Securities Authority raids Spacecom's offices

Shaul Elovitch

The measure was part of expansion of the investigation of Shaul Elovitch to include a deal between Spacecom and Yes.

Spacecom Satellite Communications Ltd. (TASE:SCC) today reported to the Tel Aviv Stock Exchange (TASE) that Israel Securities Authorities investigators had raided the company's offices and conducted a search. The raid was part of the Securities Authority's investigation of deals between Spacecom and DBS Satellite Services (1998) Ltd. (YES) for the providing of satellite communications services. According to Spacecom's announcement, as of the date of the report, it had no additional information about the matters being investigated or the reason for the search.

Spacecom became involved in the upheaval affecting Shaul Elovitch's companies after the Securities Authority announced that it was expanding its investigation of party at interest deals to include the deal between Spacecom and Yes for the purchase of satellite communications services. Like the Bezeq Israeli Telecommunication Co. Ltd. (TASE: BEZQ) group, Spacecom is controlled by Eurocom Group, Elovitch's private holding company. Eurocom holds 54.7% of the shares in Spacecom, in addition to 55% of the shares in Internet Gold Golden Lines Ltd. (Nasdaq: IGLD; TASE:IGLD). Internet Gold controls B Communications Ltd. (Nasdaq:BCOM; TASE: BCOM), the controlling shareholder in Bezeq.

In April 2017, the Bezeq shareholders approved a party at interest deal in which Yes rented sections of a satellite from Spacecom in a 12-year agreement for $21.9 million a year - a total of $263 million. The deal was a revision of an existing deal made necessary by the explosion of the Amos 6 satellite, Earlier, in March, Bezeq and Spacecom postponed their shareholders' meetings summoned to approve the deal, after consultation company Entropy and financial institutions asked the two companies for further details about the terms for the agreement - among other things, information about the pricing and an examination of possible alternatives.

"Globes" reported at the time that the party at interest deal aroused serious concern about the functioning of the Bezeq board of directors, and that some of the directors were following the lead of Bezeq's controlling shareholder, while only one director, Rami Nomkin, who represents Bezeq's workers, was demonstrating an independent position. Nomkin was the only one on the board of directors to oppose the deal, just as he opposed the Bezeq-Yes deal.

In any case, several days later, Bezeq warned that if its shareholders were to decide to oppose the Yes-Spacecom party-at-interest deal, it would pose a threat to Yes's existence. In its summons to the shareholders' meeting, Bezeq stated, "The proposed agreement is an essential and critical transaction for Yes in order to continue its activity, especially in the event of further deterioration or unavailability of the Amos 3 satellite, which is liable to pose a threat to Yes's future activity."

Based on this statement, Entropy recommended that its customers support the deal. As reported in "Globes," Entropy wrote, "Our recommendation to approve the transaction relied on the company's statement that failure to approve the transactions would pose an immediate threat to the existence of Yes." Entropy nevertheless noted that no true commercial procedure for examining the current market alternatives and costs had been conducted, and that in view of the fact that Yes was responsible for 30% of Spacecom's revenue, it should have been able to obtain better business terms. Entropy added that approval of the deal was significant for Elovitch's ability to complete the sale of Spacecom.

Spacecom has been up for sale for several years. Less than a year ago, a deal was signed for the company's sale to Chinese corporation Xinwei for $285 million (NIS 1.1 billion at the rate of exchange prevailing at the time) - double the company's current market cap.

The deal was called off following the explosion of the Amos 6 satellite several days later. The sale agreement was contingent on the successful launching of the Amos 6, but it was destroyed due to a technical failure during the launch. The Amos 6 explosion left Yes without cover, because any malfunction in the Amos 3 would have meant a total shutdown in broadcasting services (several months previously, contact with the Amos 5, a different Spacecom satellite, was lost). The Spacecom-Yes deal was therefore significant for Yes, but it appears to have been no less consequential for Spacecom, because without this deal, it is doubtful whether a different potential buyer would offer to acquire Spacecom at the values discussed a year ago.

In the end, at the Bezeq shareholders' meeting, 73.8% of the shareholders with no personal interest in the deal supported it (support at the Spacecom shareholders' meeting was 99.8%). Since the deal was approved, Spacecom has managed to ensure a NIS 190 million issue of convertible bonds, following which Eurocom sold 8.5% of Spacecom's share capital for NIS 45 million, and most of this amount was set aside for repayment of a NIS 45 million Eurocom Real Estate debt.

Published by Globes [online], Israel Business News - www.globes-online.com - on July 18, 2017

© Copyright of Globes Publisher Itonut (1983) Ltd. 2017

Shaul Elovitch
Shaul Elovitch
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