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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.
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