Structures and applicable lawTypes of transaction
How may publicly listed businesses combine?
The main ways to acquire a company are as follows:
- Share purchase – the contractual purchase of shares from existing shareholders. Such acquisitions require the consent of all selling shareholders or can be forced on a dissenting minority of shareholders by way of executing a tender offer in accordance with sections 324 to 340 of the Israeli Companies Law 1999. Tender offers are mandated in certain instances, mainly in connection with the purchase of shares that result in the ownership of shares above certain thresholds.
- Asset purchase – the purchase of the assets or activities of the company.
- Merger – reverse triangular mergers are commonly used to acquire 100 per cent of the shares of publicly traded companies, as well as other companies with large and disperse shareholdings.
- Scheme of arrangement – the acquisition of companies can also be part of a court-approved scheme. Such schemes are commonly used with respect to distressed companies (eg, under trusteeship, liquidation or dissolution).
What are the main laws and regulations governing business combinations and acquisitions of publicly listed companies?
The main laws governing M&A deals are:
- the Companies Law 1999, which governs all corporate transactions involving Israeli incorporated companies;
- the Securities Law 1968, which applies to Israeli publicly traded companies;
- the Economic Competition Law, which governs all competition-related matters, including mergers, antitrust and restrictive arrangements; and
- the Income Tax Ordinance (New Version] 5721-1961.
In addition, numerous sector-specific laws and regulations affect M&A transactions (for example, government licensing requirements for encryption, dual-use technology, telecommunications, mining, essential infrastructure and power plants). These vary from one deal to another, depending on the nature of the assets that are being sold.
Further, numerous Israeli companies have obtained financing from the Israel Innovation Authority (formerly known as the Office of the Chief Scientist) pursuant to the Encouragement of Research and Development Law 1984, which sets certain restrictions for such companies on the transfer of technology, and production and manufacturing outside Israel.Cross-border transactions
How are cross-border transactions structured? Do specific laws and regulations apply to cross-border transactions?
The Israeli transfer pricing regime, which is regulated under the Israeli Tax Ordinance (ITO)and further guidance issued by the Israel Tax Authority, implemented the approach ofthe arm’s-length principle, taken by the OECD, regarding international transactions between related parties. The scope of the transfer pricing regulations is limited to situations where there is a special relationship between the parties and the transaction. Although this is rare, a tax assessment officer can issue an approval to exclude certain one-time transactions from the regulations. The regulations cover various types of transactions, including services, transfer of tangible and intangible goods or assets and financing transactions. The regulations specifically address research and development services provided by Israeli subsidiaries and matters relating to intangibles, because of the nature of the Israeli market.
If a cross-border controlled transaction has been carried out in accordance with the arm’s-length principle, the burden of proof initially lies with the taxpayer, and companies who do not comply with this principle can face penalties.Sector-specific rules
Are companies in specific industries subject to additional regulations and statutes?
Various sectors – such as banking, insurance, gas, electricity, water and other essential infrastructure-related providers – are regulated by specific laws and regulations. As the financial technology sector is growing, it falls under the scrutiny of a number of regulators (typically, banking, securities, insurance and privacy).
The commissioner of Capital Market, Insurance & Savings regulates the permits required to obtain control of an institutional body that operates in the insurance and savings industry; the commissioner of the Israel Securities Authority regulates the permits required to obtain control of an institutional body that operates in the capital and securities market; and the banking commissioner provides the required licensing to obtain control of or to operate a banking institution.Transaction agreements
Are transaction agreements typically concluded when publicly listed companies are acquired? What law typically governs the agreements?
Upon signing, the share purchase agreement, merger agreement or asset purchase agreement (as applicable) is executed.
Upon closing, all other ancillary transaction documents are executed, including share transfer deeds, updated shareholder registers, notices to the companies registrar, board and shareholders’ resolutions, shareholder agreements, escrow agreements, paying agent agreements, retention and employment agreements, transition services agreements, investor rights agreements, waivers, consents and legal opinions.
Furthermore, if the consummation of the merger or acquisition is subject to the approval of the shareholders’ general meeting, a convening notice is required to be delivered to shareholders at least 35 days in advance of the meeting.
Filings and disclosureFilings and fees
Which government or stock exchange filings are necessary in connection with a business combination or acquisition of a public company? Are there stamp taxes or other government fees in connection with completing these transactions?
Typically, the stock exchange filings and public disclosures relating to business combination or acquisition of a public company include all the substantial terms of the transaction, which are necessary for the investors to evaluate the viability of the proposed transaction. Usually, a public disclosure – made via the electronic reporting system, and also automatically published on the stock exchange filings platform – is required at each stage of the transaction, starting from the negotiations stage, through the signing stage, ending up at the closing stage. There are no stamp duty fees or similar fees (with the exception of fees in cases of a merger or split, to be paid to the Israeli Tax Authority). In the event that the target received financing from the Israel Innovation Authority, and the new owners desire to transfer the company’s financed know-how or manufacturing abroad, there will be fines and fees to be paid to the Israel Innovation Authority. Usually, if the transaction does not involve issuance of securities of the public company, no fees shall be due to the Israel Securities Authority or the Tel-Aviv Stock Exchange.Information to be disclosed
What information needs to be made public in a business combination or an acquisition of a public company? Does this depend on what type of structure is used?
The scope and kind of information required to be made via public filings varies according to the type of the transaction and its materiality. Assuming that the merger transaction constitutes a material transaction (change of the controlling shareholder, for example, constitutes such a transaction), then the filings shall include a summary of all substantial terms, including, without limitation, the expected merger date, kind of merger, consideration to be paid, conditions precedent and financial statements (or at least financial statements of the merged company and a description of its businesses and the sector and field of its operation, restrictions that may apply to the acquired securities of the merged company, etc). The full agreement does not need to be publicly disclosed.Disclosure of substantial shareholdings
What are the disclosure requirements for owners of large shareholdings in a public company? Are the requirements affected if the company is a party to a business combination?
Once a shareholder holds (directly or indirectly) 5 per cent or more of the voting rights of a public company (a major shareholder), it is required to report its identity to the company and thereafter report any additional acquisition of securities, providing the details of the number of securities acquired, the consideration paid and other additional relevant information. The company in turn is required to publicly disclose this information.
If a shareholder reaches a 25 per cent threshold of holdings in a public company where there is no other shareholder holding 25 per cent or more of the company, or the buyer reaches a 45 per cent threshold in a public company where there is no other shareholder holding 45 per cent or more of the company and wishes to acquire additional shares, it becomes subject to special tender offer requirements pursuant to the Companies Law and the Securities Law, which in general require it to make the tender offer public and on equal terms to all shareholders.
Additionally, a major shareholder is required to disclose to the public company whether it has a personal interest in the merger or acquisition transaction and, if so, the public company is in turn required to make that information public.
Law stated dateCorrect on
Give the date on which the above content is accurate.
1 January 2020.