1. Relevant Authorities and Legislation1.1 What regulates M&A? The acquisition of publicly-traded Israeli companies is governedprimarily by the Companies Law, 5759-1999 (the "CompaniesLaw") and the Securities Law, 5728-1968 (the "SecuritiesLaw"). In particular: Sections 314 to 327 of the Companies Law deal with acquisitionsby way of merger. These sections are augmented by the CompaniesRegulations (Merger), 5760-2000. Acquisitions by way of tender offer are governed by Sections336 to 340 of the Companies Law, and by the Securities Regulations(Tender Offer), 5760-2000. Acquisitions by way of a court-approved merger or similararrangements are governed by Sections 350 and 351 of the CompaniesLaw, as well as by the Companies Regulations (Application forSettlement or Arrangement), 5762-2002. The Securities Regulations (Periodical and Immediate Reports),5730-1970 govern the reporting obligations of public Israelicompanies that are party to a merger. In the event that securities, and not cash, are used asconsideration for an acquisition, then the provisions of Section 15of the Securities Law dealing with the requirements for aprospectus are also implicated. Additional regulatory schemes also play a role in regulatingacquisitions (see question 1.4 and question 2.12 below). Please note that often companies known to the business world as"Israeli companies" are in fact companies organised underthe laws of the State of Delaware or other jurisdictions, operatingin part through Israeli subsidiaries. In these cases, theacquisition would be governed primarily by U.S. law, but some ofthe various regulatory approvals described below may neverthelessbe required. 1.2 Are there different rules for different types of publiccompany? For the most part, the acquisition of an Israeli public companywill be structured and implemented in the same manner regardless ofwhether the company trades solely on the Tel Aviv Stock Exchange(TASE) or trades on a foreign exchange. However, Israeli companiesthat are traded solely overseas, or that are dual-listed on theTASE and on a recognised non-Israeli exchange, may benefit fromcertain dispensations: Foreign/dual-listed companies need not conform with the Israelilaw requirements for a Special Tender (see question 5.1 below)where the relevant foreign law places limitations on suchcompanies' tenders for acquiring control of target companies,or where acquiring control obligates the offeror to make a tenderto the shareholders among the general public. [Note that U.S. lawis not deemed to comply with these requirements.] Under new regulations, Israeli law requirements concerningproxy statements need not be followed where shareholders will beprovided with proxy statements pursuant to applicable foreignlaw. The reporting requirements under the Securities Regulations(Periodic and Immediate Reports), 5730- 1970 do not apply toIsraeli companies traded abroad or dual-listed, although theforeign filings of dual companies are required to be filed inIsrael as well. 1.3 Are there special rules for foreign buyers? In general, there are no inward investment restrictions andforeign buyers are encouraged to invest in Israeli companies.However, there are certain restrictions on the ownership bynon-Israeli entities or persons of interests in Israeli companiesin certain sensitive industries (see question 1.4 below). Inaddition, nationals of some countries that are, or have been, in astate of war with Israel, may not own securities in Israelicompanies. 1.4 Are there any special sector-related rules? There are a number of specific industrial sectors withregulatory requirements that would affect the process of anacquisition: The acquisition of 5% or more of the shares of a bank or a bankholding company requires a permit issued by the Governor of theBank of Israel after consultation with the Bank of Israel'sLicensing Committee. The acquisition of 5% or more of the shares of an insurancecompany requires a permit from the Superintendent of InsuranceBusinesses. The acquisition of certain percentages in companies providingtelecommunications services may require a licence from the Ministryof Communications. The acquisition of 5% or more of the shares of El Al (theIsraeli national air carrier) requires a permit from thegovernment. In certain cases regarding the acquisition (primarily by meansof privatisation of government companies) of companies controllingnatural resources or essential services, the State of Israel willretain certain veto rights and other powers. See also the discussion in question 2.12 below regarding generalconsents and regulatory approvals that may be required in anacquisition transaction. 1.5 What are the principal sources of liability? Liability, for the most part, will derive from failure toaddress the technical rules that apply to the tender offer processand to any misrepresentation made by an offeror in offer documents.There are additional rules of general application that apply tosuch matters as insider trading and market manipulation. Civil andcriminal sanctions can apply to companies and to their directorsand officers. 2 Mechanics of Acquisition 2.1 What alternative means of acquisition are there? There are three primary procedures to gain 100% of the shares ofa public company: Reverse Triangular Merger. Since the coming into effectof the Companies Law in 2000, the reverse triangular merger hasbecome the most common way for a non-Israeli company to gain fullownership of an Israeli public company. The acquirer typicallyestablishes a wholly-owned subsidiary in Israel ("MergerCo"). Merger Co merges with and into the Israeli targetcompany, with the Israeli target surviving the merger and becominga wholly-owned subsidiary of the acquirer. The considerationpayable to the shareholders of the Israeli target company may becash or the acquirer's stock, or a combination of the two. Theboard of directors and the shareholders of the target company needto approve the transaction in the manner set forth in question 2.12below. Tender Offer. The acquirer makes an offer to purchasesome or all of the shares of the target company. The offer may beconditioned upon successful acquisition of all of the shares of thetarget company. If the requisite majority of target shareholdersapprove, then the acquirer can acquirer 100% of the shares of thetarget. Two problems render this procedure impractical at best ifthe goal is to acquire all of the shares of the target:first, the holders of 95% of the issued and outstandingshares of the target (not 95% of the shares of respondingshareholders) must respond positively to the offer, a percentagethat most investment bankers and other advisers find daunting;second, target shareholders, whether or not they acceptthe tender offer, have a three-month window, following consummationof the transaction, to apply to the court to challenge the fairnessof the transaction. These problems are not as acute if the goal isto acquire control, and not necessarily full ownership, of thetarget. Court-Approved Merger. Sections 350 and 351 of theCompanies Law appear, on their face, to deal with arrangementsbetween companies and their creditors and shareholders. However, onthe basis of certain English precedents, these statutes have beenused to effect mergers between two companies. The procedurerequires two applications to the court: one to authorise theconvening of a special meeting of the shareholders and creditors ofthe target company; and a second to approve the arrangement reachedby the creditors and shareholders. In the current regulatoryclimate, this procedure, although cumbersome and requiring courtapproval, enables the parties to surmount certain difficultiesposed by Israeli securities law. See question 2.6 below. Tender offers aimed at acquiring control, but not fullownership, of the target are discussed in question 5.1 below. 2.2 What advisers do the parties need? Typically, in order to execute an acquisition transaction, theparties will need the following advisers:...
Mergers And Acquisitions Update Israel
|Author:||Mr Barry Levenfeld|
|Profession:||Yigal Arnon & Co|
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