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Trends and climate
How would you describe the current merger control climate, including any trends in particular industry sectors?
The Israeli antitrust commissioner is Ms Michal Halperin. She has held this position since March 2016.
The Israeli Antitrust Authority reviews mergers carefully – it has adopted relatively narrow market definitions, and geographical aspects are considered carefully; on occasion, small geographical areas have been determined to be separate markets.
Between 2009 and 2013 the average merger review period steadily increased, but it seems to have decreased during 2014 and 2015.
Merger trends are not limited to a specific sector. Nonetheless, some sectors have been under the spotlight in other areas of competition law (eg, the food sector, which saw the introduction of the Law to Promote Competition in the Food Sector 2014; and the agriculture sector, which has been affected by the considerable narrowing of the statutory exemption for restrictive agreements).
Are there are any proposals to reform or amend the existing merger control regime?
A major reform to the Restrictive Trade Practices Law 1988 has been proposed. The Israeli Antitrust Authority recently issued a draft bill entitled Memorandum of Law: Restrictive Trade Practices Law (Amendment of the Merger Chapter and Miscellaneous Instructions) 2015. If this draft bill is accepted, it will significantly affect the Israeli merger regime and foreign companies that conduct or that wish to conduct business in Israel.
The proposed changes include the following:
- Mergers below the filing thresholds will be prohibited if they are likely to harm competition or the public. This will change the existing regime, according to which mergers that do not meet the filing thresholds are generally legal.
- The definition of ‘merger’ will be extended to include transactions among almost any legal entities and natural persons, including foreign entities which were previously outside the scope of the Restrictive Trade Practices Law's merger regime.
- Filing thresholds will be increased and turnover requirements will be added to the existing market share thresholds.
- An international turnover threshold will be introduced. This means that first-time acquisitions of large international corporations in Israel must be notified, unlike under the existing regime.
- The Israeli Antitrust Authority is seeking the authority to extend the merger review period. The proposed amendment will allow the commissioner to extend the review period up to 150 days, if the extension is justified.
The reform is still at an early legislative stage. It was commenced by the Israeli Antitrust Authority’s former leadership. Hence, it is too early to determine the timeframe for the reform or the exact changes that will come into force. A formal bill is expected to be published soon.
Legislation, triggers and thresholds
Legislation and authority
What legislation applies to the control of mergers?
The Restrictive Trade Practices Law is the main legislation applicable to merger control. The law defines ‘mergers’ and the ‘nexus test’, and sets out the main filing thresholds, as well as the substantive rule for approving and rejecting mergers. The law also regulates the right to appeal decisions of the commissioner to the Antitrust Tribunal (appeal procedures are governed by the Administrative Courts Law 1992).
The Restrictive Trade Practices Regulations (Registrar, Publication and Transaction Notification) 2004 set out complementary thresholds and merger notification forms.
The Restrictive Trade Practices Rules (Block Exemption for Restraints Ancillary to Mergers) 2004 exempt certain restraints in merger agreements from further scrutiny by the authorities.
The Israeli Antitrust Authority issued various guidance documents describing its merger control policy, including:
- Guidelines For Reporting and Evaluating Mergers (the Procedural Guidelines);
- Opinion 1/11: Guidelines for the Competitive Analysis of Horizontal Mergers; and
- Opinion 2/11: Guidelines Regarding Remedies for Mergers that Raise Reasonable Concerns of Significant Harm to Competition.
What is the relevant authority?
The Israeli Antitrust Authority and the commissioner, who heads the Israeli Antitrust Authority (also known as the General Director), are responsible for merger control in Israel. The commissioner approves mergers, stipulates conditions for their approval or rejects mergers. The Israeli Antitrust Authority – in particular, the Economic Department – reviews and analyses mergers' competitive effect. The commissioner has various administrative powers to enforce the merger control regime. For example, the Israeli Antitrust Authority is in charge of criminal prosecution of illegal mergers (a rare exercise).
Before rendering a decision, the commissioner must consult with the Exemptions and Mergers Committee, a special advisory body with representatives from academia and the public.
The Antitrust Tribunal and the Supreme Court hear appeals on the commissioner's decision regarding mergers.
Transactions caught and thresholds
Under what circumstances is a transaction caught by the legislation?
The Restrictive Trade Practices Law has two main filters to define which transactions are caught by the legislation. The first filter is the definition of ‘merger’, which encompasses a broad definition of ‘company’ (Section 1 of the Restrictive Trade Practices Law) in order to include various corporations and, in some cases, natural persons. The second filter is the various filing thresholds.
The following may be considered mergers:
- the acquisition of the main part of a company's assets (or the assets of a line of business);
- the acquisition of more than 25% of the outstanding share capital, voting power, board member appointments or profits of a company; or
- a transaction that gives one company a substantial structural link to another, or that materially strengthens an existing link.
This last concept stems from the Procedural Guidelines’ wide interpretation of the Restrictive Trade Practices Law definitions of 'merger', which have been interpreted broadly due to the word ‘including’.
‘Company’ is defined as a registered local company, including a locally registered foreign company, cooperative or partnership. The Procedural Guidelines contain a broad definition of ‘registered foreign company’, which includes foreign companies that should have been registered. Any future reference to a company should be read as referring to a company in the broader sense.
A merger may be direct or indirect. For example, when a natural person who controls a company acquires another company, a merger occurs between the two companies.
Transactions that are considered mergers and that meet one or more of the filing thresholds must be filed with the Israeli Antitrust Authority. They cannot be completed without the commissioner's approval. Mergers below the thresholds are generally considered legal.
An acquisition which does not amount to a merger may still be considered a restrictive arrangement under the Restrictive Trade Practices Law – particularly if the parties to the transaction are competitors – and should be analysed accordingly. In addition, mergers may contain restrictive covenants (ie, ancillary restrictive arrangements), which must be analysed separately.
Do thresholds apply to determine when a transaction is caught by the legislation?
Merger notifications must be filed with the Israeli Antitrust Authority if the merger meets one of the following thresholds (Section 17 of the Restrictive Trade Practices Law):
As a result of the merger, the combined market share of the merging companies exceeds 50% of the relevant market. This threshold requires an examination of the market shares of the parties to the transaction at each level in the production chain (ie, production, sales, marketing or purchase of an asset or service).
The combined sales turnover of the merging companies in the financial year preceding the merger exceeds IS150 million (approximately €35 million) and each merging party’s sales turnover exceeds at least IS10 million (approximately €2.3 million).
One of the parties is a monopoly. Under the Restrictive Trade Practices Law, ‘monopoly’ is defined somewhat technically as a market share of over 50%.
The thresholds apply only in relation to Israel. Turnover and market shares in other markets are not considered. Thresholds apply to the entire group of companies, including companies in control relationships with the merging parties. In this context, ‘control’ means having over 50% of the votes in the general assembly or the power to appoint directors. Turnover thresholds refer to the parties’ consolidated financial accounts.
Thresholds are constitutive. Mergers that fall below the thresholds are generally legal per se. However, the proposed reform may change this.
Is it possible to seek informal guidance from the authority on a possible merger from either a jurisdictional or a substantive perspective?
Jurisdictional preliminary rulings are normally available. The Israeli Antitrust Authority has published sample preliminary rulings, which disclose no details of the sample transactions. Substantive preliminary rulings are theoretically available, but are rare and not normally published.
Are foreign-to-foreign mergers caught by the regime? Is a ‘local impact’ test applicable under the legislation?
A local nexus test is applied via the definition of ‘company’. A company must be a locally registered corporation or one that should have been registered.
Accordingly, with regard to international companies, one of the following must apply:
- The company is registered in Israel.
- The company has a merger affiliation with an Israeli corporation. A ‘merger affiliation’ is derived from the definition of ‘merger’. An affiliation is any company that holds over one-quarter of the issued share capital, general assembly voting rights, board appointment rights or corporation's profits. A merger affiliation between a foreign company and an Israeli company need not be direct. It can be derived from contractually assigned rights or ownership. Negative control rights or other types of foothold in the Israeli corporation may also be considered. Where a merger occurs indirectly, the Israeli corporation is deemed a party to a merger between foreign entities.
- The company maintains a place of business in Israel (ie, it has significant influence over the conduct of a local representative (eg, the power to set the prices, stock levels, manner of display and other aspects of the local representative's business)). The more influence that a foreign company has, the greater the likelihood that it will be deemed as maintaining a place of business in Israel.
A foreign-to-foreign transaction will be caught by the Restrictive Trade Practices Law only if it both passes the nexus test (ie, at least two parties meet the definition of ‘company’) and meets the filing thresholds. The thresholds are local; only Israeli revenue and market shares apply.
The proposed new legislation seeks to eliminate the nexus test and, if applied, will change the rules for foreign companies significantly. International companies seeking new business in Israel should be aware of this.
What types of joint venture are caught by the legislation?
Commissioner opinions and decisions show that the commissioner considers some joint ventures to be mergers. Other joint ventures – mainly between competitors – may be deemed ‘restrictive arrangements’ (a term taken from the Restrictive Trade Practices Law which is similar to ‘restraints of trade’). Joint ventures between non-competitors may fall entirely outside both categories.
Several tests may be applied to identify when a joint venture constitutes a merger:
- Irreversibility – a joint venture that is irreversible or has no time limits is more likely to be seen as a merger.
- Existing activity – where the main activity or assets of an activity sector of one or both of the parties is put into the joint venture, it is more likely to be considered a merger.
- Joint decision making – when the decision-making mechanisms for an existing activity are joined, the joint venture is more likely to be considered a merger.
- Permanence – when the joining is permanent, the joint venture is more likely to be considered a merger. When the cooperation is binding and limited in scope, the joint venture is more likely to be considered a restrictive arrangement.
If, according to the aforementioned tests, a joint venture constitutes a merger, the regular thresholds apply. If a joint venture amounts to a restrictive arrangement, the rules for restrictive arrangements apply.
Process and timing
Is the notification process voluntary or mandatory?
Notification is mandatory for all merger transactions which meet the thresholds.
This may change with the proposed reform, which will allow voluntary filing for certain transactions beneath the thresholds.
What timing requirements apply when filing a notification?
No time requirements for reporting a transaction once the parties have reached an agreement exist. However, Israel's merger regime is suspensive – transactions cannot be completed until the commissioner has cleared the merger. Hence, although no timing requirements exist, merging parties should file merger notifications promptly once signed.
The Restrictive Trade Practices Law sets out a 30-day period after filing notification for the review process to take place. In some cases, this period may be extended formally by the Antitrust Tribunal (although this is rare) or informally by requesting an extension from the merging parties.
What form should the notification take? What content is required?
Detailed and elaborate notification forms exist. These are the ordinary form (or long form), which is the standard form under which any merger may be filed, and a simpler form (or short form).
A short form may be filed when a merger meets the following criteria:
- the market shares in all relevant markets do not exceed 30%;
- none of the merging parties has a market share of 50% or more in an adjacent market; and
- none of the merging parties has an arrangement with a third party that competes with it in the relevant product market.
The details that must be included in the forms vary by merger type (ie, horizontal, vertical or conglomerate (a conglomerate merger is a merger which is neither horizontal nor vertical)), and may include:
- the names and contact details of customers and suppliers;
- details of the merging parties' activities and market shares; and
- for conglomerate mergers, details on the shareholders and holdings above 20% in other companies.
Companies with over a 25% market share in Israel must submit additional information, mainly competitors' market share estimations.
Generally, forms must be filed in Hebrew. Foreign company managers are allowed to sign forms in English, but the Israeli Antitrust Authority must be provided with a Hebrew version (unsigned).
In addition to the notification forms, the parties must file the following documents:
- a signed merger transaction agreement;
- the audited financial statements of the merging companies for the last two fiscal years; and
- any prospectus filed by the merging companies for each of the last five fiscal years, if applicable.
Other relevant documents may also be filed.
Parties often file a cover letter highlighting the main competitive issues and explaining their views on the merger and its competitive impact.
Is there a pre-notification process before formal notification, and if so, what does this involve?
Substantive preliminary rulings are rare. The Israeli Antitrust Authority will usually allow notifications only once an agreement is signed. Hence, generally, no pre-notification process exists.
Can a merger be implemented before clearance is obtained?
Mergers that meet the thresholds cannot be implemented without clearance from the commissioner.
Mergers need not be fully completed to breach the prohibition on consummation before clearance.
The following may count as de facto mergers (gun jumping) and be subject to penalties:
- the transfer of shares to a trustee that is controlled by the purchaser;
- the transfer of funds to the purchaser or the company;
- the appointment of a board member; or
- meetings held with employees of the target, particularly if the competitive conduct of the target is being influenced.
Steps such as appointing a board observer, meeting with target employees or transferring funds to a company sold under bankruptcy proceedings may not constitute gun jumping, even if done before clearance. However, caution is recommended when undertaking these practices, due to the possibility of penalties being applied for early consummation, including criminal penalties.
Guidance from authorities
What guidance is available from the authorities?
The Israeli Antitrust Authority has published the Procedural Guidelines which deal with procedural issues and the scope of the merger chapter of the Restrictive Trade Practices Law. Additionally, the Israeli Antitrust Authority has published some preliminary rulings regarding procedure matters.
The Israeli Antitrust Authority also published the Horizontal Merger Guidelines, which refer to competitive analysis issues of horizontal mergers, and the Remedies Guidelines, which relate to various conditions and remedies stipulated by the commissioner.
Substantive clearance decisions, on the other hand, are generally provided without detailed reasoning, regardless of whether conditions have been stipulated. Decisions on objections include reasoning, although these kind of decisions are relatively rare and, hence, do not provide suffice guidance.
The Israeli Antitrust Authority generally follows worldwide trends. For example, if a precedent exists on a market definition for a similar industry in another jurisdiction (mainly the United States or the European Union), the Israeli Antitrust Authority will consider this in its analysis.
What fees are payable to the authority for filing a notification?
To date, no filing fees have been set, although Section 20 of the Restrictive Trade Practices Law allows the minister of economy and the minister of finance to set filing fees.
Publicity and confidentiality
What provisions apply regarding publicity and confidentiality?
The merger review process is generally public. During the review process, the Israeli Antitrust Authority approaches the parties' competitors, suppliers and customers in order to receive relevant information and their opinions regarding the merger.
Once the merger review is complete, parts of the notification form which are not marked as confidential will be included in the public registry.
The public part of the forms includes some general information about the parties, their activities, estimated market shares and the merger transaction. The confidential part of the form – which is excluded from the public registry – includes more elaborate classifications of areas of activity, sales quantities and sales revenues, lists of competitors and other sensitive business information.
Some information can be revealed if a third party appeals the merger decision. The Freedom of Information Law 1995 may also apply to written material accumulated by the Israeli Antitrust Authority during a merger analysis. In any event, the merging parties' rights to privacy will be considered.
Are there any penalties for failing to notify a merger?
Various enforcement measures can be taken against a breach of the Restrictive Trade Practices Law, including administrative, judicial, criminal and civil measures. In all cases, enforcement is more likely if the merger harms competition.
Administrative fines – primary enforcement measure
The Restrictive Trade Practices Law sets out a maximum fine of 8% of a company's total sales turnover in the year before the violation, with a maximum fine of IS24 million (approximately €5.6 million). For individuals or companies that had a sales turnover of less than IS10 million (approximately €2.33 million) in the year before the violation, a maximum fine of IS1 million (approximately €233,000) will be imposed. The largest administrative fine that the Israeli Antitrust Authority has imposed thus far for any offence under the Restrictive Trade Practices Law was IS1 million. The legislation allowing administrative fines is relatively new (enacted in 2012).
Regarding non-horizontal mergers, the Israeli Antitrust Authority stated that enforcement will generally take the form of administrative fines (Guideline 1/12: Israeli Antitrust Authority Guidelines on Enforcement Procedures for the Use of Financial Sanctions).
The commissioner may issue an administrative determination stating that a merger has been unlawfully consummated. Such a determination serves as prima facie evidence in legal proceedings and may be used for civil suits (including class actions) against the merging companies.
The Israeli Antitrust Authority may approach the Antitrust Tribunal requesting one of the following:
- Consent decree (subject to the parties' consent) – providing, among other things, for an amount of money to be paid to the state treasury in lieu of criminal procedures or an administrative declaration, with or without admitting liability. In the past, the Israeli Antitrust Authority has used this provision as an alternative to administrative fines, which it could not impose until 2012.
- Divestiture of merged companies – the Antitrust Tribunal has the authority, at the request of the commissioner, to separate merged companies on demonstrating that there is a reasonable likelihood of significant harm to competition or injury to the public in respect of the product's price, quality, quantity, regularity or terms of supply. The use of this motion is rare.
The Restrictive Trade Practices Law applies criminal penalties (up to a three-year jail sentence and fines) for failing to file a merger notification or taking action that is tantamount to full or partial consummation of a merger, contrary to the Restrictive Trade Practices Law. Since 1988 – when the Israeli merger control regime was first established – only two merger cases have led to criminal charges, both involving local Israeli firms.
Civil torts and class actions
Like other breaches of the Restrictive Trade Practices Law, consummating an illegal merger is a civil tort and is subject, even without administrative declaration, to civil lawsuits, including class actions (which are common in Israel).
Procedure and test
Procedure and timetable
What procedures are followed by the authority? What is the timetable for the merger investigation?
The usual procedures include the following:
- After receiving merger notifications, the Israeli Antitrust Authority reviews the notifications and approaches the merging parties with further questions. The Israeli Antitrust Authority will notify the relevant government ministry of the merging parties’ activities.
- The Israeli Antitrust Authority may request data from third parties (eg, competitors, consumers or suppliers). Third parties are obliged by law to respond within the allotted timeframe, and administrative fines may be imposed on those that do not. Oral queries (which are documented in writing by the relevant Israeli Antitrust Authority employee) are also common.
- In complex mergers, the Israeli Antitrust Authority will usually conduct meetings with the parties, listen to arguments and allow further information to be filed, including economic opinions.
- If the Israeli Antitrust Authority considers stipulating conditions, it will usually send the parties a draft and negotiate with them over the wording.
- Before rendering a decision, the commissioner must consult with the Exemptions and Mergers Committee, a special advisory body comprised of representatives of the academy and the public.
According to the Restrictive Trade Practices Law, the commissioner must render a decision within 30 calendar days of receiving the merger notification. This period may be extended formally by the Antitrust Tribunal or informally by requesting an extension from the merging parties. The latter practice is common; the Israeli Antitrust Authority rarely resorts to tribunal applications.
While most merger reviews are concluded within the 30-day period, the average review period has steadily increased from 20.3 days in 2009 to 31.4 days in 2013, according to the Israeli Antitrust Authority's 2013 annual report. Informal Israeli Antitrust Authority information states that the average review period fell slightly in 2014. The proposed reform may change these timeframes.
What obligations are imposed on the parties during the process?
The parties must respond to oral queries and data requests. They must also refrain from full or partial consummation of the merger.
What role can third parties play in the process?
Third parties may play an active role by supporting or opposing a merger during the review process. No specific procedure governs third-party involvement. Third parties that oppose a merger may take a variety of steps – in particular, providing information to prove competitive harm, meeting with relevant Israeli Antitrust Authority personnel and filing an economic opinion to support their case.
Nonetheless, third parties usually play a passive role by submitting information in response to Israeli Antitrust Authority data requests or oral queries.
A third party may also appeal a merger decision if it will be injured by the merger.
What is the substantive test applied by the authority?
The substantive test, as set out in the Restrictive Trade Practices Law, is "reasonable concern for significant harm to competition or public" in relation to prices, quality, quantity or regularity of supply of a product or service.
The Horizontal Merger Guidelines state that the Israeli Antitrust Authority begins by using a demand-based definition of ‘market’ (ie, product market and geographic market). Once the market is defined, competitors can be recognised and market shares allocated.
The Israeli Antitrust Authority estimates possible unilateral effects (ie, where the merged firm on its own can have market power) and coordinated effects (ie, where the merger is expected to hinder competition or increase competitors' incentives to collude). Any existing tendency to collude is also analysed. Finally, defences such as merger efficiencies and the failing firm doctrine are also considered.
The guidelines show that a horizontal merger may raise the Israeli Antitrust Authority's concerns and merit further examination when:
- post-merger market shares are high;
- the merging companies are the closest substitutes; or
- entry barriers are high.
When estimating coordinated effects, the Israeli Antitrust Authority will look into other relevant indicators of the market's tendency to collude (eg, past collusion, a small number of competitors whose market shares are relatively similar, multi-market contact between competitors, excess production capacity and low customer switching rates).
The concentration level is also measured (using the Herfindahl-Hirschman Index (HHI) and four-firm concentration ratio) as part of the process. The Israeli Antitrust Authority has set no definitive safe harbour criteria in this regard; but the Horizontal Merger Guidelines state that mergers with a post-merger HHI of less than 2,000, combined with an increase of less than 150 points in HHI, generally do not raise reasonable concerns regarding competition.
The substantive test for vertical mergers is the same as that for horizontal mergers. Nonetheless, no guidelines are available for vertical mergers. According to Antitrust Tribunal precedent, vertical mergers are usually beneficial, although they may raise concerns regarding foreclosure. For a merger to be rejected, foreclosure must relate to a considerable part of the market or create a barrier to market entry.
Does the legislation allow carve-out agreements in order to avoid delaying the global closing?
The Israeli Antitrust Authority has not expressly discussed this question; as such, no clear guidelines on the issue exist and no routine carve-out procedures have been established. Generally, the Restrictive Trade Practices Law is territorial and concerns competition effects in Israel.
When dealing with an international merger, the Israeli Antitrust Authority will usually take a similar stance to that of other competition authorities. An agreement with the Israeli Antitrust Authority to carve Israel out of a transaction can likely be reached.
Test for joint ventures
Is a special substantive test applied for joint ventures?
Some joint ventures are seen as mergers, while others are seen as restrictive arrangements. Some joint ventures are considered neither mergers nor restrictive arrangements.
No special substantive standards apply for joint ventures that constitute mergers, as the standard is the same: "Reasonable concern for significant harm to competition or the public.” The rules differ for joint ventures which are considered restrictive arrangements.
What are the potential outcomes of the merger investigation? Please include reference to potential remedies, conditions and undertakings.
The main results are merger approval, conditional approval (including remedies, conditions or undertakings) or rejection.
Remedies and conditions may be stipulated only when a merger raises reasonable concern of significant harm to competition or the public. A merger that may cause considerable harm may be rejected, unless remedies are met.
According to the Remedies Guidelines, the Israeli Antitrust Authority prefers structural remedies which secure permanent change to the market. Structural remedies require less follow-up and enforcement compared with behavioural remedies, which control the conduct of the merged firm. Per the Remedies Guidelines, the Israeli Antitrust Authority may stipulate behavioural conditions as a temporary solution when:
the competitive concerns involve a specific, well-defined behaviour which is easy to detect;
a failing company will exit the market entirely without the merger; or
structural conditions are irrelevant.
Right of appeal
Is there a right of appeal?
The parties to a merger may appeal a rejection or conditional approval to the Antitrust Tribunal. During an appeal, the parties will present evidence, including affidavits and economic expert opinions. Affidavits and opinions are subject to cross-examination. The proceedings may last anywhere between several months and over a year. Tribunal decisions may be appealed to the Supreme Court.
In practice, few appeals are filed and fewer reach a decision. This is due to the limited lifespan of many transactions, which become irrelevant due to the length of Antitrust Tribunal proceedings.
While appeals consider the various competition law aspects of a decision afresh and the commissioner's decision is examined on its merits, the commissioner's opinion is given added weight when considering the evidence on appeal.
Do third parties have a right of appeal?
Third parties may appeal a commissioner decision if they will be injured by the merger. Tribunal precedent states that injury must be an antitrust injury (ie, where the source of injury is harmful to competition and the appellants are injured).
What is the time limit for any appeal?
Appeals must be filed within 30 calendar days of receiving the commissioner's decision. No clear time limit exists for hearing appeals, although they usually last several months. As such, some mergers may become irrelevant by the time the Antitrust Tribunal renders its decision.
Third-party appeals must be filed with the Antitrust Tribunal within 30 days of the decision being published in two daily newspapers.