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Trends and climate
How would you describe the current merger control climate, including any trends in particular industry sectors?
The Restrictive Trade Practices Law does not distinguish between different sectors regarding merger control. However, certain sectors (eg, banking, telecoms, airlines and the food industry) are subject to specific regulations that may have an effect on merger control. For example, in April 2016 the Israeli Antitrust Authority (IAA) announced its objection to a merger between telecoms companies Cellcom and Golan Telecom, arguing that the merger would undermine the 2011 government reform in the cellular market.
During 2016, the IAA objected to four mergers in different sectors. In 2017 (until the beginning of September) no objections have been announced. However, the IAA is reviewing a major merger in the retail sector between Shufersal, Israel’s largest supermarket chain, and New-Pharm, Israel’s second largest drugstore chain.
In order to reduce the examination period and make the process more efficient, the IAA will issue “fast lane” status to mergers that raise no competitive concerns. According to an IAA press release, the average review time in the standard lane is approximately 20 days, compared to fewer than five days in the fast lane.
The merger control regime is based on the notification process required to close transactions which constitute the merger of companies. Although approval is subject to a substantive test, which assesses the likelihood of harm to competition or the public, the test applies only to mergers that meet the filing thresholds. These thresholds are mostly based on quantitative measurements (eg, market shares and sales turnover).
In 2013 the Law for Promotion of Competition and Reduction of Concentration was enacted to encourage competitiveness in Israel’s economy. The law addresses different aspects of merger control by:
- reducing the layers of subsidiary companies in business groups characterised by a pyramidal structure; and
- forcing parent companies to sell or merge their subsidiaries within the transition period, which varies according to circumstances determined by law.
Merger notification filings are expected to increase when the transition periods come to an end.
Are there are any proposals to reform or amend the existing merger control regime?
In 2015 the IAA issued a memorandum with the aim of amending the merger control regime. If and when the bill comes into force (which, according to the IAA’s statements, should be soon), the merger control regime will undergo significant changes.
Under the proposed reform, the substantive test will apply to all mergers that raise reasonable competitive concerns, including those that fall below the statutory filing thresholds. Mergers that fall below the thresholds will be subject to a self-assessment in order to determine whether to submit a voluntary notification. However, if the IAA decides to examine the notification, it will be subject to the mandatory notification process. The objective of the reform is, on the one hand, to ensure that mergers which raise competitive concerns are subject to merger control and, on the other hand, to create certainty in the market applying the voluntary notification process.
The amendment also proposed to update the statutory filing thresholds, including raising the turnover threshold (ie, the merging companies’ aggregate turnover in Israel in the preceding fiscal year) from NIS150 million (approximately $42 million) to NIS250 million (approximately $70 million). Now, according to informal publications, this amount may rise to as much as NIS350 million (almost $100 million).
Another proposed change relates to mergers involving large international corporations (ie, those with a worldwide turnover of more than NIS1 billion (approximately $280 million)) which were not active in Israel before the merger. At present, such mergers need no IAA approval and the amendment aims to fill this lacuna.
In addition, the memorandum is intended to provide transparency and access to the protocols of the Exemptions and Mergers Advisory Committee. If the law comes into force, the committee’s discussions will be more transparent and its decision-making process regarding recommendation on approval or rejection of a merger will be easier to understand.
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.
Process and timing
Is the notification process voluntary or mandatory?
The notification process is mandatory and no voluntary merger notification mechanism is in place.
However, this may change if the Israeli Antitrust Authority (IAA) 2015 reform passes.
Under the proposed reform, the substantive test will apply to all mergers that raise reasonable competitive concerns, including those that fall below the statutory filing thresholds. Mergers that fall below the thresholds will be subject to a self–assessment in order to determine whether to submit a voluntary notification. However, if the IAA decides to examine the notification, it will be subject to the mandatory notification process. The objective of the reform is, on the one hand, to ensure that mergers which raise competitive concerns are subject to merger control and, on the other hand, to create certainty in the market applying the voluntary notification process.
What timing requirements apply when filing a notification?
The Restrictive Trade Practices Law applies a pre-merger notification regime.
There is no deadline within which notification must be filed; however, the transaction cannot be closed until the IAA's approval has been received.
What form should the notification take? What content is required?
A substantial amount of information is required to prepare a filing. In most cases, where counsel work diligently with client personnel, it takes around one week to compile the information required for short form filing and 15 days to compile the information required for a long form, depending on the merger classification (ie, horizontal, vertical or conglomeratic).
The information required essentially comprises factual data with respect to the relevant market(s) and lists of competitors, customers and suppliers for each relevant product or market.
Parties can provide the IAA with a short notification form if the following conditions are met:
- The combined shares in the product market of the merging companies, including any shares held by an individual with a personal connection, do not exceed 30%;
- No merging company, including any related person, is a monopoly in a product market related in any way to the market that is subject to the merger transaction; and
- No merging company, including any related person, is a party to an arrangement with a third party that competes in the product market that is the subject of the merger transaction.
Is there a pre-notification process before formal notification, and if so, what does this involve?
The IAA will usually agree to receive a filing notification only after a binding agreement is established between the parties.
However, in rare circumstances the IAA will agree to receive a filing before a binding transaction occurs, on the grounds that the transaction will likely be signed within a few days and there are good reasons for such a request.
Can a merger be implemented before clearance is obtained?
No, it is unlawful to complete the transaction before receiving the IAA's approval. The parties must submit notification and wait to receive approval before implementing the merger.
Guidance from authorities
What guidance is available from the authorities?
The IAA has published guidelines and general directors’ opinions regarding merger control, addressing issues including:
- the procedure for reporting and evaluating mergers pursuant to the Restrictive Trade Practices Law;
- remedies for mergers that raise reasonable competitive concerns; and
- competitive analysis of horizontal mergers.
The IAA also issues annual reports indicating recent trends and practices in Israel’s merger control regime.
What fees are payable to the authority for filing a notification?
There are no filing fees for merger notifications. However, pursuant to Section 20 of the Restrictive Trade Practices Law, the minister of finance may determine filing fees.
Publicity and confidentiality
What provisions apply regarding publicity and confidentiality?
The general director maintains a register of company mergers which is open to public scrutiny at the IAA's offices and on its website.
The register contains the merger notices of both the parties, excluding confidential chapters – as defined by the parties – and the notices' exhibits.
In addition, the IAA will contact marketplace participants, including competitors, suppliers and customers, to seek their views in respect of proposed transactions.
Are there any penalties for failing to notify a merger?
Failure to notify a merger or closing a transaction before receiving the IAA's approval are criminal offences punishable by a three to five-year imprisonment (although in practice most cases end with plea bargains) or a maximum fine of NIS2 million (approximately $560,000). Alternatively, such offences may be subject to considerable administrative fines.
Failure to notify a merger or closing a transaction before receiving the IAA's approval also constitute civil torts.
The Israeli Competition Tribunal may issue a disbandment order (ie, sequestration of the merged company) for an unauthorised, completed merger that has breached the provisions of the law.
Procedure and test
Procedure and timetable
What procedures are followed by the authority? What is the timetable for the merger investigation?
The Israeli Antitrust Authority (IAA) must decide whether to grant its approval of a merger within 30 days from receiving the parties’ full notifications.
Failure to issue a decision within the 30-day period will be deemed to constitute consent to the merger. However, in practice, if the IAA requests an extension of the timeframe to issue its decision, such a request is often granted.
This would be the case in a complex transaction involving serious competitive overlap and which requires a long form filing. In such cases, it may take three to five months to review the transaction.
However, in a straightforward transaction with no meaningful competitive issues, the likely timeframe for clearance is two to three weeks from the date of a completed filing and even less according to a recent procedure published by the IAA.
In May 2016 the IAA also opened a ‘fast track’ option for mergers that raise no competitive issues. According to a November 3 2016 IAA press release, the fast lane is five times quicker than the regular route and the average examination takes 4.2 days, compared to approximately 20 days in the normal lane.
What obligations are imposed on the parties during the process?
During the examination period, the parties may need to submit necessary information to the IAA.
Since closing the merger before receiving the IAA’s approval can be subject to a number of criminal and administrative penalties, the parties seeking to merge should abstain from exercising the transaction until approval is received.
What role can third parties play in the process?
The Restrictive Trade Practices Law specifies no role in the notification process to third parties.
However, the IAA is open to public objections or comments regarding mergers.
In addition, any person, trade association or consumers’ association that could be injured as a result of a merger has the right to appeal the general director's decision before the Competition Tribunal.
Further, the general director may request necessary information from third parties (eg, competitors, suppliers and consumers) during the examination process.
What is the substantive test applied by the authority?
If the transaction is a merger of companies and a notification process is mandatory according to the relevant threshold based on the market share, sales turnover or because one of the companies is a monopoly, the substantive test for approval is set forth in Section 21 of the Restrictive Trade Practices Law 1988:
“The General Director shall object to a merger of companies or stipulate conditions for it, if in his opinion there is a reasonable risk that, as a result of the merger as proposed, the competition in that sector would be significantly harmed or the public would be harmed in one of the following regards: (1) The price level of an asset or a service; (2) Low quality of an asset or of a service; (3) The quantity of the asset or the scope of the service supplied, or the constancy and conditions of such supply.”
The examination begins with defining and analysing the market, and the effect that the merger will have on it, with consideration to all competitive circumstances which exist or are expected in the market. Following this examination, the test focuses on whether the merger will create, preserve or increase the market power of one or both parties to the merger.
Does the legislation allow carve-out agreements in order to avoid delaying the global closing?
The Restrictive Trade Practices Law does not address the issue of carving out and the examination is solely with regard to Israel’s economy.
Test for joint ventures
Is a special substantive test applied for joint ventures?
No special substantive test is applied for joint ventures with respect to merger control.
What are the potential outcomes of the merger investigation? Please include reference to potential remedies, conditions and undertakings.
Once the Israeli Antitrust Authority (IAA) has examined a merger of companies there are three possible outcomes; the general director may approve, object or stipulate conditions for approval of the merger.
The most common outcome is approval.
If the merger raises a reasonable concern of significant harm to competition, the general director must reject it or stipulate conditions in which approval can be issued.
According to the IAA Guidelines Regarding Remedies for Mergers that Raise Reasonable Concerns of Significant Harm to Competition, if a merger raises such concerns, the goal is to find a means of remedying the harm to competition as a result of the merger. The IAA prefers to authorise mergers subject to conditions that provide a complete solution to the concerns, rather than oppose them.
Generally, there are two types of condition – structural and behavioural.
Structural conditions aim to deal with changes in the market structure that cause the concerns. Behavioural conditions aim to address anti-competitive behaviour that may originate from structural changes. The IAA prioritises structural conditions as these require less supervision and are easier to set and enforce on the parties.
Right of appeal
Is there a right of appeal?
Yes, pursuant to the Restrictive Trade Practices Law, the parties to a merger and third parties that may be injured by the merger can appeal the general director’s decisions.
The Israeli Competition Tribunal (part of the Jerusalem District Court) serves as the appellate tribunal at which to appeal the general director's decisions and can affirm, deny or amend such decisions.
Do third parties have a right of appeal?
Third parties that could be injured by a merger have the right to appeal the general director's decision to approve the merger to the Competition Tribunal.
What is the time limit for any appeal?
Pursuant to Section 22(A) of the Restrictive Trade Practices Law, companies seeking to merge can appeal the general director’s rejection of a merger or conditions imposed on the merger within 30 days of receiving the decision.
Pursuant to Section 22(B) of the law, third parties that could be injured by the merger can appeal the general director’s approval within 30 days of publication of the decision in two daily newspapers.