Searchlight Reaches Agreement to Acquire Controlling Stake at Bezeq

Private equity firm Searchlight Capital Partners has reached an understanding with the controlling shareholders of Israel's largest telecommunication company Bezeq, to acquire control of the latter. The agreement was reached with Israel-based communication company Internet Gold Golden Lines Ltd., with its subsidiary shareholder B Communications (BCOM) Ltd., through which it controls Bezeq, and with the bondholders of both Internet Gold and BCOM, which are both in heavy debt.

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According to Searchlight's final offer, filed with the Tel Aviv Stock Exchange Tuesday morning, the firm will invest NIS 260 million ($72.75 million) in BCOM in return for controlling primary equity issuance. BCOM holds a controlling stake of 26% in Bezeq. The firm also committed to investing up to NIS 35 million ($9.8 million) in a BCOM offering if the company's minority shareholders fail to subscribe to it.

Searchlight will invest NIS 225 million ($63 million) in cash in Internet Gold, which will in turn transfer that capital to BCOM along with another NIS 115 million ($32 million) from its own coffers. This leaves the parent company with only NIS 20 million ($5.6 million) in cash in its possession, with BCOM essentially getting a cash infusion of NIS 635 million ($177.7 million). In return, Internet Gold will receive BCOM stock worth NIS 30 million ($3.4 million) and a new NIS 310 million ($86.7 million) tranche of series C debentures.

BCOM will use the cash infusion, together with NIS 200 million ($56 million) of its own capital, to redeem all of its series B debentures and 30% of its series C debentures. In return, BCOM will enjoy a 24-month reprieve regarding its financial covenants. BCOM’s financial debt will be reduced from NIS 1.77 billion ($500 million) to NIS 1.46 billion ($410 million).

The proposal offers better terms for BCOM's bondholders than previous offers, at the expense of Internet Gold's bondholders, for whom the deal means a 50% cut.

The deadline for the proposal is May 17, and both BCOM and Internet Gold's bondholders are expected to approve the deal in the upcoming days.