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Due diligence requirements
What due diligence is necessary for buyers?
Buyers usually conduct business, financial, legal and tax due diligence before acquiring a company. The main objective of the due diligence is to identify liabilities and pitfalls in order to mitigate the risk of the transaction.
What information is available to buyers?
All companies must maintain certain public records with the registrar of companies, including the following basic information:
- registered and issued share capital;
- identity of shareholders and their shareholdings;
- identity of directors;
- registered pledges; and
Any person can approach the registrar and obtain the history of notices submitted to it, including with respect to pledge agreements, the company’s articles of association and any other change regarding the company’s name, shares, shareholders or directors.
Publicly traded companies are subject to a strict reporting regime. They must issue immediate reports regarding any material events in the company’s course of business and publish annual audited financials and interim quarterly financial statements. Such information is publicly available on the Israeli Tel Aviv Stock Exchange website and the Israeli Securities Authority public companies’ reporting website.
What information can and cannot be disclosed when dealing with a public company?
Any material information that is not made public by the company cannot be disclosed by it, other than in special circumstances and subject to confidentiality and standstill.
As a rule of thumb, any information that could affect the company’s share price and is not publicly disclosed is material and could be considered inside information. However, in the event of an M&A transaction, it is customary for the parties to execute a non-disclosure agreement, pursuant to which the buyer undertakes not to disclose the company’s confidential information and not to trade in the company’s shares.
How is stakebuilding regulated?
Once a shareholder holds (directly or indirectly) 5% or more of the voting rights of a public company, it must 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 must publicly disclose such information.
If a shareholder reaches a 25% threshold of holdings in the company (in a public company with no other shareholder holding 25% or more) or the buyer reaches a 45% threshold (in a public company with no other shareholder holding 45% or more) 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.
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