Apax-led group exercises option on Bezeq

A private equity consortium headed by London-based global investor Apax Partners has increased its stake in Israeli telecoms group Bezeq Israel Telecom for about Sh1.08bn (US$312m).

Apax Partners; Saban Capital Group, the Los Angeles-based investment vehicle of media mogul Haim Saban; and Arkin Communications, owned by local businessman Mori Arkin, have increased their controlling stake in the Israeli full-service telecoms provider by a further 10.7 percentage points.

In October 2005, the consortium purchased a 30% stake in Bezeq Israel Telecom for about US$923m. As part of the deal, the consortium was given four years to exercise an option to purchase an additional 10.7% of the shares. Bezeq was Apax Partners’ first buyout in Israel.

Apax’s operations in Tel Aviv are headed by Zehavit Joseph-Cohen, who took over from Allan Barkat in April 2006. Joseph-Cohen was previously executive vice-president and chief financial officer at listed financial group IDB Holding Corporation, and before that was at Chase Manhattan Bank, Coopers and Lybrand, and ZHM Corporation, He was brought on board to spearhead a shift away from early-stage technology investments to later-stage and buyout transactions.

The 2005 transaction, managed by the Israeli government, was financed by senior debt from co-arrangers Bank Leumi and Bank Hapoalim, as well as by a mezzanine syndicate comprising Harel Insurance, Menora Insurance, Mivtachim Pension, DS Provident, Excellence Provident and Phoenix Insurance.

Deutsche Bank, JPMorgan, Goren Capital, Zellemayer Pelossof & Co, Herzog, Fox & Neeman and Rozenberg, Hacohen, Godard and Efrat advised on the deal.

Apax Partners and Saban Capital Group held 45% each of the original 30% stake, while Arkin Communications owned the remaining 10%.

Bezeq Israel Telecom has a market share of about 85% in the fixed-line telephony market and also owns a 50% stake in digital satellite television provider YES, all of Israel’s third largest mobile operator Pelephone, and an international unit providing long distance and internet services.

According to press reports at the time, the Apax consortium outbid competition from US firms Whitepoint Communications, Canyon Capital and Clarity Partners, as well as Israeli insurer Phoenix.

Whitepoint is run by Beny Alagem, a former chief executive of Packard Bell, who tried to bring France Telecom into the consortium, which the Israeli government was understood to have balked at, due to the telecom group’s Arab interests.

The state currently holds a 5% stake in Bezeq, which it has announced will fall to about 1% by 2010, when employees exercise options in the business.