Legislation and jurisdictionRelevant legislation and regulators
What is the relevant legislation and who enforces it?
Merger control is regulated under the Economic Competition Law, 5748-1988 (the Competition Law) and the regulations thereunder. The name of the statute was recently changed from ‘the Restrictive Practice Law’ in addition to some other amendments, some of which are further described below. The Israeli Competition Authority (ICA) is the agency in charge of the enforcement of the Competition Law.
The ICA is an independent government enforcement agency established in 1994. The ICA, headed by the Director General, is mandated to prevent the attainment of market power through merger control and anti-cartel enforcement, to restrain abuse by dominant firms and to preserve competition in the various markets.
In January 2019, the Israeli legislative body, the Knesset, passed a significant amendment to the Israeli Competition Law. In the field of mergers, the amendment substantially raised the threshold conditions regarding pre-merger notifications set out in section 17(a); the threshold now stands at 360 million shekels (about US$100 million combined) of the joint sales turnover per year and a 10 million shekels annual sales turnover of each of the two parties to the merger. Prior to the amendment, the threshold was 150 million shekels of the joint sales turnover per year, and 10 million shekels annual sales turnover of each of the two parties to the merger. In addition, the Director General announced at the 2018 ICA convention that the ICA is considering raising the threshold of the annual sales turnover from 10 million to 20 million shekels.
Moreover, the 2019 amendment empowers the Director General to unilaterally extend a merger review period by an additional 120 days (ie, up to a total of 150 days). Prior to the amendment, the Competition Tribunal was the only body with the authority to extend reviews. The 30-days period for submission of an appeal on the Director General’s decision will begin on the day the decision is published on the ICA website.
The Competition Tribunal, sitting with the District Court in Jerusalem, has an exclusive jurisdiction over non-criminal administrative antitrust proceedings. The administrative actions and decisions of the Director General are subject to judicial review by the Competition Tribunal and some decisions are subject to review by other courts. Criminal proceedings for violations of the Competition Law may be launched by the Director General on behalf of the state attorney general, and are conducted exclusively before the District Court in Jerusalem.
Civil proceedings under the Competition Law, including contractual claims, tort claims and class actions, may be brought before any competent court in Israel.Scope of legislation
What kinds of mergers are caught?
A ‘companies merger’ is broadly defined in the Competition Law to include the acquisition of the principal assets of a company by another entity, or the acquisition of shares in a company by another entity through which the acquiring company is accorded:
- more than 25 per cent of either the nominal value of the issued share capital, or of the voting power of the acquired company;
- the power to appoint more than 25 per cent of the directors of the acquired company; or
- participation in more than 25 per cent of the profits of the acquired company.
The acquisition may be direct or indirect or by way of rights accorded by contract.
A ‘principal asset’ is an asset that constitutes a significant element of the company’s competitiveness in a distinct area of activity. Thus, a separate division in the company may be regarded as a ‘principal asset’ even if it does not produce most of the company’s revenues. However, the minority of the assets relating to a certain activity would not be regarded as ‘principal assets’.
The law does not provide a conclusive set of requisites that will constitute a merger. Subsequently, even the acquisition of 25 per cent or less of any of the above-mentioned rights may constitute a merger, if further affinity exists between the parties (such as loans or involvement in the management of a firm).
A merger would require the Director General’s prior approval, if several conditions are met, as detailed in question 5.
What types of joint ventures are caught?
According to the definition of a merger under the Competition Law, a joint venture may be regarded as a merger. However, because a joint venture may also fall within the wide definition of a restrictive arrangement, a question of classification arises.
The ICA’s position in this regard is that each transaction is to be classified according to its economic essence. Several tests may assist with this classification. For example, according to the ICA’s position, a joint venture creating a new activity would, in general, be classified as a restrictive arrangement, while a joint venture effecting a purchase of the existing activity of a party to the transaction would be classified as a merger. Further criteria that may assist with classification are, inter alia, the nature and intensity of the affinity between the parties, the level of structural integration created by the transaction and the stability of the affinity over time.
Is there a definition of ‘control’ and are minority and other interests less than control caught?
The Competition Law defines ‘control’ as the possession of one of the following means of control: more than half of the rights to vote at the general meeting of a company or a similar body of another corporation, or the right to appoint more than half of the directors of a corporation.
It should be noted, however, that the Competition Law does not require the purchase of control for a transaction to be considered a merger. As mentioned, a purchase of even slightly more than 25 per cent of any of a company’s rights detailed above in question 2 (and according to the ICA’s policy, in some cases even the purchase of a smaller portion - for example, where the dispersion of holdings in the company entitles the purchaser, in fact, to a real influential power) would constitute a merger under the Competition Law.
The term ‘control’ is defined more broadly in the Antitrust Regulations, as the power to direct, directly or indirectly, the operations of the entity. This broad definition applies, however, only for the purpose of assessing whether the conditions for filing the abbreviated pre-merger notification forms have been met, and the magnitude of information required under that form.Thresholds, triggers and approvals
What are the jurisdictional thresholds for notification and are there circumstances in which transactions falling below these thresholds may be investigated?
A merger requires the prior approval of the Director General if one or more of the following conditions are met:
- according to the 2019 amendment of the Law, the cumulative turnover of the merging entities in Israel, in the preceding fiscal year, now stands at 360 million shekels of the joint annual sales turnover, and a 10 million shekels annual sales turnover of each of the two parties to the merger. If a merging party has a holding company or subsidiary companies, its turnover will be determined by its consolidated financial statements;
- as a result of the merger, the share of the merging companies in the total production, sale, marketing or purchase of a particular asset or service and a similar asset or service, would exceed 50 per cent; or
- one of the merging companies, a subsidiary thereof, a controlling entity thereof or a subsidiary of that controlling entity holds a market share that exceeds 50 per cent of any market.
Certain transactions that do not meet the above-mentioned thresholds may still be regarded by the ICA as restrictive arrangements.
Is the filing mandatory or voluntary? If mandatory, do any exceptions exist?
If any of the thresholds mentioned in question 5 are met, the filing of a pre-merger notification form is mandatory. In such cases, the parties to the merger must obtain the approval of the Director General prior to the implementation of the transaction.
According to the Competition Law, the Minister of Economy is authorised to exempt a merger from all or some provisions of the law on the grounds of foreign policy or national security, if he or she believes that it is necessary.
The notification guidelines point out certain circumstances where, while a transaction constitutes a notifiable merger, parties are not required to file with the ICA. The guidelines also specify certain circumstances where the ICA will be willing to consider providing parties to a merger with ‘no-action’ letters.
Do foreign-to-foreign mergers have to be notified and is there a local effects or nexus test?
Foreign-to-foreign mergers have to be notified only if carried out between ‘companies’. A ‘company’ is defined in the Competition Law as a company founded and registered in accordance with the Companies Ordinance (New Version) 5743-1983, including a foreign company so registered. Under the Companies Law, 5759-1999, a foreign company that holds a ‘place of business’ in Israel must be registered as a ‘foreign company’.
The ICA’s position is that a foreign entity that holds more than 25 per cent in any Israeli firm is considered a ‘company’ for the purpose of the mergers chapter in the Competition Law. Furthermore, any merger contemplated by a foreign entity that has a business presence in Israel (such as through a subsidiary, an agent or an office), other than through a strictly independent third party, is subject to the Competition Law. The test for assessing the existence of a ‘place of business’ would be whether the merging firm has substantial influence over the activity of its domestic representative.
Accordingly, a foreign-to-foreign merger will be considered a ‘companies merger’ under the Competition Law only if both parties hold a place of business in Israel according to the above-mentioned criteria.
When a foreign company is a party to a merger, the thresholds mentioned in question 5 are considered solely with respect to the company’s activity in Israel, (ie, the sales turnover of the company within Israel and the company’s market share in Israel).
A recent legislation proposal suggests extending the application of the Israeli merger regime with respect to foreign corporations. The main implications of the proposed legislation on foreign entities are described in question 35.
Are there also rules on foreign investment, special sectors or other relevant approvals?
The same substantive test (see question 19) applies to all mergers, in all sectors.
In addition to the Director General’s approval as required under the Competition Law, approvals of other government institutions may be required under different laws and regulations. For example, mergers in which governmental companies are involved require the approval of the government; in several business sectors the approval of the relevant governmental agency is required.
The only exception is under the Law for Promotion of Competition in the Food Sector, 2014, that regulates competition in the food industry. This law sets industry-specific thresholds for notification of opening and purchasing of new food stores based on concentration criteria.
There is no provision in the Competition Law regarding foreign investments. However, an investment that confers on a foreign entity considered to be a ‘company’ under the Competition Law (see question 7) more than 25 per cent of any of the rights detailed in question 2, would be, in general, deemed a merger of companies.
Notification and clearance timetableFiling formalities
What are the deadlines for filing? Are there sanctions for not filing and are they applied in practice?
The Competition Law does not determine any deadline for filing pre-merger notification forms. Yet, a merger that requires the approval of the Director General must not be implemented by any means - including, for example, by closing the transaction, by transferring assets or shares (even to a trustee on behalf of the purchaser), by actually managing the merged company, and the like - before it is cleared by the Director General. As with many other violations of the Competition Law, failure to notify a notifiable merger is a criminal offence (in practice, criminal charges have only rarely been brought in such cases). The sanctions that apply in cases of unlawful mergers, including for not filing a pre-merger notification form, are described in question 12.
Which parties are responsible for filing and are filing fees required?
Each party to a merger is required to file its own pre-merger notification form. Currently, no filing fees are required for the submission of pre-merger notification forms.
As of April 2017, parties to a merger must carry out submission of merger notification form via electronic means (ie, by email). Physical submission of the merger notification form will be possible only when there is a sufficient reason preventing the parties from submitting the forms digitally.
What are the waiting periods and does implementation of the transaction have to be suspended prior to clearance?
The Director General must render a decision within 30 days of the submission of the complete pre-merger notification forms by all parties to the transaction. If no decision is made within this period, the merger is deemed to be cleared.
According to the 2019 amendment of the Law, the Competition Tribunal is no longer the recipient of requests for the extension of a merger notification review, and that authority now vests with the Director General. As an outcome, the 30-day period may be extended either with the consent of the parties, or by the ICA’s Director General. A merger that must be notified under the Competition Law must not be implemented prior to its clearance.Pre-clearance closing
What are the possible sanctions involved in closing or integrating the activities of the merging businesses before clearance and are they applied in practice?
The implementation of a notifiable merger prior to its clearance or without an approval is a criminal offence. The sanctions determined in the Competition Law were modified in the 2019 amendment of the Law, which annulled the classification of aggravating circumstances, but raised the penalty for being a party to restrictive arrangement to a maximum of five years’ imprisonment, classifying the offense as a crime. In addition, fines may be imposed, up to about 2.2 million shekels for an individual, plus 14,000 shekels for each day the offence persists. In the case of a corporation, the fine or the additional fine, as applicable, will be doubled. Moreover, the Competition Law includes a strict liability offence for managers, under which any person serving in a corporation at the same time that an antitrust offence is being committed, in the role of an active director, a partner (other than a limited partner) or a senior administrative employee with responsibilities in the relevant field, has a criminal liability for the offence, unless it can be shown that the offence was committed without the manager’s knowledge and that this manager took all reasonable measures to ensure compliance with the Competition Law.
Alternatively, the Director General may issue an administrative declaration, stating that a merger has been executed unlawfully, thereby exposing the merging parties to civil lawsuits, as such declaration constitutes prima facie evidence in any judicial proceedings.
Furthermore, the Competition Tribunal may order the separation of an entity merged in violation of the Competition Law on the application of the Director General and upon showing a reasonable likelihood of significant harm to competition or injury to the public in respect of the product’s price, quality, quantity, or regularity or terms of supply.
In practice, the director general has taken action against allegedly unlawful mergers in only a few cases, two of which resulted in criminal sanctions. The Competition Tribunal has considered only two cases in Israel brought by the Director General to separate an allegedly illegally merged entity: one in 2007 - Prinir (Hadas 1987) Ltd and Milos (1989) Ltd and the other in 2003 - Baron-Fishman Communication Ltd and Yedioth Achronot Ltd.
Additionally, the Competition Law enables the Director General and parties to an unlawful merger to agree in the framework of a consent decree, inter alia, on an amount of money to be paid to the State Treasury in lieu of criminal procedures or an administrative declaration. The consent decree may include a provision, according to which the parties do not admit responsibility (ie, that a merger has been unlawfully executed). Over the past year, the Competition Tribunal approved two consent decrees. The first involved two construction companies: El Har Ltd and Taan Ltd. The companies made a transfer of shares according to a share purchase agreement, prior to the submission of pre-merger notification forms. The companies agreed to pay an amount of 250,000 shekels, and the director general undertook not to take additional enforcement measures in the matter. The second consent decree involved a share purchase agreement between Tal Hel Yasca Ltd and Fresh and Smooth Part 2 Ltd. Prior to the submission of pre-merger notification forms by either of the parties, the companies informed the director general that Tal Hel had transferred a sum of 5 million shekels to the acquired company, to enable its continued operation in light of its financial problems. According to the Director General, the provision of finance was part of the merger transaction, and therefore constitutes an implementation of the transaction before approval. The parties agreed to pay the State Treasury sums of 170,000 and 40,000 shekels, pursuant to an agreement that they will not admit to a violation of the provisions of the law and the Director General undertakes not to take additional enforcement measures against them in this matter.
The Director General can impose monetary sanctions in lieu of criminal indictment, inter alia, in case of an unlawful merger. In this respect, the ICA’s guidelines on the enforcement procedures for the use of financial sanctions state that financial sanctions will be imposed mostly in the case of non-horizontal mergers (this does not, however, negate the possibility that in the appropriate circumstances the ICA would choose other administrative enforcement tools over criminal ones, in respect of horizontal mergers). The monetary sanction under the new amendment is up to 1 million shekels for a person that, inter alia, executed an unlawful merger. Regarding corporations, the 2019 amendment of the Law raised the amount of monetary sanctions to up to 100 million shekels, but not more than 8 per cent of the annual revenues for a corporation whose revenues in the preceding financial year exceeded 10 million shekels.
In October 2016, the Competition Authority published guidelines regarding the considerations of the Director General in determining the amount of financial sanctions. According to the said guideline, the amount of the sanction will be determined according to the following four stages:
- determination of the maximum amount of the sanction;
- determination of the severity of the violation based on the circumstances of the case (with an emphasis on the degree of damage that the breach may cause to competition or the public);
- examination of the violator’s part in the violation, the extent of the violating party’s influence on the performance of the violation and the actions taken by the violating party to stop or prevent the recurrence of the violation; and
- evaluation of external circumstances of the violation, such as the existence or absence of previous violations.
Between 2018 and mid-2019, the ICA objected to four merger notifications and approved with conditions three others. The ICA’s research and analysis of the market for purchasing digital and physical commercial ‘areas’ of advertisement led to objection to a merger between two out of the five leading competitors. The ICA based its decision on the possible aggregate market power that the merger might create. The Director General expressed her concern that the merger might eventually lead to a decrease in the TV channels’ advertisement income and, consequently, of their investment in creating original valuable content.
In its opposition to a merger between two medium-sized banks, the ICA’s analysis revealed that the domestic banking sector is characterised by significant entry barriers that led to the absence of a new bank in Israel for decades. Consequently, this raised the ICA’s concern that the merger would pave the way for the existing banks’ ability to reach a balanced equilibrium and, eventually, increase banking prices. The examination took into consideration the regulator’s efforts to ease customers’ mobility between banks.
In another merger between banks (the Discount banking group and Dexia-Israel), the ICA’s analysis found that the merging banks compete on providing credit facilities to municipalities and regional authorities. The merger was approved, conditioned on divestiture of some of the credit activities of the merging entities.
Another objection was raised by the Director General in the Israeli airliners sector, to a merger between Sun-Dor International Airlines and Israir Aviation. In this case, EL AL, Israel’s largest airline, sought to merge its wholly owned subsidiary Sun-Dor with Israir. Israir, one of EL AL’s only Israeli competitors, has a significant share in the domestic air market, and in recent years also recorded an increase in its international operations. Following the ICA’s analysis, the Director General decided to oppose the merger for two main reasons. First, the merger will prevent EL AL from potentially competing on the routes to the southern city of Eilat, and thus strengthen the existing duopoly of Arkia and Israir in these routes. Second, EL AL’s absolute and exclusive dominance in the provision of security services outside Israel, to all Israeli airlines flying abroad, raised concerns about EL AL’s ability to refuse to provide the security services to it competitors, in order to push them out of some international lines.
In another case, the Director General approved an amendment to the conditions set on the already approved merger from 2002 between various telecommunications cable companies operating in Israel. The amendment resulted in a decision not to remove or reduce the prohibition on the merged company to participate in the market of sports channels and local original content production, distribution and ownership holdings. The decision was led by the concern that, if removed, the merged company will be able to ‘push’ competitors out of the multi-channel market, raise barriers to their entry and expansion, as well as diluting the variety of content and opinions because of the possible suppression of independent channel producers.
In the case of a merger between Reshet Media, one of Israel’s leading media entities, and Channel 10 that was under financial duress, the Director General decided to approve the merger but to conditioned it by the sale of Reshet’s holdings in its news company. The approval was based on the ‘failing firm’ doctrine weighing the potential competitive harm against the effect of the collapse and removal of a major TV channel from the market.
Are sanctions applied in cases involving closing before clearance in foreign-to-foreign mergers?
In general, if a foreign-to-foreign merger constitutes a merger according to the criteria of the Israeli Competition Law (as detailed in question 7) all the sanctions (as mentioned in question 12) are applicable. Nevertheless, we are unaware of any case in which the Director General has sanctioned a foreign entity for unlawfully implementing a merger.
What solutions might be acceptable to permit closing before clearance in a foreign-to-foreign merger?
There is no provision in the Competition Law enabling the closing of a transaction before it has been cleared; neither are there any official guidelines allowing that.
However, the Director General may agree with the parties to a foreign-to-foreign merger to refrain from taking action against the merger, under conditions ensuring that local competition will not be harmed during the period in which the ICA is reviewing the merger. A local ‘hold-separate’ arrangement may be such a solution.Public takeovers
Are there any special merger control rules applicable to public takeover bids?
No special substantive test applies to public takeover bids.
Regarding the filing requirements of pre-merger notification forms, in the case of a purchase offer on the stock exchange, the ICA is willing to start reviewing a merger on the basis of the purchaser’s notification. The ICA’s position is that the time set by the Competition Law for reaching a decision does not start to run until the definitive signed agreement is filed and pre-merger notification forms are filed by all parties concerned.Documentation
What is the level of detail required in the preparation of a filing, and are there sanctions for supplying wrong or missing information?
In 2004 the ICA introduced new regulations, which presented two new pre-merger notification forms; one is fairly detailed (the ‘long form’) and the other is an abbreviated form.
The long form expands significantly upon the information submitted to the ICA at the initial notification of the transaction. Such information would be:
- a description of the transaction;
- a description of the parties’ business activities, including lists of their horizontal and vertical activities;
- with regard to each relevant market to the merger:
- sales volumes;
- market shares;
- lists of customers, suppliers and competitors; and
- a description of the types of customers of each party;
- an estimation of competitors’ market shares;
- a description of the barriers to entry and to expansion; and
- a list of the agreements that each party has with its competitors in each relevant market.
The parties are also required to apply for an exemption for any ancillary restraint to the merger, which is not exempted under the block exemption for ancillary restraints. In addition, each party is required to mention whether it has been a party to another merger in the past three years.
Each party has to enclose with its pre-merger notification form the following documents:
- the merger agreement and its appendices;
- audited financial statements for the last two fiscal years (a foreign company may attach audited financial statements of entities through which it operates in Israel instead of filing its financial statements);
- prospectuses filed during the last five fiscal years; and
- other documents relevant to considering the competitive effects of the merger.
A party that has submitted another pre-merger notification form during the past year may submit a pre-merger notification that makes reference to the prior pre-merger notification form.
The general requirement is that the long form must be submitted. However, if all the following terms are met, the parties may file the abbreviated forms:
- the combined market share of the merging parties (including related entities) in the product market that is the subject of the merger transaction does not exceed 30 per cent;
- none of the merging entities, including related entities, is a monopoly (ie, market share in Israel does not exceed 50 per cent) in a market that is tangential to the market that is the subject of the merger; and
- none of the merging companies, including related entities, is a party to an arrangement with a third party that competes with it in the market for a product that is the subject of the merger.
The information required under the abbreviated form is much more limited and quite basic. It includes basic details on the submitting party, definition of the relevant market, the parties’ estimated market shares in the relevant market and in horizontal or vertical corresponding fields, and lists of suppliers and customers.
If the abbreviated forms are filed, the ICA may require the parties, within 15 days, to submit the long form, in any one of the following cases: the terms for filing the abbreviated forms were not met, or if there is substantial doubt as to the accuracy of the information provided in the abbreviated form; the market definitions of the parties were not correct; or the combined market share of the parties in a market that is not the subject of the merger exceeds 30 per cent and the merger may raise a reasonable likelihood of material injury to competition.
As of January 2013, pre-merger notification forms may be submitted online.
The possible sanctions for supplying wrong or missing information are as follows:
- First and foremost, a pre-merger notification form that does not meet the requirements set forth above, does not constitute a ‘merger notice’. Therefore, only upon submission of full notification forms by the merging companies, the time-limit for the Director General’s decision, as specified in question 11 above, will commence.
- Section 239 of the Penal Law prescribes a maximum penalty of three years imprisonment for providing a false statement. In addition, providing false or misleading information can lead to charges with attempted fraud, under section 415 of the Penal Law. In this case, the perpetrator is also subject to up to three years’ imprisonment, or five when committed in aggravated circumstances.
What are the typical steps and different phases of the investigation?
The Competition Law does not divide the examination of mergers into different stages.
The process of a merger review is in general as herein described. Once pre-merger notification forms are submitted, the merger would be classified into one of the following three tracks: green, yellow and red - each one represents the likelihood that the merger might harm competition (the last category is assumed to substantially harm competition). Such classification is not required under the Competition Law; it is not official and has no legal consequences, but was adopted by the ICA to make the review process more efficient and to shorten the period for decision-making.
If additional information is required by the ICA’s professional staff (mainly by the department of economics, but also by the legal department), the ICA may require the parties to the merger or any third party (such as competitors, customers and suppliers of the parties to the merger), to provide it with the necessary information (regarding the authorisation to do so - see question 29). In addition, the Competition Law instructs the ICA to notify any merger to the relevant governmental agency, and the latter is invited to submit its opinion regarding the merger to the ICA.
The Director General may not clear a merger unless he or she has consulted with the Exemptions and Mergers Advisory Committee. In practice, the Director General consults with the Committee even in cases in which he or she tends to block a merger.
What is the statutory timetable for clearance? Can it be speeded up?
The Competition Law sets a review period of 30 days, during which the Director General is required to render a decision. According to the new amendment to the Law, this period can be extended by the ICA’s Director General (expropriating the Tribunal’s authority) or with the consent of the merging parties. If no decision is made within the prescribed period, the merger is deemed compatible with the Competition Law.
There is no provision in the Competition Law that compels the Director General to clear mergers within a shorter period. In practice, the majority of mergers are cleared within 30 days or fewer, especially those mergers that do not seem to raise any competitive concerns (green mergers). The average review period of merger applications in 2018 was 22.5 days. Furthermore, in special cases in which a particularly quick decision is necessary, such as the case of a collapsing company, the ICA would cooperate with the parties and make efforts to speed up the review process.
In May 2016, the ICA announced that it is initiating a fast track for the approval of mergers, designed to reduce excess regulation, and focus the ICA’s resources on reviewing those cases that raise significant concern of harm to competition. Under the new procedure, mergers that clearly do not present a threat to competition will be directed to a fast-track approval (ultra-green merger). In such cases, the decision regarding the merger will be made within a period of time ‘significantly shorter than 30 days’. However, the ICA did not commit to a specific timetable. Under the fast track, the parties are required to file a long pre-merger notification. In November 2016, the ICA published a report of its accumulated experience in applying this new procedure. According to the ICA, during the trial period that lasted three months, 20 mergers were handled in accordance with this procedure. The average review of these mergers was less than five days from the date of submission, a period significantly shorter than the average time frame for dealing with mergers that are not treated under the fast-track procedure. Furthermore, in February 2017, the ICA announced an amendment to the said procedure, according to which mergers that contain a request for a specific exemption to a restrictive arrangement will not be dealt with under the fast track, but will rather be examined in the regular merger review track.
Substantive assessmentSubstantive test
What is the substantive test for clearance?
The Director General shall object to a merger, or approve it subject to conditions if, in his or her opinion, as a result of the merger, there are reasonable grounds for concern that competition in a market might be significantly harmed, or the public interest might be harmed in any of the following respects: products’ prices, quality, quantity, as well as regularity and terms of supply.
In addition, when relevant, the ICA does take into consideration the ‘failing firm doctrine’. In 2010, the ICA published guidelines on the subject, in which it stated the conditions that must be shown to carry out a merger based on the doctrine. For instance, in 2005, the ICA approved, subject to conditions, a merger between Shufersal Ltd and Clubmarket Marketing Chains Ltd (two Israeli food retail companies) on the basis of the doctrine. The ICA stated that the merger raises serious competition issues, and that normally it would have objected to it. The approval of the merger was nevertheless based on the ‘failing firm doctrine’, when it became clear that the alternative to approving the merger was the liquidation of Clubmarket. The Director General found that approving the merger, under specified conditions, constitutes a preferable alternative in terms of competition over the dissolution of the company. A more recent decision, dated April 2016, involved Mey Eden Bar-First Class Service Ltd and Electra Consumer Products (1951) Ltd. The mentioned companies sought to merge their activities in the import, marketing and distribution of filtered water bars. During the examination of the merger, Electra presented financial data indicating significant losses from its activity in the filtered water-bars sector. The ICA determined that losses, per se, cannot indicate that a company is about to exit the market. For example, penetration into the relevant markets is often accompanied by massive and long-term investments, which bear fruit only after a certain period of time. In addition, Electra claimed that it had decided to terminate its activity in the filtered water-bars sector, irrespective of the ICA’s decision. To substantiate its claim, Electra presented public statements given by the company on the subject. The ICA determined that a general declaration is not sufficient, and without given proof of a formal decision reached by Electra’s board of directors or relevant documentation, it cannot accept the claim.
Is there a special substantive test for joint ventures?
Joint ventures that are classified as mergers are reviewed under the same substantive tests as any other merger. If a joint venture is considered a restrictive arrangement, the relevant rules would apply. Entry into a restrictive arrangement without the authorisation of the Competition Tribunal is prohibited, unless the arrangement has been specifically exempted by the Director General, or is exempted in accordance with one or more of the Block Exemption Rules issued by the Director General. Among the block exemptions that have been issued, a particular block exemption applies to joint ventures.Theories of harm
What are the ‘theories of harm’ that the authorities will investigate?
Any theory of harm may be examined by the ICA to prove, or alternatively disprove, the standard of harm to competition. In other words, the ICA shall examine all the competitive implications of each merger submitted for its approval, in any of the following respects: horizontal, vertical and conglomerate. This would include both static aspects and dynamic aspects such as market dominance issues and unilateral effects, concentration levels in the relevant markets, coordinated effects that might be created or strengthened as a result of the mergers, entry barriers, the likelihood of vertical and conglomerate foreclosure, harm to innovation and common ownership concerns. In this regard, in January 2011 the ICA adopted Horizontal Merger Guidelines that describe the methodology used by the ICA in the assessment of horizontal mergers and the main types of evidence on which the ICA would typically rely.Non-competition issues
To what extent are non-competition issues relevant in the review process?
While assessing a merger, the Director General may consider only competition and public interest considerations. Public interest issues may be considered only in the following limited contexts: products’ prices, quality, quantity, as well as regularity and terms of supply. According to the Competition Law these are the only factors the ICA may take into account while assessing a merger; therefore, the ICA’s decision may not be affected by other considerations, even during an economic crisis.
Nevertheless, in cases where the ‘failing firm’ argument is raised, the Director General will consider the potential effect on competition resulting from the merger, against the effect of the failing firm’s exit from the market. Yet, the failing firm doctrine would apply only if several conditions are met, as described in the ICA’s 2010 guidelines regarding the Failing Firm Doctrine, discussed above in question 19.
In addition, according to the Competition Law, the Minister of Economy is authorised to exempt a merger from all or some provisions of the law, if he or she believes that it is necessary on the grounds of foreign policy or national security.Economic efficiencies
To what extent does the authority take into account economic efficiencies in the review process?
As provided in the 2011 Horizontal Merger Guidelines, when a merger raises substantial concern and the parties point to efficiencies that overcome the competitive concern, the ICA will conduct an efficiency examination to determine whether the improvement in the economic performance of the parties caused by the merger would overcome the apparent competitive harm. Only economic efficiencies that improve the parties’ ability and incentive to compete in a way that serves the public interests, and could eventually lead to decreased prices, increased quality or variety, or technology improvement, will be considered under the ICA’s efficiency examination.
For efficiency considerations to be taken into account, several conditions should be met: first, the parties have to prove that the efficiencies cannot be achieved by less harmful means than the merger; second, the onus is on the parties to prove actual and significant efficiencies in the short term and to point to the substantial portion that will eventually be transferred to the final customers. In this context, the extent of the efficiency being transferred to the final customer should outweigh the competitive harm that the merger might cause. Finally, the above-mentioned conditions should be proven by objective information, found mostly in independent sources that can be examined by the ICA.
For instance, in two merger applications filed during the years 2003 and 2005, the parties argued, inter alia, that their mergers give rise to efficiency gains: in 2003, Yehuda Steel Ltd sought to acquire a line of fusion equipment, as well as a rolling line from United Steel Mills Ltd. Yehuda claimed that the merger will improve the company’s efficiency, and will likely lead to a reduction in the price of iron. The ICA stated that efficiencies are considered as a counterbalance to anticompetitive effects, but in this case decided to reject Yehuda’s efficiency claim, stating that the alleged efficiency advantages can be reached without harming competition, as the equipment Yehuda sought to acquire is not unique and can also be purchased from other companies. In addition, the ICA noted that Yehuda had not proven that the consumers would benefit from the claimed efficiencies. The 2005 merger transaction involved the acquisition of Sonol Israel Ltd, by Dor Alon Energy Israel (1988) Ltd. Both companies are involved in the import, marketing and distribution of refined oil products, and are among the leading companies in Israel in the sale of gasoline and diesel at gas stations.
The parties argued that the merger would improve the deployment of gas stations and thereby enable greater competitive ability. It was further argued that the merger will increase efficiency in both the import of distillates and the utilisation of dispensing facilities. In this case as well, the ICA determined that the parties did not prove the existence of substantial efficiencies, or that the alleged efficiency will have an impact on the general public.
Remedies and ancillary restraintsRegulatory powers
What powers do the authorities have to prohibit or otherwise interfere with a transaction?
If the merger is a notifiable merger (see question 5), the Director General may oppose a merger or approve it subject to conditions. In respect of those mergers that are not notifiable, the Director General may only interfere if the transaction amounts to a restrictive arrangement. If the Director General consents to a merger, any person that may be injured by the merger, any industrial association and any consumers’ association may appeal to the Competition Tribunal against such decision. The Competition Tribunal may reaffirm the Director General’s decision, revoke it or amend it.
The Competition Tribunal, at the request of the Director General, may also separate a merger that was unlawfully performed. Furthermore, the Director General may file a criminal indictment against parties to a merger that was unlawfully implemented or impose monetary sanctions in lieu of criminal indictment.
In the case of a full integration (statutory merger) the companies’ registrar shall not register the merger in the records unless the merger has been cleared by the Director General (or the registrar is convinced that the Director General’s approval is not required).Remedies and conditions
Is it possible to remedy competition issues, for example by giving divestment undertakings or behavioural remedies?
When a merger raises competitive concerns that can be mitigated by attaching conditions, the Director General will clear the merger with appropriate conditions rather than oppose it.
For example, in vertical mergers in which one of the merging parties holds market power, the Director General may require that such party does not discriminate against third parties. In horizontal mergers that create concentration problems in a specific market, a divestment may be required.
The ICA’s policy is to prefer structural conditions to behavioural ones, and normally, for example, the ICA will not accept ‘Chinese walls’ as a solution for horizontal concentration concerns.
In July 2011, the ICA introduced a public statement regarding Remedies in Mergers that Raise Reasonable Ground for Significant Competitive Concern (the Remedies Statement). The Remedies Statement discusses the circumstances in which the ICA will block a merger and when it will approve a merger subject to conditions. Furthermore, it discusses the spectrum of conditions that the ICA may impose, and describes the circumstances under which those conditions will be used.
What are the basic conditions and timing issues applicable to a divestment or other remedy?
While the Competition Law does not determine any conditions with regard to how divestitures should be implemented, in practice, the ICA has in recent years tended to require divestiture mainly on ‘fix-it-first’ terms. According to the ICA’s Remedies Statement, when the anticompetitive effects of the merger are immediate, the ICA’s approval will be suspended until the parties will complete the divestiture. Hence, as the Director General’s approval is in most cases valid for only one year, if the divestiture has not been concluded within one year, the approval will expire and the parties will be required to refile their pre-merger notification forms.
If, however, the requirement for divestment is not on ‘fix-it-first’ terms, the divesting party is given a limited period of time (ranging between a few months and a year) within which it must complete the sale. If the divesting party fails to complete the divestiture within this set period of time, the rights attached to the shares or the assets to be sold are usually transferred immediately to a trustee, which is given the power to sell the shares or assets at any price.
What is the track record of the authority in requiring remedies in foreign-to-foreign mergers?
To date, only in a few cases of foreign-to-foreign mergers have remedies been required. No action has been taken so far against any foreign-to-foreign merger.Ancillary restrictions
In what circumstances will the clearance decision cover related arrangements (ancillary restrictions)?
Approval of a merger does not inherently include the approval of the ancillary restraints related to it, except in cases in which a statutory exemption, or the block exemption to ancillary restraints to mergers, applies.
According to the Competition Law, an undertaking by the seller of a business, sold in its entirety, to the purchaser of the business, not to engage in the same type of business, would not be considered a restrictive practice, provided that this obligation does not contradict reasonable and acceptable practices.
Further, ancillary restraints may be exempted under the block exemption to restraints ancillary to mergers, which covers restraints such as non-compete and non-solicitation undertakings, undertakings to guarantee continuation of supply between the seller and the merged entity, and any other restraint that is essential for the preservation of the economic value of the acquired business, as long as the restraint is limited to a reasonable period of time. The non-compete, non-solicitation and guarantee of continuation of supply undertakings exemptions apply not only to the seller but also to such seller’s controlling company and to any entity controlled by either of them.
The block exemption will apply only if certain conditions, which are detailed therein, are met.
Involvement of other parties or authoritiesThird-party involvement and rights
Are customers and competitors involved in the review process and what rights do complainants have?
The ICA considers the private sector, mainly competitors, suppliers and customers of the parties to the merger, as important sources of information. Yet, the ICA takes into consideration the fact that third parties may be motivated by their own interests and be biased against (or for) the merger.
The Competition Law provides the ICA with the authority to require any person to provide it with any information that would ensure or facilitate the implementation of the Competition Law. The ICA also makes use of this authority to obtain information required from third parties for the assessment of mergers.
The law does not stipulate an explicit legal duty to conduct hearings during the merger review period. However, anyone who wishes to oppose a merger may apply to the ICA and ask to be heard. This does not derogate from the legal right of any person who may be harmed by the merger decision to appeal to the Competition Tribunal.Publicity and confidentiality
What publicity is given to the process and how do you protect commercial information, including business secrets, from disclosure?
The Director General has to publish a notice of his or her decision with regard to any merger in the Official Gazette and in two daily newspapers.
In addition, if the Director General consents to a merger, a file has to be opened for the merger, which must contain the following documents: the pre-merger notification forms, excluding its mandated confidential sections and its exhibits; each decision of the Director General, the Competition Tribunal and the Supreme Court (in the case of an appeal) concerning the merger; copies of the announcements published by the Director General in the Official Gazette and in daily newspapers; and copies of each decision of the Director General concerning a restrictive arrangement that is ancillary to the merger.
Files of approved mergers must be available for inspection by the public in the offices of the ICA and on the ICA’s website.
Any other information provided to the ICA by any person (including third parties to the merger) is kept confidential. A request to disclose such information may be made either under the Freedom of Information Act, or (for the purpose of an appeal) under the Administrative Tribunals Act. The disclosure of any such information must be in accordance with the procedures stipulated in the relevant laws.
In this context, it should be noted that, in November 2016, two cellular operators, Cellcom and Golan Telecom, requested the Competition Tribunal to disclose documents that the Director General collected while examining their merger case, before they filed an appeal on the Director General’s decision to oppose the merger. The documents were provided to the ICA by third parties and contain trade secrets that concern the core of their activity. The Competition Tribunal rejected the request and stated that exposing these secrets to Cellcom and Golan - their competitors - is likely to significantly harm the interests of the third parties.
A recent legislation proposal issued by the ICA suggests establishing a limited disclosure procedure to enable third parties to have access to an appropriate protection against disclosure of trade secrets. The main provisions of the proposed legislation are described in question 35.Cross-border regulatory cooperation
Do the authorities cooperate with antitrust authorities in other jurisdictions?
The ICA ascribes importance to inter-jurisdictional relationships and continuous cooperation in all competition matters. This includes the exchange of non-confidential information on enforcement policy and decisions, inter alia, the ICA is active in the Organisation for Economic Co-operation and Development and the International Competition Network. In the period 2016-2017, the ICA submitted several working papers and position papers to the Competition Committee, inter alia, regarding competition issues in aftermarkets, price discrimination and geographic market definition.
The ICA also takes part in the EU’s Euro-Mediterranean partnership and its delegates contribute to the various workshops and seminars. The ICA also takes part in the TAIEX programme of the EU Commission, a programme aiming to strengthen the professional collaboration among antitrust authorities in Europe.
In 1999 the governments of Israel and the US signed an agreement regarding the application of their competition laws. The purpose of that agreement is ‘to promote cooperation and coordination between the competition authorities of the parties, to avoid conflicts arising from the application of the parties’ competition laws and to minimise the impact of differences on their respective important interests’. The parties agreed, inter alia, on consultation terms in competition matters and on exchange of information in enforcement efforts and regarding economic sectors.
During 2014, the ICA hosted a comprehensive workshop with the participation of delegations from the antitrust authorities of Brazil and Romania on the subject of investigations and intelligence.
The ICA also maintains close professional interaction with the European Commission and the competition authorities in the EU member states. Furthermore, the ICA’s investigation department advised in the establishing operating theory for computer investigation and assisted in creating tagging lists to help develop the capabilities of new competition authorities.
In October 2018, the ICA hosted the ICN International Cartel Workshop, a three-day interactive conference to share experience among ICN members on the challenges faced and successes encountered in anti-cartel enforcement. The workshop was attended by senior level officials and employees from sections of agencies that deal with cartel offences, and by non-governmental advisors (NGAs) nominated by agencies. About 200 delegates attended the workshop from dozens of countries around the world.
Judicial reviewAvailable avenues
What are the opportunities for appeal or judicial review?
If the Director General objects to a merger or stipulates conditions for his or her consent, each of the companies seeking to merge may appeal to the Competition Tribunal within 30 days of the date on which the Director General’s decision is received.
If the director general consents to a merger, whether conditionally or unconditionally, any person that may be injured by the merger, any industrial association and any consumers’ association, may appeal to the Competition Tribunal against the Director General’s decision, within 30 days of the date on which the Director General’s decision is published in two daily newspapers. The filing of an appeal against the approval of a merger shall not cause the merger to be delayed, unless otherwise ordered by the Tribunal. The Competition Tribunal decision may be appealed to the Supreme Court within 45 days. For example, in October 2016, the Competition Tribunal rejected an appeal on the ICA’s decision to object to the merger between Mey Eden Bar-First Class Service Ltd and Electra Consumer Products (1951) Ltd (specific details regarding the transaction were mentioned in question 19 above). In its decision, the Director General determined that the merger involves two of the three existing competitors in the branded water-bar market, and therefore raises a concern of price increase in the relevant market. The appellants disagreed with the market definition presented by the Director General, claiming that creating a distinction between the market as a whole and the branded water-bar market is an artificial differentiation. As stated, the Competition Tribunal rejected the appeal, and affirmed the market definition proposed by the Director General.Time frame
What is the usual time frame for appeal or judicial review?
An appeal must be submitted to the Competition Tribunal within 30 days. Interim orders and final decisions of the Competition Tribunal can be appealed within 45 days to the Supreme Court, the highest judicial instance in Israel. There is no time limit for the review of appeals by the Competition Tribunal and the Supreme Court.
Enforcement practice and future developmentsEnforcement record
What is the recent enforcement record and what are the current enforcement concerns of the authorities?
In 2018, the ICA reviewed and decided 205 pre-merger notifications. Four of the notifications were objected to by the ICA, and the ICA stipulated conditions in 2.1 per cent of the cases (compared to 2.4 per cent in 2017). The average examination time was 22.5 days. The proportion of the mergers reviewed by the ICA in 2018 that were foreign-to-foreign mergers was 17 per cent.Reform proposals
Are there current proposals to change the legislation?
In November 2016, the Antitrust Authority published a Memorandum of Law regarding the retention of information the ICA collects from third parties. The Memorandum deals with two main issues:
- The disclosure and review of documents relating to decisions taken by the Director General that can be appealed to the Competition Tribunal. Specifically, the memorandum seeks to anchor in legislation a procedure according to which information that the Director General received from entities operating in the market, which may contain sensitive trade secrets, will be revealed only to the attorney and economic experts of the appellant, rather than to the appellant itself, subject to signing a non-disclosure agreement.
- General protection of the confidentiality of information provided to the ICA. The memorandum sets forth an obligation on ICA employees not to disclose information transferred from entities while fulfilling their duties according to the Law, except when such disclosure is required for a criminal proceeding, and in circumstances where the information is required to exercise the ICA’s powers or to fulfil the purpose of the Law. In addition, the memorandum suggests that the discovery of confidential information will be possible where the public interest in disclosing the information outweighs the reasons for not disclosing it.
Update and trendsKey developments of the past year
What were the key cases, decisions, judgments and policy and legislative developments of the past year?Key developments of the past year36 What were the key cases, decisions, judgments and policy and legislative developments of the past year?
In January 2019, an amendment to the Antitrust Law was passed (and changed the name of the Law to the Law of Economic Competition). The renewed law seeks to increase the enforcement of competition-related offenses, both on the criminal and administrative levels, while reducing the burden of proof of the ICA in criminal proceedings. The Law also imposes expanded criminal liability on corporate office holders, raising the ceiling of financial sanctions and maximum imprisonment, and also expanding the rules that apply to monopolies having a share of 50 per cent or more in a certain market, or whose market share is less than 50 per cent but which have ‘significant market power’.
As stated in question 28, ancillary restraints may be exempted under the block exemption for restraints ancillary to mergers. In October 2017, the ICA published a draft of amendments to the block exemption:
- the ICA mainly proposes to expand the application of the block exemption so as to apply to restrictive arrangements that meet two cumulative conditions:
- the first condition is that the main principle of the arrangement is not to reduce or prevent competition; and
- the second condition requires compliance with a fundamental criterion of the absence of significant harm to competition in the relevant market.