Merrill Lynch analyst Haim Israel sees the Shaul Elovitch acquisition of Bezeq The Israeli Telecommunication Co. Ltd. (TASE: BEZQ) as a unique combination which will be beneficial to Bezeq. Elovitch will become a strategic investor, while continuing to pay relatively high dividends.
As "Globes" was first to report last week, and Bezeq confirmed this morning, Shaul Elovitch, through 012 Smile, bought the entire 30.6% stale in Bezeq held by Ap-Sab-Ar Holdings Ltd. (the Apax Partners-Saban Capital Group Inc.-Arkin consortium), at NIS 8 per share, for a total of about NIS 6.5 billion. The Ap-Sab-Ar consortium bought the stake in 2005.
Analyst Israel says that while the Ap-Sab-Ar group was a very efficient financial investor, as it restructured the balance sheet and maximized dividends, Bezeq now needs to move on. According to Israel, Bezeq's challenges are the efficient deployment of its next generation network (NGN) which it has recently begun to roll out, maximizing the HSPA cellular network, fixed line unbundling and obtaining regulatory easing as Bezeq loses landline market share. He adds, "We think the future has less to do with "liabilities" and more to do with "assets". With experience of the market and of regulation, we believe the new owner can maximize Bezeq's potential."
But Israel also sees financial benefits to Bezeq investors, calling it the best of both worlds. The deal will apparently include a relatively high debt portion (more than 70% leveraged), so there would still be a debt to service at the shareholder level. But Israel points out that "as a result, we believe that Bezeq would continue to pay 100% of its net income" as dividends. He is also confident that the new shareholder will maximize shareholder return. As a result, says Israel, "This could be a unique combination of a strategic shareholder with dividends needs."
The only long-term negative Merrill sees is that antitrust laws will force the group to sell its holding in Yes, which would push Bezeq to invest in its own IPTV platform.
Merrill Lynch maintains its "Buy" recommendation on Bezeq, with a target price of NIS 10. Combined with an expected 17% dividend yield, Merrill sees a 33% return on the shares.
Shares in Bezeq closed at NIS 8.70 on Thursday, and were down 1.1% to NIS 8.50 in morning trading.
Merrill Lynch was bought by Bank of America in 2008 and is now a wholly-owned subsidiary of the bank.
Published by Globes [online], Israel business news - www.globes-online.com - on October 25, 2009
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