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Legislation, triggers and thresholds
Legislation and authority
What legislation applies to the control of mergers?
The main legislation regarding anti-trust law and merger control is the Restrictive Trade Practices Law 1988. This law sets forth the applicability and prohibition of mergers, and the circumstances in which a transaction constitutes a ‘merger’. Under the Restrictive Trade Practices Law, the general director of the Israeli Antitrust Authority (IAA) – known internationally as the commissioner and appointed by the government – has the authority to approve or reject a merger. Pursuant to the law, the Israeli Competition Tribunal (a division in the Jerusalem District Court) serves as the appellate tribunal at which to appeal the general director’s decisions.
The complementary legislation, which mostly comprises the Restrictive Trade Practices Regulations and the Restrictive Trade Practices Rules, sets forth the forms and details that are required for filing a merger notification.
In addition, the IAA has published several guidelines specifying its policies and the general director’s opinions regarding merger control issues.
What is the relevant authority?
The IAA is the relevant authority on merger control. It is an independent government authority headed by the general director, who is a civil servant. The general director has the power to block merger transactions or stipulate certain conditions if he or she believes that there is a reasonable risk that competition in the relevant market would be significantly damaged or the public would be injured as a result of the merger.
In addition, the general director must consult with the Exemptions and Mergers Advisory Committee before final approval of a merger is made.
If the general director objects to a merger or stipulates conditions for approval, each of the companies seeking to merge may appeal to the Israeli Competition Tribunal.
The general director can also apply to the Competition Tribunal for a motion to disband an unauthorised, completed merger which was made contrary to the provisions of the law (ie, a merger that was not notified or approved).
Transactions caught and thresholds
Under what circumstances is a transaction caught by the legislation?
The Restrictive Trade Practices Law broadly defines the term ‘merger of companies’ to include the following types of transaction that fall within the statutory conclusive presumptions:
- the acquisition of the majority of a company’s assets by another company; and
- the acquisition of more than 25% of rights in a company which accord the acquiring company more than 25% of the nominal value of:
- the issued share capital;
- the voting power;
- the power to appoint more than 25% of the board of directors; or
- participation in more than 25% of the company’s profits.
Acquisitions may be direct, indirect or by way of contractual rights.
A ‘company’ is defined in Section 1 of the Restrictive Trade Practices Law:
“A company founded and incorporated in accordance with the Companies Ordinance [New Version], 1983, including a foreign company so incorporated, an incorporated cooperative society within its meaning in the Cooperative Societies Ordinance and a partnership incorporated in accordance with the Partnerships Ordinance [New Version], 1975.”
In general, acquisitions of shares granting up to 25% of control will not be subject to merger control notification, regardless of the thresholds. However, they may be subject to other restrictions.
Notification is required when the threshold exceeds 25% and again at 50%.
The Restrictive Trade Practices Law offers no numerus clausus and no particular test for the range of relevant circumstances. Instead, examination is made on the basis of an economic-business substance analysis.
Do thresholds apply to determine when a transaction is caught by the legislation?
A transaction that is categorised as a merger of companies will be subject to additional threshold tests pursuant to Section 17 of the Restrictive Trade Practices Law if:
- the market share of the merging companies exceed 50%;
- the combined merging companies’ sales turnover in the fiscal year preceding the merger exceeded NIS150 million (approximately $42 million) and the sales turnover of at least two of the merging companies will exceed NIS10 million (approximately $2.8 million); or
- one of the merging companies is a monopoly (ie, the market share exceeds 50%).
These circumstances apply to the merging companies, as well as their affiliates. Further, pursuant to the Restrictive Trade Practice Regulations, the turnover figures of parent companies or subsidiaries are calculated according to the consolidated audited annual reports.
In the case of a merger with a company conducting business both in Israel and abroad, the terms above will apply solely with respect to the company’s market share and sales turnover as applicable in Israel.
Is it possible to seek informal guidance from the authority on a possible merger from either a jurisdictional or a substantive perspective?
Pursuant to Section 43A of the Restrictive Trade Practices Law, the general director of the IAA has established a procedure for the issue of pre-rulings which states that in specific circumstances the general director can discuss the transaction before announcing the merger, for example, when he or she is certain that there is a crucial need for pre-ruling.
Crucial need may arise, when the transaction could create a prima facie substantial competitive difficulty and the parties must know the general director’s stance in order to decide whether to progress toward its consummation.
In practice, pre-rulings are rare.
Are foreign-to-foreign mergers caught by the regime? Is a ‘local impact’ test applicable under the legislation?
Section 1 of the Restrictive Trade Practices Law defines a ’company’ subject to merger control as that which is:
“…founded and registered under the Companies Ordinance 1983, including a foreign company registered as aforesaid, a registered cooperative society within the meaning of that term in the Cooperative Societies Ordinance and a partnership registered under the Partnership Ordinance (New Version) 5735-1975”.
A ‘company’ is defined in the law as an entity which was incorporated in accordance with the Israeli Companies Law, including a foreign company so incorporated. Therefore, any Israeli or foreign company that conducts business in Israel is principally subject to the merger control legislation. However, the IAA’s interest lies with competition in Israel only. Therefore, in the case of a merger with a company conducting business both in Israel and abroad, the thresholds will apply with respect to the company’s market share or sales turnover figures (as applicable) in Israel only.
What types of joint venture are caught by the legislation?
The Restrictive Trade Practices Law makes a distinction between a merger of companies – including registered foreign companies, registered cooperative societies and partnerships – and a restrictive arrangement, resembling the term ‘restraints of trade’. Classification between the two may be crucial, as different rules and thresholds apply to restrictive arrangements.
According to the general directors’ guidelines and rulings – besides the aforementioned conclusive presumptions that are based on a quantitative test – the examination is not technical and the leading question is whether the transaction creates a structural link between the companies, which “prior to the acquisition had been separate and independent”, referring above all to the company’s decision-making mechanisms and the right to enjoy its profits.
However, indications that an acquisition will be classified as a corporate merger include:
- where permanence of the joint venture indicates a merger;
- granting a hold on an existing operation, rather than creating a new type of activity; and
- a high degree of structural integration.
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