SPECIAL TENDER OFFER
In its planned purchase of a publicly quoted company on the Tel Aviv stock exchange, one key point stands out for prospective new players in the market.
The key point is the need for the dreaded Special Tender Offer (STO), as the guardian of shareholder rights in any takeover. As everyone knows a STO is not a minor inconvenience. It can be a major headache adding time, complexity and expense, to the point it renders a purchase impossible.
A recent proposed acquisition of a 46% of an Israeli public company by a Dutch company should have been no exception. So why was there no STO in the end? Other foreign investors considering Israel might want to take note.
The need for a STO - in Israel as elsewhere - hinges on the question of share ownership and shareholder welfare. At first glance, Section 328 of Israeli Companies Law will sound familiar to foreign buyers, there to protect the shareholders of a public company and safeguard the value of their shares in the event of a takeover. How? Care of the STO.
Local differences: shareholder rights
But the same law has caveats. While Section 328 provides that a buyer cannot become an owner of a controlling block in excess of 45% without a STO, it states that this is only if no such controlling block exists. Sales between controlling blocks without STO’s are permissible in Israel. Section 328 also rules out the need for a STO if it is not a purchase from public shareholders.
Both these points were relevant in this case. (1) There was just such a controlling block: a block of seven shareholders acting in concert ever since they had signed a Shareholder Agreement with the majority shareholder. This block was now ready to sell to the majority shareholder so that the latter could in turn sell to the Dutch company. (2) Given this concentration of ownership (more than 50% of the stock was in the hands of these seven shareholders) this was effectively a “private” acquisition rather than a “public” purchase.
Under Israeli law as long as the remaining minority shareholders were aware of the controlling block, there was no violation of shareholder rights. Consequently the controlling shareholders were free to commercialize their assets and sell to one another, without the STO.
Local differences: holdings in concert
But it was not only Israeli Companies Law that had to be considered before advising as to whether a STO was necessary or not. There was also understanding the ramifications of the controlling block being a concert party, and again what this meant for the rights of the remaining minority shareholders.
"A voting agreement that creates control over a company is not permissible without a tender offer.” - Israel Securities Authority (2001).
However, in June 2012, the Israeli Supreme Court handed down the Dexia Ruling:
Dexia spared the buyer the necessity of the STO as long as a holding of more than 25% or 45% by either a single person or a concert party was public knowledge. “This rule gives certainty and stability to all of the parties involved – both to the acquirer of the control and to the minority shareholders . . .”
Local differences, next steps
Everything rested on whether the existence of the concert party had been made clear. The answer: unequivocally yes. From the signing of the Shareholders’ Agreement onwards, it had been reported in prospectuses, annual reports and numerous other public documents, and acknowledged by both the majority shareholder and the shareholders themselves.
Thus neither the execution of the Share Purchase Agreement, which allowed the majority shareholder to purchase the concert party’s shares, nor the subsequent sale required the dreaded STO. Foreign investors looking to take advantage of opportunities in Israel will be encouraged by this. Even more importantly they should recognize the features that make the Israeli commercial and legal landscape unique and the value of local expertise in navigating a way through it.