The Israel Securities Authority will not require Bezeq (TASE:BZEQ) to consolidate the results of YES satellite broadcaster in its financial reports for the first quarter of 2004. Bezeq will publish its financial report tomorrow, as scheduled, while YES will report its results separately. Bezeq will not have to amend its prospectus either.
However, the Securities Authority made the decision after reaching an agreement with Bezeq's management that the Securities Authority would recommend that Bezeq consolidate YES's results beginning in June, i.e. the third quarter of 2004. The consolidation of the results corresponds with Bezeq's NIS 440 million capital injection to YES.
Bezeq's board of directors recently decided to inject the capital into YES. Since YES's other shareholders will not inject addition capital into the company, their stakes will be diluted in Bezeq's favor. Bezeq's prospectus states that it expects to reach a 60% stake in YES. Since YES will thus formally become exclusively dependent on capital injections from Bezeq, its results will be consolidated with Bezeq's.
Securities Authority chairman Moshe Tery made his decision about YES after lengthy talks with Bezeq CEO Amnon Dick and CFO Ron Eilon, and following heavy pressure from the Government Companies Authority and the intervention of Bezeq's board. Minister of Finance Benjamin Netanyahu also intervened with the Securities Authority in the crisis, in order to enable Bezeq to publish its financial report on schedule, so that its planned issue would not be disrupted.
The dispute between the Securities Authority and Bezeq erupted over Bezeq's 49.8% stake in YES. Bezeq also has options, which, if exercised, will increase its stake to 54.02%. The options were given in proportion to Bezeq's investment in YES, after Bezeq injected a disproportionate amount into the company, compared with YES's other shareholders.
Bezeq has avoided recording the extra holdings as ordinary shares, which would convert YES into a government company. If Bezeq agrees to the Security Authority's demands, YES would become a Bezeq subsidiary whose financial statements would have to be consolidated with Bezeq's.
Bezeq's prospectus states, "The accountancy repercussions from the consolidation of YES's results on the consolidated balance sheet total, will substantially worsen the group's working capital, reduce the group's cash flows from current operations, and harm its financial ratios, among other things."
Published by Globes [online] - www.globes.co.il - on May 16, 2004