Analysts are weighing in on Shaul Elovitch's acquisition of Ap-Sab-Ar Holdings Ltd. (the Apax Partners-Saban Capital Group Inc.-Arkin consortium) 30.6% stake in Bezeq The Israeli Telecommunication Co. Ltd. (TASE: BEZQ) for NIS 6.5 billion through Eurocom Group unit 012 Smile.Communications Ltd. (Nasdaq:SMLC; TASE: SMLC). At NIS 8 per share, the deal was closed at a 7% discount on Bezeq's closing price on Thursday.
Leader Capital Markets analyst Eran Jacoby said, "The owners and investors in Israeli telecommunications companies could not have asked for a better deal for the entire industry. However, the regulator will probably be less pleased, as will the Israeli consumer. Hopes of increased competition and more players in the telecommunications market are evaporating. This is what happens when the strong companies in the industry dictate regulations to the regulator, rather than the other way round.
"One of the telecommunications companies is dragging the industry into a price war, while the companies' indebted owners are reaping huge dividends, which are liable to grow even bigger.
"Now more than ever, the telecommunications industry continues to be an island of stability, while the period of economic uncertainty is still not yet over. The acquisition of Bezeq will create value in the industry as a whole, which is why we're upgrading our recommendations for all shares in the industry traded on the Tel Aviv 100 Index, and we consider a holding in Bezeq to be the best in the industry."
Psagot Investment House Ltd. analyst Talia Levinberg says, "The deal does not reflect a control premium for Bezeq. There is no doubt that the price is good news for the Bezeq share, but it isn't surprising, and there is no need to get all excited. We recommend exploiting all possible pressure on the share, as Bezeq continues to be the stock pick among the telecommunications companies.
"As for Elovitch, this is a great deal. He is buying one of the companies with the best cash flow in the economy, which reflects a real operating potential that the new owner can reap. Elovitch's great challenge will be on the regulatory front. The sale of Smile will probably be the easy part; the harder part will be the sale of his 32% stake in satellite broadcaster YES."
Migdal Capital Markets analyst Amir Adar says, "On Friday, Eurocom redefined the post-holiday period, by apparently coming very close to signing a contract for the acquisition of Bezeq. The price tag of the deal testifies that this is a great deal for Shaul Elovitch. The price tag strengthens our assessment that the market will likely undergo change, and at the current price levels, the telecommunications market potential is close to full. The companies' advantages remain in their dividend yields and their relative defensiveness.
"Assuming that Elovitch will get cooperation from the regulator (which will set reasonable time for the sale of his stakes in Smile and YES), Eurocom will be able to set the price. In other words, whether to strengthen Partner Communications Ltd. (Nasdaq: PTNR; TASE: PTNR) or IDB Holding Corp. Ltd. (TASE:IDBH) (which controls Cellcom Israel Ltd. (NYSE:CEL; TASE:CEL) and NetVision Ltd. (TASE: NTSN)), or alternatively, to encourage the establishment of a fifth telecommunications group.
"Competition in the industry will probably gradually increase, and change can be expected in the reciprocal relations between the players will change the industry as a whole."
Published by Globes [online], Israel business news - www.globes-online.com - on October 25, 2009
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