The Ministry of Communications' announcement late last week that it had decided to go ahead with the plan to eliminate structural separation in the Bezeq communications group today pushed the Bezeq Israeli Telecommunication Co. Ltd. (TASE: BEZQ) share up 3-4%. The share price of B Communications Ltd. (Nasdaq:BCOM; TASE: BCOM), which controls Bezeq, was up 4-5%, and the share of Internet Gold Golden Lines Ltd. (Nasdaq: IGLD; TASE:IGLD), owned by Eurocom, a private company controlled by Shaul Elovitz, also rose.
Up until now, full structural separation of Bezeq's activities has been enforced: landline telephony, satellite television (DBS Satellite Services (1998) Ltd. (Yes), infrastructure, mobile ( Pelephone Communications Ltd.), and Internet (Internet Gold). The Ministry of Communications' decision means that Bezeq can merge its companies legally and in accounting. This will facilitate synergy, although the various operations will continue to operate as separate divisions. The rises in Bezeq's share price follow a 20% drop in value from its peak in May as a result of challenging market conditions and uncertainty in the local communications market. Bezeq's market cap currently stands at NIS 19.5 billion, about the same as Israel Chemicals (TASE: ICL: NYSE: ICL) and Azrieli Group Ltd. (TASE: AZRG), making Bezeq the seventh largest company on the Tel Aviv Stock Exchange (TASE).
Tax asset for Bezeq
The IBI investment house today wrote, "At the economic level, the decision validates the approval of the settlement with the tax authorities, in which Bezeq paid NIS 462 million, and it will be able to utilize the tax asset created by its acquisition of Yes from Eurocom. Under the agreement, Yes's losses for tax purposes will total NIS 5.26 billion. The company can offset these losses for eight years, thereby saving NIS 175 million a year (the tax rate multiplied by NIS 1.4 billion, A.L.)." IBI added, "The Yes acquisition agreement between Bezeq and Eurocom contains a clause stipulating a NIS 200 million conditional payment, depending on the results of the tax settlement, to be paid to Eurocom around the date that the agreement is approved."
IBI reiterated its "Market outperform" recommendation for the Bezeq share with a target price of NIS 8, 18% higher than today's market price.
Bezeq was obliged today to publish a clarification that any cancellation of corporation or structural separation would require a hearing. As revealed by "Globes," Bezeq refused to disclose information to investors stating that elimination of structural separation required a public hearing, the results of which are unpredictable.
It appears that the revision was made due to concern that the Israel Securities Authority would ask Bezeq for explanations of why it had not published a clarification following the Ministry of Communications' announcement sent to the company and reported in "Globes" that elimination of corporate separation was contingent on a hearing process.
Bezeq claimed that it had not received such a clarification from the Ministry of Communications, but "Globes" again requested clarifications from the Ministry of Communications, which today repeated that it had notified Bezeq that it would hold a hearing for Bezeq on the matter. Bezeq tried to avoid publishing this clarification. Only today, when it had no choice, did Bezeq do so. The hearing could lead to postponement of the elimination of structural separation, or could render the elimination meaningless.
For its part, the Ministry of Finance has expressed strong opposition to the abolition of structural separation in Bezeq under current market conditions.
Published by Globes [online], Israel business news - www.globes-online.com - on December 25, 2016
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