This country-specific Q&A provides an overview to merger control laws and regulations that may occur in Israel.
It will cover jurisdictional thresholds, the substantive test, process, remedies, penalties, appeals as well as the author’s view on planned future reforms of the merger control regime.
This Q&A is part of the global guide to Merger Control. For a full list of jurisdictional Q&As visit http://www.inhouselawyer.co.uk/index.php/practice-areas/merger-control
The government authorities in charge of merger control in Israel are the Israeli Antitrust Commissioner and the Israeli Antitrust Authority. The Israeli Antitrust Commissioner must approve a merger, reject it or stipulate conditions to the merger, after consulting with the Advisory Committee for Mergers and Exemptions.
To fall within the boundaries of the merger control regime, a transaction must meet the definition of a "merger of companies" as well as the relevant filing thresholds.
The definition of a "merger" (see section 3.1 below) is relatively wide and, in the Israeli Antitrust Authority's view, includes any transaction which grants one company a structural foothold in the management of another company's business. As detailed below, any acquisition of the main assets of a business, or acquisition of over 25% of certain rights in a company is presumed to be a "merger".
"Merger of companies" will exist only if at least two "companies" are involved therein. The definition of a "company" includes cooperatives and partnerships, and entails a test of nexus to Israel (see section 3.2 below).
Thresholds (described more fully in section 3.2 below) refer to the merging parties' turnovers but also to market shares. Where a transaction will make the parties cross a threshold of 50% market share or where one of the parties already has over 50% in any market – filing is necessary. Turnovers and market shares refer only to Israel, but they refer to the entire group of companies under the same control. Thus, if two groups of companies which meet the thresholds perform a transaction outside Israel, they may still have to file in Israel. Thresholds do not contain transaction size or assets tests.
A merger transaction which falls below the thresholds is legal per se, and cannot be challenged in court. Ancillary restraints require a clearance procedure, unless they meet the standards for a specific statutory exemption or block exemption.
If a transaction is deemed a "merger transaction" and meets the relevant filing thresholds, filing is mandatory. The Commissioner will object a merger if found to pose "reasonable concern of significant harm" to competition or the public.
The merger transaction cannot be consummated before it is cleared by the Commissioner. The commissioner must grant his decision by 30 days. The 30-day period may be extended voluntarily by the parties or by the specialist Antitrust Tribunal in Jerusalem according to the Commissioner's request.
Illegally consummated mergers are subject to administrative fines, and possibly even criminal charges. In addition, the Commissioner may approach the Antitrust Tribunal and request divestiture. Illegal mergers are also subject to civil actions, including class actions.
Is mandatory notification compulsory or voluntary?
For a transaction which falls under the definition of a "merger of companies" according to the Restrictive Trade Practices Law, 1988 (the "Israeli Antitrust Law") (see "Jurisdictional Test" below) and meets the relevant thresholds (see "Summary of Jurisdictional Thresholds" below), filing is mandatory. The Commissioner's consent is required before proceeding with the transaction. Gun-jumping is enforceable by various measures, including criminal charges and administrative fines.
Is there a prohibition on completion or closing prior to clearance by the relevant authority? Are there possibilities for derogation or carve out?
For a transaction which falls under the definition of "merger companies" according to the Israeli Antitrust Law (see "Jurisdictional Test" below) and meets the relevant thresholds (see "Summary of Jurisdictional Thresholds" below), it is prohibited to complete the transaction before receiving the Israeli Commissioner's consent to the transaction. However, if 30 days have elapsed since filing merger notifications and the Commissioner has not responded, this is considered an approval of the merger.
Any action which amounts to performing a notifiable merger transaction or the first steps thereof, may, in the Israeli Antitrust Authority Israeli Antitrust Authority's view, constitute gun-jumping. Any transfer of actual foothold or involvement in the operations of the acquired company may also be considered gun-jumping. Among other things, the following have been deemed gun-jumping, under certain circumstances:
- A loan or transfer of funds to the acquired business;
- Transfer of shares to trustees who were effectively the controlling owners of the acquiring company;
- Transfer of the consideration, or a part thereof, prior to the Commissioner's approval;
- Transfer of risk with regard to the assets prior to the Commissioner's approval;
- The appointment of officers in the company, including temporary members of the board.
In case of an international transaction, it is possible to carve the assets and legal entities in Israel out of the transaction, though generally, any carve-out outline will have to receive the Israeli Antitrust Authority's approval.
The Israeli Antitrust Authority normally does not allow derogations, except in the case that the purchased business has severe financial difficulties and may not survive until the review is concluded. In such a case, the Israeli Antitrust Authority may allow the prospective acquirer to transfer funds into the prospective target, under certain conditions.
What are the conditions of the test for control?
The definition of a "merger of companies" in section 1 of the Israeli Antitrust Law is an open one, which begins with the word "including". According to the Antitrust Commissioner's Guidelines for Reporting and Evaluating Mergers under the Restrictive Trade Practices Law, 1988 (the "Guidelines"), this implies that the "merger of companies" definition has a "wide and general aspect" which does not expressly appear in the definition and which includes "Any transaction that creates (or significantly strengthens) a substantial and continuous influence link between the decision-making mechanisms of the companies involved in the transaction, either directly or indirectly".
In addition to this general aspect, the Israeli Antitrust Law sets a definite presumption that the following create a "merger of companies":
- the acquisition of most of the assets of a company by another company;
- the acquisition of shares in a company by another company by which the acquiring company is accorded more than a quarter (25%) of one of the below:
- The nominal value of the issued share capital;
- The voting power;
- The power to appoint members of the board;
- Participation in more than a quarter of the company's profits.
The merger of companies definition applies whether the acquisition is direct or indirect or by way of rights accorded by contract.
What are the conditions on minority interest in your jurisdiction?
As mentioned, any acquisition of more than 25% of even one of the rights outlined in paragraph 3.1 above will constitute a merger of companies. In its past practice, the Israeli Antitrust Authority has not seen a "mergers of companies" transaction where less than 25% of the above rights were acquired, unless other factors existed, such as the appointment of company officers or actual involvement in the company's activities.
Nonetheless, when done between competitors, an acquisition or holding of less than 25% may be considered a "restrictive arrangement", which under certain circumstances, also requires clearance according to Israeli Antitrust Law.
What are the jurisdictional thresholds (turnover, assets, market share and/or local presence)?
Nexus to Israel
When non-Israeli entities are involved in a transaction, the "merger of companies" definition will only apply to the transaction if at least two of the parties involved in the transaction are each deemed as a "company" under the Israeli Antitrust Law; i.e. corporate entities with sufficient nexus to Israel (the "Nexus Test").
As explained in the Guidelines, the Nexus Test is met for a party if it is:
- An Israeli company;
- A non-Israeli company registered in Israel as a "foreign company";
- A non-Israeli company not registered in Israel, but with a "merger affiliation" with an Israeli company. A "merger affiliation" includes, inter alia, a situation where the non-Israeli company, an entity who controls it, an entity controlled by it or an entity controlled by any of them: (a) holds more than one quarter of an Israeli company’s issued capital stock; (b) holds more than one quarter of an Israeli company’s voting power; (c) has the right to appoint more than one quarter of the Israeli company’s directors; or (d) has the right to receive more than one quarter of the Israeli company’s profits; or
- A non-Israeli company neither registered in Israel nor affiliated with an Israeli company, but maintaining a place of business in Israel (by way of a distributor or otherwise), which is reflected by holding a significant influence over the conduct of a local representative (local representative prices, presentation, positioning, identity of customers etc.).
- Turnover threshold: the combined turnovers in Israel of the parties to the merger in the financial year prior to the transaction were over NIS 150 Million, and at least two of the parties each had a turnover in Israel of at least NIS 10 Million in that year;
- Combined market share threshold: the parties' combined market shares will exceed 50% of a product/service market following the merger; or
- Individual market share threshold: one of the parties in the transaction has a "monopoly" (defined by the Israeli Antitrust Law as having over 50% market share) in any market in Israel. It is enough if this threshold is met by one of the parties.
As mentioned, the Nexus Test must be met for at least two parties in order for the transaction to be considered a "merger of companies".
If the transaction is a "merger of companies", and has met the Nexus Test, the transaction must be reported to the Antitrust Commissioner and receive the Commissioner's approval prior to consummation if one or more of the following applies:
Note that, the Israeli Antitrust Law and the Restrictive Trade Practices Regulations (Registry, Publication and Transaction Reporting), 2004 (the "Regulations") do not set an asset threshold to filing in Israel, and whether a company has or does not have assets in Israel is irrelevant to the thresholds. For example, a high-tech company may have a development centre in Israel employing several engineers, and not meet the filing thresholds due to the fact that it has no sales in Israel.
At the moment, all thresholds refer to activity in Israel only (see "Future developments" below).
The thresholds refer to the parties of the transaction, as well as to every company that is controlled by the same ultimate controlling owner. "Control" is defined under the Israeli Antitrust Law as the possession of more than half of either (i) the right to vote at a company's general meeting or the parallel body of another corporation or (ii) the right to appoint the directors of a corporation. Turnover thresholds refer to all activities of these companies, not just the activities in the market relevant to the transaction.
In this regard, sellers' market shares and turnovers will not be taken into account if all their connections to the acquired company or assets are severed. If some connections remain – the sellers' turnover or market shares will be taken into account when assessing the turnovers.
How are turnover, assets and/or market shares valued or determined for the purposes of jurisdictional thresholds?
Calculation of turnover
- Turnovers are calculated for Israel only, and are determined according to the following principles: Turnovers are calculated based on accepted accounting principles. In other words - if an entity's turnover must be brought into account, the relevant figure will normally be its sales turnover as it appears in its financial reports;
- The relevant turnovers are the turnovers in the financial year that ended before the transaction takes place. E.g. if a transaction occurs during 2017, the relevant turnover will be the 2016 turnover;
- Turnovers are calculated for the entire group of companies under the same ultimate control – see "Filing Thresholds" above. While turnovers, including consolidated turnovers, are calculated according to accepted accounting principles, the question of which entities will be brought into account and included in the consolidated turnovers of the group is set according to antitrust laws. That is, all entities which are controlled by the same ultimate controlling owner, according to the definition of "control" under Israeli Antitrust Law will be brought into account, regardless whether their turnovers are consolidated under accepted accounting principles;
- Sales into Israel from other locations will normally be brought into account.
Calculation of market shares
The definition of markets, the identification of market participants and the allocation of market shares are always some of the most complex and challenging questions presented by competition laws. Nonetheless, we can point to some principles that will apply in this regard in the context of Israeli merger control.
- Market shares refer to the relevant product and geographic market. The full market definition tests are beyond the scope of this essay, but, generally speaking, a relevant market would be one where a hypothetical single actor would be able to profitably raise the price by 5%-10% over time without the loss in quantities decreasing its revenues (this is the well-known "hypothetical monopoly test" which is also applied in other jurisdictions).
- The Israeli Antitrust Authority generally does not provide guidance on market share and market definition issues and the parties must determine the applicability of market share thresholds by themselves. Usually bona-fide estimates normally suffice in order to decide whether filing is necessary, unless there are specific doubts and concerns that require the parties to receive an expert economic opinion to define markets and measure market shares.
- The market is not necessarily national. If the parties cross the market share thresholds in a distinct geographic market within Israel, then filing is required.
- The Israeli Antitrust Authority prefers to measure market shares by quantities. However, such measurement may sometimes be irrelevant, especially in highly variated product markets. The less homogenous the products, the higher the tendency to calculate market shares by revenue.
Is there a particular exchange rate required to be used for turnover thresholds and asset values?
Applicable exchange rates are the average exchange rates over the relevant period – normally the financial year preceding the transaction. If representative rates from the Bank of Israel are available for the relevant coin, these will be the deciding rates for calculation of the turnover thresholds.
The average Bank of Israel representative rates for FY2015 were:
- US Dollars - 3.8869 NIS per 1 USD
- Euros - 4.3144 NIS per 1 EUR
Do merger control rules apply to joint ventures (both new joint ventures and acquisitions of joint control over an existing business?
The same thresholds and nexus tests described above apply to joint ventures, if such joint ventures are indeed considered "mergers of companies".
It should be noted that a joint venture between competitors which does not amount to a "merger of companies" may sometimes be considered a "restrictive arrangement" and require clearance in one of the mechanisms prescribed by the Israeli Antitrust Law for this kind of transaction, including, e.g. specific exemptions or block exemptions. Joint ventures whereby joint control is acquired over an existing business will normally count as "mergers of companies". New joint ventures may or may not be described as "mergers of companies" depending of the specific characteristics of the venture. As a rule of thumb, the more long-term the joint venture is and the more "structural" in nature, the higher the tendency to classify it as a merger of companies.
Thresholds will apply to all parties to which the "merger of companies" definition applies, and will certainly apply to every party which will, following the transaction, eventually hold over 25% of one of the rights detailed in section 3.1 in the joint venture. Thresholds will include the sellers, unless the sellers sell their entire holdings and sever all connections to the joint venture. If there are additional parties acquiring less than 25% of the joint venture, the applicability of the thresholds to such parties will depend on their specific involvement in the joint venture, e.g. their ability to appoint officers, their role in the conduct of business of the venture and the like.
Turnovers apply to both the joint venture and its parents, and may be satisfied by the parent companies alone. The Israeli Antitrust Authority has been known to require filing in cases where the parents met the relevant nexus and thresholds tests, even if the joint venture itself was not expected to have any activity in Israel.
In relation to “foreign-to-foreign” mergers, do the jurisdictional thresholds vary?
The nexus tests are the same whether or not the legal entities acquired reside in Israel. If the nexus test and the filing thresholds apply to a group of companies under the same ultimate controlling entity, it is irrelevant which specific legal entities within such group perform the transaction.
The risk of non-filing, in cases where the acquired entities or assets have little or no nexus to Israel, must be assessed individually on a case by case basis. It should be noted that although a breach of the Israeli Antitrust Law is a criminal as well as administrative offence, to date, non-Israeli entities did not face criminal charges, even for horizontal hard core cartel. This policy towards foreign entities results from various legal constraints and is unlikely to change in the foreseeable future.
For voluntary filing regimes (only), are there any factors not related to competition that might influence the decision as to whether or not notify?
Additional information: Jurisdictional Test
The Israeli Antitrust Authority tries to meet the standards of leading jurisdictions like the European Union and the USA. It makes a great effort to meet the tight filing schedules. There is generally open communication with Israeli Antitrust Authority representatives and they are often willing to share doubts or questions they may have with the parties.
What is the substantive test applied by the relevant authority to assess whether or not to clear the merger, or to clear it subject to remedies?
The substantive test, as set out in the Israeli Antitrust Law, is "reasonable concern for significant harm to competition or public" in relation to prices, quality, quantity or regularity of supply of a product or service.
The Antitrust Commissioner issued Opinion 1/11 – Guidelines for The Competitive Analysis of Horizontal Mergers (the "Horizontal Merger Guidelines"). According to the Horizontal Merger Guidelines, the merger review will begin by using a demand-based definition of product and geographic market. The Israeli Antitrust Authority will estimate possible unilateral effects and coordinated effects as well as defences such as merger efficiencies and the failing firm doctrine.
The guidelines indicate that a horizontal merger may raise the Israeli Antitrust Authority's concerns and merit further examination when post-merger market shares are high, the merging companies are the closest substitutes, or entry barriers are high. It should be noted that when evaluating horizontal mergers, the Israeli Antitrust Authority has been known to reach very narrow market definitions.
The substantive test set by the Israeli Antitrust Law for vertical mergers is no different than for horizontal mergers: "reasonable concern for significant harm to competition or public". According to Antitrust Tribunal precedent, vertical mergers are usually beneficial, although they may raise concerns regarding foreclosure. Only on rare occasions has the Antitrust Commissioner rejected a merger based on vertical concerns, but these may result in stipulating conditions.
Are non-competitive factors relevant?
The Antitrust Commissioner is only allowed to consider competition factors. Non-competition factors are irrelevant. Nonetheless, efficiency factors may be relevant and will be considered to the extent they are likely to be transferred to the customers, and offset the expected harm to competition from the merger.
Are there different tests that apply to particular sectors?
The substantive test prescribed by the Israeli Antitrust Law applies to all sectors and there are no other substantive tests for particular sectors. Naturally, the competitive structure and characteristics of each market will affect the competitive assessment.
Are ancillary restraints covered by the authority’s clearance decision?
Ancillary restraints such as non-compete clauses may be considered "restrictive arrangements" and be subject to the general restrictive arrangements chapter of the Israeli Antitrust Law.
A restrictive arrangement is prohibited unless permitted by one of the mechanisms prescribed by the Israeli Antitrust Law: approval by the specialist Antitrust Tribunal; exemption from such approval by the Antitrust Commissioner or falling within the boundaries of one of the statutory exemptions set in the Israeli Antitrust Law itself or block exemptions issued by the Commissioner.
A non-compete commitment by a seller following the sale of a business in its entirety, inasmuch as it would constitute a "restrictive arrangement" is eligible for a statutory exemption when such commitment is "not contrary to reasonable and accepted practices".
In addition, a specific block exemption has been issued for restraints ancillary to mergers (Antitrust Rules (Block Exemption for Restraints Ancillary to Mergers), 2009), which exempts, under certain conditions, non-compete commitments (for up to four years starting from the decrease in the seller's holdings below 20% and the right to appoint one director); commitments to continued supply in the same terms (for up to three years); and other restraints reasonably required to preserve the value of the acquired business (for a reasonable time period). This block exemption has several conditions, and inter alia, it does not apply to monopolies (defined by the Israeli Antitrust Law as having over 50% market share).
Other block exemptions may also apply, such as Antitrust Rules (Block Exemption for Arrangements of Minor Importance), 2006, or Antitrust Rules (Block Exemption for Non-Horizontal Agreements Which Do Not Contain Certain Price Restrictions), 2013.
In case an ancillary restraint does not come within the boundaries of a block exemption, a specific exemption is required. Israeli merger notification forms include a specific chapter with an exemption request form for an ancillary restraint.
For mandatory filing regimes, is there a statutory deadline for notification of the transaction?
Israel has no filing deadline – but the parties to a notifiable merger are prevented from closing the transaction or performing it in any way, including initial steps, prior to receiving the Commissioner's approval.
What is the earliest time or stage in the transaction at which a notification can be made?
Filing can be made, at earliest, when the transaction has taken a concrete form in a merger agreement. The Israeli Antitrust Authority is normally reluctant to review mergers based on a memorandum of understanding and will only do so under rare circumstances based on a specific request from the parties. In such case, according to the Guidelines, the Israeli Antitrust Authority will start the review itself, but the 30 days allotted to the Commissioner to complete the review will not start until the full merger agreement, including annexes, is presented to the Israeli Antitrust Authority. For publically traded companies, the Israeli Antitrust Authority will be willing to review a takeover proposal without an agreement, if an agreement does not exist.
What is the basic timetable for the authority’s review?
The Israeli Antitrust Law sets out a 30 calendar-day period after filing notification for the review process to take place. If the Commissioner does not issue a decision within this time, it is seen as an approval. The review process does not have a distinct "phase-2" stage. In some cases, the 30-day review period may be extended formally by the Antitrust Tribunal according to the Commissioner's request, but this is a rare practice. The more common practice is for the Israeli Antitrust Authority to informally request an extension from the merging parties.
The Israeli Antitrust Authority's average clearance period in 2015 was 29.2 days. In practice, the great majority of mergers are reviewed within the allocated 30-day period although the review of a complex merger may take up to several months.
There are also no pre-filing procedures. The IAA will normally not grant the merging parties specific guidance as to how to fill the merger notifications and not involve itself in the parties' market definitions. In competitively simple mergers, the IAA will settle for information requests from the merger parties and normally phone calls with third parties. In more complex cases, the IAA may issue detailed data requests to third parties. This will usually result in a longer review period, due to the time it takes third parties to respond to such written requests.
The Commissioner must consult with the Advisory Committee Mergers and Exemptions prior to rendering her decision. Normally, the Committee convenes once in every one or two weeks, though in the past it has convened for urgent consultations.
Under what circumstances the basic timetable may be extended, reset or frozen?
As mentioned above, the merger review period may be extended formally by the Antitrust Tribunal according to the Commissioner's request. This is a rare practice. The more common practice is for the Israeli Antitrust Authority to informally request an extension from the merging parties.
Requests for information do not stop the clock for the review period, regardless of whether they are answered fully or correctly, nor do negotiations with the parties for remedies or interventions by third parties. Such procedures, if exceeding the 30-day period, will normally be conducted using voluntary extensions from the parties.
Are there any circumstances in which the review timetable can be shortened?
The Commissioner will issue her decision once the Israeli Antitrust Authority's review has been completed, even before the 30-day review period elapses.
In May 2016 The Israeli Antitrust Authority publicised an experimental "Bright Green Merger" review track, whereby a review may be completed within a timeframe much shorter than the formal 30-day period, based mainly on the information included in the filings themselves.
For a merger to be reviewed under the "Bright Green Merger" track, the following conditions must apply:
- The merger clearly does not raise reasonable concerns of competitive harm.
- The parties use the full merger notification form and not the abbreviated one.
- The parties include in their filing detailed additional information to help analyse the merger's competitive effects, preferably based on objective resources such as industry surveys.
- The merger notification is signed by the CEO or chief internal legal counsel of the company.
It should be noted that the initial experiment period for this new track already elapsed on August 8th, 2016. As of the publication of this document, the Israeli Antitrust Authority has not yet announced whether it intends to fully adopt this experimental review track or withdraw it.
Which party is responsible for submitting the filing? Who is responsible for filing in cases of acquisitions of joint control and the creation of new joint ventures?
Both the acquiring party and acquired party must file their own merger notification, describing their own activities, market shares and the like. The Israeli Antitrust Authority will only start its review when both parties have filed their merger notifications. A rare exception may be made when one party refuses to cooperate in the process, such as in the case of a hostile takeover.
What information is required in the filing form?
The Regulations set a specific merger notification form which must be filed. The extent and kind of information required will depend on the type of merger (horizontal, vertical or "conglomerate", which is a residual definition which applies to mergers that are neither horizontal nor vertical) and on the parties' estimated market shares.
All mergers will normally require a basic description of the transaction, the filing party's activities and its market shares. Horizontal or vertical mergers, where the parties have over 25% market share, will require some detailed sales information regarding quantities and revenues, as well as further information about the market, such as a description of entry and the switching of barriers. Conglomerate mergers will sometimes require very detailed information about each party's holdings, to ensure that no horizontal or vertical overlaps exist between the parties.
An abbreviated form may be filed if the parties' combined market shares are less than 30%in the market in which the merger transaction occurs (the "transaction market"); neither party is a monopoly (defined by the Israeli Antitrust Law as having over 50% market share) in a market adjacent to the transaction market, and no party has arrangements or agreements with its competitors in the transaction market. The abbreviated form requires only the most basic information about the parties and their activities, though it requires certain information which is not required by the longer forms, such as identifying the filing party's ultimate controlling owner.
The forms indicate which parts of the notification will remain confidential. Parts which are not marked as confidential will be published on the Israeli Antitrust Authority's website once the review is concluded and the Commissioner's decision is made public.
Which supporting documents, if any, must be filed with the authority?
The following supporting documents must be filed with the merger notifications:
- Annual reports for two years preceding the merger for each party.
- A full set of the transaction documents, including annexes.
- Any prospectuses issued by the parties in the five years preceding the mergers.
- The parties are allowed to file additional documents and information; to the extent these are relevant to the competitive analysis of the merger.
The merger notification forms include a statement of accuracy which must be signed by an officer of the company, whose name and role in the company are indicated on the form. Since the merger notification form itself will normally include the details of the outside attorney as the point of contact for the filing party, no additional power of attorney is required.
Is there a filing fee? If so, please specify the amount in local currency.
At the moment, there is no filing fee for merger notifications, though according to the Israeli Antitrust Law, the Minister of Economy and the Minister of Finance may set such filing fee.
Is there a public announcement that a notification has been filed?
Once the Commissioner's decision is given, the merger is publically announced in two daily newspapers. The Commissioner's decision and certain non-confidential parts of the merger notification forms will then be published on the Israeli Antitrust Authority's website.
In addition, the merger review process is considered public and is normally not conducted in a confidential manner. The Israeli Antitrust Authority may approach third parties during the review period, including customers, suppliers and competitors, thus revealing that the merger is about to occur.
Does the authority seek or invite the views of third parties?
During its merger review process, the Israeli Antitrust Authority approaches third parties, such as customers, suppliers and competitors.
Such third parties will normally be approached by phone. The Israeli Antitrust Authority will ask them to provide information about the relevant markets, including their input regarding the merger. To the extent required, normally only for more complex mergers, written requests for information will be issued. Under the Israeli Antitrust Law, third parties are obliged to respond to requests for information, and are subject to penalties if they fail to do so.
The Israeli Antitrust Authority normally does not ask third parties for an opinion in writing, but will accept third parties' written submissions in objection or in support of a merger if filed promptly and within the Israeli Antitrust Authority's time framework.
What information may be published by the authority or made available to third parties?
Once the Commissioner's decision is given, the Commissioner's decision and the non-confidential elements of the merger notifications will be scanned and published as-is on the Israeli Antitrust Authority's website. Supporting documents, such as financial statements will not be published and neither will responses to information requests.
A third party who has the right to appeal the Commissioner's decision will have the right to review the Israeli Antitrust Authority's file, but this will be subject to limitations, including trade secrets, due to confidentiality,. Certain information may be disclosed according to requests under the Israeli Freedom of Information Law, 1998, again, subject to limitations on disclosure of trade secrets. Nearly any such disclosure is subject to a procedure whereby the suppliers of information are given the opportunity to object to the disclosure of the information they provided.
Does the authority cooperate with antitrust authorities in other jurisdictions?
The Israeli Antitrust Authority may cooperate with antitrust authorities in other jurisdictions. There are no formal consequences to refusing to grant a waiver allowing its confidential information to be provided to another authority, but this may theoretically prompt a rejection of the merger based on the lack of information to alleviate competitive concerns.
What kind of remedies are acceptable to the authority? How often are behavioural remedies accepted in comparison with major merger control jurisdictions, such as the EU or US?
In 2011, the Commissioner issued Opinion 2/11 Guidelines on Remedies to Mergers, which Raise Reasonable Concern of Significant Harm to Competition (the "Remedies Guidelines"). According to the Remedies Guidelines, the Israeli Antitrust Authority prefers structural remedies which secure permanent change to the market. Structural remedies require less follow-up and enforcement compared to behavioural remedies, which control the conduct of the merged firm. Per the Remedies Guidelines, the Israeli Antitrust Authority may stipulate behavioural conditions as a temporary solution when:
- The competitive concerns involve a specific, well-defined behaviour which is easy to detect;
- A failing company will exit the market entirely without the merger; or
- Structural conditions are irrelevant.
In practice, there have been cases where the Israeli Antitrust Authority accepted certain behavioural remedies, including semi-structural remedies such as Chinese walls and personal separation between certain activities of the merged companies.
In cases where divestiture was required, the Israeli Antitrust Authority has been known to require an up-front buyer in some instances, but settled for later sale in other cases. In some cases, when the parties were allowed to perform the divestiture after the merger occurred, the parties had to sign documents that would allow the automatic transfer of the assets to the hands of a trustee who would perform the sale in case they failed to divest the assets within the allocated time-frame. In past cases of divestiture, it was required that the buyer be pre-approved by the Commissioner.
What procedure applies in the event that remedies are required in order to secure clearance?
THERE IS NO FORMAL PROCEDURE OR DEADLINE FOR OFFERING REMEDIES. UNDER GENERAL PRINCIPLES OF ISRAELI ADMINISTRATIVE LAW, THE COMMISSIONER IS REQUIRED TO CHOOSE THE OPTION THAT IS LEAST HARMFUL TO THE PARTIES' RIGHTS, IN PARTICULAR THEIR PROPERTY RIGHTS. IF THE ISRAELI ANTITRUST AUTHORITY BELIEVES THAT A MERGER, ON ITS FACE, RAISES REASONABLE CONCERN OF SIGNIFICANT HARM TO COMPETITION, IT WILL APPROACH THE PARTIES AND EITHER PROPOSE REMEDIES ITSELF OR ASK THE PARTIES TO PROPOSE POSSIBLE REMEDIES. THE ISRAELI ANTITRUST AUTHORITY MAY ALSO IMPOSE REMEDIES WITHOUT THE PARTIES' CONSENT. IN HER FINAL DECISION, THE COMMISSIONER MAY CONSIDER REMEDIES ALREADY AGREED UPON IN OTHER JURISDICTIONS AND APPLY THEM TO ISRAEL. PENALTIES
What are the penalties for failure to notify, late notification and breaches of a prohibition on closing?
Outlined below are the main sanctions and repercussions of the illegal consummation of a transaction which constitutes a notifiable "merger of companies" under the Israeli Antitrust Law. Similar repercussions and penalties apply to breaching a condition of a conditional merger approval. The offence under the Israeli Antitrust Law refers to both full and partial consummation of a merger. Hence, late notification will, in theory, be subject to the same penalties.
The Israeli Antitrust Authority has at its disposal several administrative enforcement measures.
Administrative Fines – "Primary Enforcement Measure"
An amendment to the Israeli Antitrust Law enacted in 2012 enables the Commissioner to impose significant fines through an administrative process, with reference to certain types of conduct, including the illegal partial or full consummation of a merger of companies. Administrative fines may be imposed on all the parties to the illegal merger transaction.
The maximum fine set by the Israeli Antitrust Law is 8% of a company's total sales turnover in the year prior to the violation, but not more than NIS 24,564,360 in total. For individuals and for companies that in the year prior to the violation had a sales turnover of less than NIS 10,000,000 the maximum fine is NIS 1,023,510.
In recent guidelines , the Israeli Antitrust Authority indicated that in case of conduct which constitutes a full or partial non-horizontal merger for which notification was not provided, it will generally apply administrative fines rather than criminal sanctions as the primary enforcement measure.
In recent draft guidelines , the Israeli Antitrust Authority offers a detailed method for calculating the specific fine to be imposed, beginning with the setting of a "base fine" for a certain breach, and then bringing in additional considerations for increasing this base fine by up to 20%, or decreasing it by up to 50%, with specific increase/decrease rates attached to each consideration.
The two main parameters for setting the base fine are the term of the breach and the breach's probable impact on competition. Notable parameters for increasing or decreasing the fine are the role of the specific entity or individual in the breach and the actions taken to prevent recurrence of the breach. External circumstances taken into account include the existence of former breaches, personal interest in the breach and personal or corporate economic circumstances, such as expected bankruptcy as a result of the fine, or a corporation with an exceptionally high turnover.
Due to the fact that the power to impose an administrative fine is relatively new and was only vested in the Commissioner in 2012, the Draft Opinion informs us that the Commissioner will decrease 50% of the base fine on breaches discovered before the end of 2017 and 25% of the base fine on breaches discovered before the end of 2019.
Administrative Declaration of Breach
The General Director may issue an Administrative Declaration stating that a "merger of companies" has been unlawfully consummated. Such a declaration serves as prima facie evidence in any legal proceedings, and may be used for civil lawsuits (including class actions), against the merging companies.
The Israeli Antitrust Authority may approach the Antitrust Tribunal requesting (i) a consent decree that provides, inter alia, for an amount of money to be paid by the parties to the state treasury in lieu of criminal procedures or an administrative declaration. The consent decree may include operative measures, such as the disgorgement of acquired assets. The consent decree may include a provision which provides that the parties do not admit that the "merger of companies" is considered a notifiable merger. The Israeli Antitrust Authority may also approach the Tribunal to request (ii) unconsented divestiture of the merged companies. This is a rare practice: to the best of our knowledge, the antitrust tribunal has considered the separation of merged companies in only two cases in Israel, both cases referring to local companies.
Failing to file a merger notification or taking action that is tantamount to a full or partial merger contrary to the Israeli Antitrust Law is a criminal offense. The maximum penalty is a three year jail sentence, or a five year sentence if the breach was performed under aggravating circumstances, including, e.g. high market shares or expected significant harm to the public. In addition, criminal fines may be imposed. Criminal sanctions may be imposed on all the parties to the illegal merger transaction and relevant officers.
In addition, the Israeli Antitrust Law sets strict liability management offenses with similar penalties for the active management of the company. Imprisonment sentences (including jail and public service) may only be imposed if negligence or intent is proven.
We will add that as a matter of past practice, criminal proceedings for illegally consummated mergers were extremely rare and only involved entities with very high market shares. The Israeli Antitrust Authority did not apply criminal sanctions to transactions which would have been cleared if they were filed with the Israeli Antitrust Authority, if the transaction as in accordance with the substantive test set by section 21 of the Israeli Antitrust Law: reasonable concern for significant harm to competition or injury to the public in terms of price, quality, quantity or regularity or terms of supply.
Criminal sanctions have also not been applied to non-Israeli entities, as will be elaborated upon below.
Civil Implications – Unenforceability and Civil Tort
Last but not least, the illegal consummation of a merger has repercussions in the civil realm. Illegal agreements are generally unenforceable (this is also relevant to restraints ancillary to the merger which have not been cleared under the Israeli Antitrust Law). In addition, the consummation of an illegal merger is a civil tort and is subject, even without administrative declaration, to civil law suits, including class actions. All parties of the merger transaction are exposed to civil actions.
Israeli Antitrust Authority's Attitude towards Foreign Transactions
In the past, the Israeli Antitrust Authority has normally refrained from taking action against foreign entities, even for severe cartels. The means employed with regard to foreign entities were administrative sanctions. The Israeli Antitrust Authority has mentioned in the past that it will not enforce the Israeli competition laws when the effect on competition in Israel is indirect or negligible.
For mergers, the Israeli Antitrust Authority has usually been interested in the connections created between the foreign entities in Israel. Where the foreign companies' nexus to Israel is doubtful or indirect, the Israeli Antitrust Authority is less likely to take interest in the transaction.
What are the penalties for incomplete or misleading information in the notification or in response to the authority’s questions?
If the parties received merger clearance based on misleading information, this might constitute the illegal consummation of a merger transaction, subjecting the parties to all of the above mentioned penalties and repercussions. It may also constitute the receipt of clearance under false pretences, punishable by up to three years in jail (five years under aggravating circumstances). This situation has yet to arise in practice, while a party which did not know about the false representations will likely be exempt from sanctions and penalties.
In addition, if information was officially required according to the Commissioner's legal power to issue requests for information under the Israeli Antitrust Law, providing incomplete or misleading information may be a separate breach. In this case, administrative fines may be imposed amounting up to 3% of a company's total sales turnover in the year prior to the violation, but not more than NIS 8,188,120 in total. For individuals and for companies that in the year prior to the violation had a sales turnover of less than NIS 10M, the maximum fine of NIS 307,050. Such breach is also punishable by a criminal sanction of up to one year imprisonment and criminal fines.
Can the authority’s decision be appealed to a court? In particular, can third parties who are not involved in the transaction appeal the decision?
A decision to object a merger or approve it under conditions may be appealed by the parties.
Third parties may appeal a Commissioner decision if injured by the merger. Tribunal precedent states that injury must be an antitrust injury (i.e., where the source of injury harms to competition and the appellants are the ones injured).
Appeals are filed with the specialist Antitrust Tribunal in the Jerusalem District Court. The parties may file an appeal within 30 days of receiving the Commissioner's decision. Third party appeals must be filed within 30 days of the publication of the Commissioner's decision in two daily newspapers. Appeal proceedings may last anywhere between several months to over a year. Antitrust Tribunal decisions may be appealed to the Supreme Court.
In practice, few appeals are filed and fewer reach a decision. This is due to the limited lifespan of many transactions, which become irrelevant due to the length of Antitrust Tribunal proceedings.
What are the recent trends in the approach of the relevant authority to enforcement, procedure and substantive assessment?
Several trends are noticeable in the recent year:
- The Israeli Antitrust Authority does not hesitate to object to mergers, even when the market size is relatively small or when market shares are small but there are few competitors. For example, in the recent household water purifier case, the Israeli Antitrust Authority objected to a merger between competitors no. 2 and 3 in a market where competitor no. 1 held over 90% of the market.
The Israeli Antitrust Authority pursues a policy of vigorous enforcement by means of imposing administrative sanctions. This applies to both gun-jumping and entirely avoiding notification. This trend recently gained support from the Antitrust Tribunal, which upheld a decision to impose an administrative fine on a buyer which injected funds into a company which it intended to acquire, without first receiving the Commissioner's consent to the merger or to the injection of funds.
Are there any future developments or planned reforms of the merger control regime in your jurisdiction?
The Israeli Antitrust Authority has announced its intention to advocate legislation to reform the merger control regime. Among other things, the following changes were suggested:
- Substantive prohibition on mergers which are likely to harm competition or the public, instead of the current per-se legality for mergers that do not meet the filing thresholds.
- Extension of the definition of ‘merger’.
- Increase in filing thresholds.
- The introduction of certain international turnover thresholds.
- The introduction of a "phase II" investigation period, to allow the Israeli Antitrust Authority to extend the 30-day review term without needing to rely on the Antitrust Tribunal decision or voluntary extensions from the merger parties.
The reform was delayed, in part, due to the personal changes which followed the resignation of the former Commissioner, Prof. David Gilo, in August 2015. The New Commissioner, Adv. Michal Halperin, prior to her appointment, expressed the opinion that the filing thresholds should be increased, but criticized other elements of the proposed reform, such as the removal of per-se legality for mergers below the filing thresholds, thereby creating uncertainty and imposing unnecessary costs on the merging parties. It therefore remains to be seen what will become of the Israeli Antitrust Authority's reform proposal in the area of merger control.