One day after Bezeq Israeli Telecommunication Co. Ltd. (TASE: BEZQ) controlling shareholder Shaul Elovitch and other senior Bezeq figures were detained for questioning, the Israel Security Authority legal advisor will attend the Tel Aviv Magistrates Court hearing on the release of the suspects under restrictive conditions. With the investigation still taking place, the hearing is mainly procedural, being designed to prevent the suspects from leaving Israel, conversing with each other, and coordinating their answers in questioning. More parties are expected to be questioned in the coming days.
A source involved in Elovitch's party at interest deal, which was eventually signed, told "Globes" that he was critical of the deal. He took issue with the high price paid for DBS Satellite Services (1998) Ltd. (YES) by Bezeq.
"Yes was worthless, and everyone knew it. Bezeq paid NIS 1 billion for synergy with Yes, but this synergy amounts to very little. Where is it now? With a normal board of directors, Elovitch would have had to give money back. This deal and the tax settlement contain everything that can be wrong about a party at interest deal," a senior Bezeq source involved in the deal on which the Securities Authority's investigation is focusing said today. He added that from beginning to end, the deal had only one purpose - to allow Elovitch to get as much money as possible in the framework of the party at interest deal for acquiring his stake in Yes.
"What did Elovitch bring to the deal? He brought his stake in Yes, right? The question is how much Yes is worth. It's worthless. Why is it worthless? Because it's full of debt," the source said. "So he's supposed to be selling synergy. What's synergy? It's completely virtual. He's telling you that if you buy from me, you can save money in your business in Bezeq, so give me something in return for saving money. What's wrong with this deal is that it counts 100% of the saving for the value of the deal. There hasn't been a shekel from this synergy to this day."
"They would have paid, but much less"
As reported yesterday in "Globes," since Eurocom Group's shares in Yes were not worth much, the negotiations with Bezeq focused on two other demands by the company: that Bezeq pay it for the future synergy between Yes and Bezeq, and that Bezeq pay it for the huge losses accumulated by Yes, which can be utilized in future tax write-offs. Bezeq eventually agreed to pay NIS 1.05 billion (NIS 680 million in cash and NIS 370 million in contingent payments). This was much higher than the valuation by the Merrill Lynch investment bank that advised Bezeq in the deal. Almost the entire amount paid was attributed to theoretical synergy, which depended on the elimination of structural separation by the end of 2016, and utilization of the tax asset also depended on the cancelation of structural or corporate separation. According to the tax arrangement, Bezeq will pay NIS 462 million in tax in the framework of the merger between Bezeq and Yes.
The senior source also pointed out to "Globes" the questionable nature of the tax arrangement reached. "What does the arrangement say? It says, 'Listen, the company has losses, and I want you to pay me something for these losses.' In any situation in which Elovitch sells his holding to someone else, these losses are worthless. They are relevant only if Bezeq is the buyer, because it paid for a large proportion of these losses for years, so the income tax authorities can't claim that it's an artificial deal. If you buy a money-losing company for tax purposes, it's considered an artificial deal, because you didn't really a company; you bought losses. The only situation in which the losses are worth something to someone is when Bezeq is the buyer. So the question also arises here of what these losses amount to, and how much should be paid for them. If it was a real deal of a voluntary seller and a voluntary buyer, he would get something for the losses, but much less."
No response from Bezeq was available as of web posting.
Published by Globes [online], Israel Business News - www.globes-online.com - on June 21, 2017
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