom’s indirect holding of Bezeq, its most lucrative asset.

Searchlight priced BCOM at NIS 20 per share according to documents internet Gold filed Sunday to the Tel Aviv Stock Exchange. A previous offer made in December valued Internet Gold's BCOM stake at NIS 40 per share, according to one person familiar with the matter who spoke with Calcalist on condition of anonymity. The difference in pricing is a result of the deep cut the company’s valuation has taken, this person said.

Internet Gold has been trying to sell its stake in BCOM for the past few months to pay back its NIS 728 million debt to creditors. Internet Gold has until Tuesday afternoon to acquiesce to an exclusivity agreement with Searchlight, which will give the latter a little less than NIS 400 million to put towards its debt.

On Sunday, BCOM raised NIS 118.2 million by private issuance of 7.4 million shares. The issuance diluted Internet Gold's stake in BCOM from 65% to 54%, but Searchlight's offer stands as long as Internet Gold retains at least 51%. BCOM has a debt of NIS 2.45 billion to bondholders.

As Bezeq is considered a landline monopoly in Israel, Searchlight needs an Israeli partner to hold at least a 10% stake. The firm stated it intends to finance the acquisition with cash from its managed assets, which currently exceed $3.9 billion.

In November, Searchlight completed the acquisition of Canadian telecom company Mitel Networks Corporation, which reported $309.6 million in revenues for the third quarter of 2018. Bezeq reported revenues of NIS 2.3 billion for the same period.