The News Behind The News
November 1, 1999

Gad Ze'evi and Bezek Stocks

Several stories and prominent editorials have appeared recently in the Hebrew press reporting on and commenting upon the agreement between wealthy Israeli businessman Gad Ze'evi and the British telecommunications company Cable & Wireless. As reported, Gad Ze'evi will buy out the Bezek shares (and options for shares) currently held by Cable & Wireless (C&W) at a premium of 10% over the current share value on the Israeli stock market.

The Israeli press noted that C&W had been in negotiations with several other major Israeli players. The most noteworthy were Discont Investments, Koor, Poalim Investments.

The story behind the story may be understood better by asking a few simple questions: Why is the shrewd Gad Ze'evi willing to pay a 10% premium for the stock? If the Bezek shares are such a bargain even at a 10% premium, why were there no foreign companies seriously interested in purchasing the shares? Why would the aggressive telecommunications company C&W abandon its strategic foray into the world of Israeli telecommunications?

The answers to these and many similar questions may be found mired in the mud of government intervention, bureaucracy, over-regulation and down-right hooliganism. As noted by the business editors of several leading Israeli newspapers, the bureaucrats, notably in the Finance Ministry, who seem determined to remain firmly in charge of most of Israel's business sector, let C&W know very clearly that the British company was persona non grata in Israel.

The bureaucratic maneuvering and mine-laying were evidenced by the fact that the Treasury placed conditions and restrictions on C&W's ownership rights sua sponte, and it did not permit the company representation on Bezek's board of directors, notwithstanding the fact that it was one of the major shareholders (if not the largest after the Israeli government). In addition, according to the press reports, the Treasury bureaucrats let C&W know that notwithstanding the political policy long ago declared that Bezek would be privatized, the bureaucrats had decided a priori that C&W would not be allowed to compete for controlling shares.

From the Israeli perspective, however, the matter gets even clearer. For an Israeli insider like Mr. Ze'evi, who already has his hand in many aspects of Israel's economy, the effort to expand that reach even further moves forward unimpeded. Indeed, what better way to dominate the Israeli scene than to buy an Israeli monopoly - especially a telecommunications monopoly. It should come as no surprise that Mr. Ze'evi is willing to pay a premium for Bezek shares.

It should also be clear why the Treasury bureaucrats will allow this purchase and even work with Mr. Ze'evi so that the deal goes smoothly. He is an Insider. He is part of the A Team. Indeed, many of the Treasury bureaucrats will look to one of Mr. Ze'evi's several companies for a 6-figure salary when they "retire" from government service and they will be properly rewarded. That is the way the game is played here and outsiders like C&W simply don't get it.