The Telecoms Merger That Could Cost Netanyahu It All

(Bloomberg) -- The most serious of the corruption charges looming against Israeli Prime Minister Benjamin Netanyahu involve allegations that he shaped industry rules to favor the country's largest telecommunications company, Bezeq Israeli Telecommunication Corporation Ltd. Attorney General Avihai Mandelblit has served notice that he plans to indict Netanyahu for bribery in the case as the country prepares for general elections in April.

1. What are the allegations?

Mandelblit says that when Netanyahu approved a merger in 2015 between Bezeq's television unit Yes and the parent company he did so to help his close friend Shaul Elovitch, who had stakes in both, pocket a windfall. The attorney general says that Netanyahu, who was also serving as communications minister at the time, promised additional regulatory relief for the telecommunications giant. Investigators have alleged that Netanyahu's handpicked director-general of the Communications Ministry, Shlomo Filber, allowed Bezeq executives secret access to internal ministry documents so they could review them and suggest changes. Filber turned state's witness last year.

2. How did both sides allegedly benefit?

Elovitch bought the largest stake in Bezeq in 2010, financing the takeover with 6.5 billion shekels ($1.79 billion) of debt. Soon after, regulatory reforms began hurting profits, threatening his plan to repay the loans with Bezeq's dividend. To generate new cash, Elovitch pushed to sell his shares in Yes. Investigators allege that executives close to him inflated the selling price, hurting Bezeq shareholders. Local investment houses with stakes in Bezeq voted against the deal because of the high purchase price. Netanyahu overrode objections and approved the sale. Meanwhile, senior editors at Bezeq's Walla! news portal began changing or removing articles that portrayed the prime minister or his family in a negative light, often at the direct request of Netanyahu's wife Sara, investigators allege.

3. Did Bezeq realize regulatory changes?

No. In 2016, Netanyahu pushed to lift a ban preventing Bezeq from merging its units which was put in place to prevent the company from abusing its monopolistic power. However, under pressure from government watchdogs, Netanyahu was forced to resign from the communications ministry because his previously undisclosed friendship with Elovitch presented a conflict of interest. In June 2017, the Israel Securities Authority opened an investigation into Bezeq, in effect freezing any attempts to change industry rules.

4. What does Netanyahu say?

He has consistently denied wrongdoing. He's argued that favorable press coverage doesn't constitute a bribe, and that he's a victim of a left-wing conspiracy involving Israel's police, the justice system and the media to remove him from office. Netanyahu will be entitled to a hearing after the April 9 election to present his case and try to persuade the attorney general to drop the plan to charge him.

5. How have Elovitch and Bezeq fared?

Prosecutors have to decide whether to go ahead with their draft indictment accusing Elovitch of bribery, which can carry a penalty of as much as 10 years in prison. His creditors took his telecom empire to bankruptcy court and are selling the majority stake in Bezeq. The company itself has continued to spiral downwards since the investigation into its dealings was announced. The stock recently hit a 21-year low, and investors and analysts fear the company's profits will dry up, forcing Bezeq to ditch its dividend in the coming years.

6. How's the case expected to affect the election?

Just the prospect of charges could cost Netanyahu re-election. According to polls taken after the draft indictment was published, the Blue & White bloc, led by ex-military chief of staff Benny Gantz and former Finance Minister Yair Lapid, will be in a better position to form a government than the prime minister's Likud. But if Netanyahu is re-elected and the attorney general goes ahead with an indictment after the vote, the prime minister has vowed he won't step down unless convicted.

The Reference Shelf

Businessweek cataloged the corruption cases involving Netanyahu or those closest to him.
A QuickTake on the political consequences of the cases against Netanyahu.
Businessweek sheds light on the dog days of Israeli tycoons, who used to rule the economy.

To contact the reporter on this story: Yaacov Benmeleh in Tel Aviv at ybenmeleh@bloomberg.net

To contact the editors responsible for this story: Stefania Bianchi at sbianchi10@bloomberg.net, Amy Teibel, Lisa Beyer