Elliott Calls for Corporate Governance Reform at Bezeq

LONDON, January 16, 2018 /PRNewswire/ --

Reveals economic stake of 4.8% in Bezeq  

Highlights need to simplify multi-layered pyramid structure 

Calls for immediate removal of directors under investigation 

Elliott Advisors (UK) Limited ("Elliott"), which advises funds which collectively hold an economic interest in Bezeq The Israeli Telecommunication Corporation Ltd. ("Bezeq" or the "Company") of approximately 4.8%, today released a letter to Bezeq's Interim Board Chairman Mr. David Granot.

Elliott describes the current problems that undermine Bezeq's potential, including the Company being part of a three layer leveraged holding pyramid with multiple conflicts and misaligned incentives. Elliott calls for the removal of at least one layer of the leveraged pyramid to more closely align the governance of Bezeq with its economic ownership.

Elliott furthermore outlines the urgent need to address the Company's serious corporate governance issues, and calls for changes at the Board level, including the immediate resignation of all the directors who were implicated in Israel Securities Authority investigations, and/or affiliated with Eurocom. Elliott believes Bezeq would benefit considerably from the election of new independent and professional directors to the Board, equipping it with "the right mixture of expertise, independence and integrity for the future."

As articulated in its letter to Interim Chairman Granot, Elliott "believe there is significant value to be unlocked if the right steps are taken to improve its corporate governance." Elliott goes on to state, "Bezeq has strong business fundamentals, an exemplary workforce, and great potential, which is why we're proudly one of the Company's largest independent investors. We are eager to work with you to ensure this Company has the board composition-and commitment to proper governance-that it deserves."

The text of the letter can be read in full below.

About Elliott  

Founded in 1977, Elliott Management Corporation is one of the oldest private investment firms of its kind under continuous management.  The firm's investors include pension funds, private endowments, charitable foundations, family offices, and employees of the firm.  Elliott Advisors (UK) Limited is an affiliate of Elliott Management Corporation.

January 16, 2018

Via Email
David Granot
Interim Chairman
Bezeq The Israel Telecommunication Corporation Ltd.
The Triangular Tower
3 Azrieli Center 
Tel Aviv 61620, Israel
Attention: David Granot, Interim Chairman of the Board of Directors

Dear Mr Granot,

Elliott Advisors (UK) Limited (together with funds advised by it, "Elliott" or "we") has been a shareholder of Bezeq The Israel Telecommunication Corporation Ltd. ("Bezeq" or the "Company") since mid-2017 and currently has an economic interest of 4.8% in the Company.

    We have invested considerable time and effort to researching and analysing Bezeq, and believe there is significant value to be unlocked if the right steps are taken to improve the Company's corporate governance. Bezeq has strong business fundamentals, an exemplary workforce, and great potential, which is why we're proudly one of the Company's largest independent investors. We are eager to work with you to ensure this Company has the board composition-and commitment to proper governance-that it deserves.  

Over the past few weeks we have closely monitored the highly public discussions regarding legal actions taken by creditors against Eurocom Communications ("Eurocom") and the potential recapitalisation and change of control of that entity. Eurocom sits at the top of a three layer leveraged holding pyramid that at present enables it to effectively control Bezeq despite being in default. We believe that this ownership structure needs to be simplified, with at least one layer being removed, to more closely align the governance of Bezeq with its economic ownership. We also believe that this should be achieved in a professional and transparent manner, making sure that a new control permit, if any, will be issued only to a well-capitalised professional investor or consortium with relevant expertise in telecom investments and committed to the highest standards of corporate governance.

Moreover we believe that the Board of Bezeq, as currently composed, is no longer fit for purpose. A number of the Directors are subject both to investigations of serious financial misconduct at Bezeq and / or are affiliated with Eurocom, which is subject to legal actions by its creditors. In these circumstances stakeholders of Bezeq may doubt both the independence of these Directors and their ability to focus properly on their obligations as Board members. We believe that it is in the best interests of Bezeq and all its stakeholders, including independent shareholders who own 73.7% of the shares, for decisive and immediate action to be taken to strengthen the Company's corporate governance.

In our view, the key steps in this direction include the following:

• All of Bezeq's Directors implicated by the Israel Securities Authority investigation and/or affiliated with Eurocom should announce their resignations, effective immediately, from Bezeq and all its subsidiaries;
• Such Directors should be replaced with independent and professional Directors elected from of a slate of candidates proposed by an independent special committee of the Board, following consultation with Bezeq's key shareholders, and confirmed by shareholder vote at the earliest opportunity; and
• In the event of any change in the ultimate controlling shareholder of Bezeq, the Directors nominated by the new controlling shareholder should be chosen according to their relevant experience in businesses at this scale, and their clean, established record. Prior to their nomination the identity of such new Directors should be consulted upon with other key shareholders of Bezeq and confirmed by the relevant shareholder meeting.

As you well know, Bezeq faces compelling business opportunities and significant challenges. The time that passes without stable, impartial ownership and governance is to the detriment of all stakeholders. As such, we urge you to support the type of corporate governance which Bezeq and its stakeholders deserve - a Board with the right mixture of expertise, independence and integrity for the future.

We sincerely hope that our concerns will be promptly addressed over the coming weeks. In the meantime, we stand ready to take any and all steps open to Bezeq shareholders to ensure our interests are protected and welcome any questions you or any members of the Board may have.

We would like to discuss the letter in person with you at your earliest convenience.

Yours sincerely,

Elliott Advisors (UK) Limited