Corporate M&A 2025 Comparisons

The last 24 months have been a period of tremendous instability in Israel. The Israeli government’s push for judicial reform led to widespread massive demonstrations, beginning in January 2023. Those demonstrations ceased only after 7 October 2023, when Israel was attacked by Hamas, leading to the conflict in Gaza and Lebanon.

Most analysts predicted that these events would have a chilling effect on M&A activity in Israel. However, both the number and average size of M&A transactions in Israel increased significantly in 2024. In addition, investments in Israeli start-up companies increased by 40% and the number of rounds of financing of Israeli start-ups grew by 15%. These statistics demonstrate the incredible resilience of the Israeli market.

The use of earn-out provisions in M&A transactions involving an Israeli target has grown substantially, appearing in approximately 65% of transactions in 2024 compared to 40% in 2023. This increase reflects both market uncertainty and buyers’ desire to mitigate risk by tying the purchase price to future performance.

The duration of M&A transaction approvals is lengthening. This is due to more rigourous examinations by various regulators of the transaction terms and the extension and deepening of due diligence reviews conducted by the buyer, putting more emphasis on the examination of IP rights, employee matters and supply chains (in light of the wartime conditions of the last year).

Another notable trend has been the growing involvement of sovereign wealth funds in Israeli M&A activity, particularly from the UAE following the Abraham Accords. These investors have shown particular interest in Israeli technology companies, especially those focused on water technology, agricultural technology and healthcare.

In addition, representation and warranty insurance (RWI) has become a common feature in Israeli M&A transactions. After a short pause following the 7 October 2023 attacks, foreign insurers are no longer hesitant to provide RWI in connection with transactions involving Israeli targets, and more and more foreign insurers have started providing RWI.

A number of industries in Israel experienced significant M&A activity in 2024. Cybersecurity remains extremely robust in Israel, and a number of private cyber companies were acquired by overseas market leaders. The most notable transaction in the cyber field that was announced at the beginning of March 2025 was Google's acquisition of Wiz (a private company whose founders are all Israeli and whose technology is developed in Israel) for USD32 billion, marking Google's largest ever acquisition. This transaction further demonstrates the significant interest that international companies have in Israeli cyber companies.

AI companies in Israel have also raised significant amounts of capital and find themselves acquisition targets of large overseas acquisition companies. Additionally, the healthcare technology sector has seen substantial activity, with medical device companies and digital health platforms attracting considerable interest from both strategic and financial buyers.

The defence sector, historically a cornerstone of Israeli industry, showed renewed M&A momentum in 2024, driven by increased global defence spending and the need for advanced technological solutions. Water technology companies also experienced increased M&A interest, reflecting global concerns about water scarcity and Israel’s leadership in this field.

Three structures are commonly used to acquire Israeli companies and each has its own advantages and disadvantages. While tender offers are another potential structure which can be used to acquire all of the issued shares of a public company, they are rarely used primarily because:

• holders of at least 95% of the target company’s issued shares must accept the offer; and
• appraisal rights continue for six months following the closing.

Share Purchase Agreements

Many private Israeli companies are acquired using a share purchase agreement. These transactions are straightforward. The acquirer enters into the agreement with the target company and its shareholders who sell their shares in the target company directly to the acquirer. There are meaningful advantages to this structure, for example:

• only capital gains tax is payable and foreign shareholders are often exempt from capital gains taxes in Israel;
• the target company’s legal entity remains the same; and
• if the circumstances permit, the agreement can provide for a simultaneous sign and close.

However, share purchase agreements are not used for all acquisitions of private Israeli companies. This structure is appropriate for transactions in which shareholders holding 100% of the target company’s share capital or very close to 100%, co-operate in the transaction and sign the share purchase agreement. While the Israeli Companies Law provides for a statutory squeeze-out mechanism, as do the charter documents of many private Israeli companies, the language of the Israeli Companies Law is unclear, and there is no case law in Israel to provide guidance. Accordingly, if there is serious doubt as to the target company’s ability to obtain the approval of all, or substantially all, of its shareholders, acquirers will typically opt for a different structure.

Mergers

The Israeli Companies Law provides the legal framework for mergers, which must be between two Israeli companies. Foreign buyers looking to buy Israeli companies will accordingly need to create an Israeli subsidiary and structure the transaction as a reverse triangular merger. This is the structure used in nearly all acquisitions of Israeli public companies, and of private companies when the circumstances do not allow for a share purchase agreement.

The provisions governing mergers in Israel are clearly set out in the Israeli Companies Law. In order to effect the merger, consent is required from the target company’s board of directors, as well as the holders of a majority of each issued class of shares. If these consents are obtained, no court approval is required and it is important to note that there are no appraisal or dissenters’ rights in Israel.

For Israeli public companies, a reverse triangular merger is the only viable acquisition structure, because the tender offer rules require that holders of no less than 95% of the target company’s shares accept the offer and provide for a right of appraisal for six months following the transaction.

The only real disadvantage of using a reverse triangular merger, and the primary reason they are not used in more acquisitions of private Israeli companies, is that the Israeli Companies Law provides for a period of no less than 50 days between sign and close. Accordingly, there is no flexibility for a simultaneous sign and close, or even a shorter period between sign and close. In addition, the Israeli Companies Law requires the merging companies to provide notices to their creditors, employees and others, so the deal is made public shortly after signing.

Asset Acquisitions

Perhaps the simplest structure for acquiring a company is an acquisition of the target company’s assets. The target company’s shareholders do not need to be parties to the agreement, and in some circumstances shareholder approval of the transaction is not even required. This structure offers a number of other advantages to acquirers. For example:

• the acquirer can pick and choose which assets it wants;
• the target company’s liabilities remain with the target company (other than those liabilities that the acquirer agrees to assume); and
• depending on the jurisdiction of the acquirer and the type of assets acquired, the acquirer may be able to amortise the assets it purchased.

However, there are a few compelling reasons that asset transactions are not more commonly used. Firstly, unlike a share purchase agreement or merger in which the target company’s shareholders are only liable for capital gains tax, an asset transaction involves the target company paying capital gains tax on the sale of its assets to the acquirer and the target company’s shareholders paying capital gains tax upon the distribution of the proceeds from the target company to its shareholders.

In addition, unlike a share purchase agreement or merger in which the proceeds are paid to the target company’s shareholders at closing, the target company’s shareholders will typically need to wait a number of months before receiving the proceeds of an asset transaction.

The primary regulators for M&A activity in Israel are the:

• Israel Tax Authority (the “ITA”);
• Israel Securities Authority (the “ISA”);
• Israel Competition Authority (the “ICA”); and
• Israel Innovation Authority (the “IIA”), in some cases.

In addition, acquisitions of interests in companies in certain types of industries may trigger industry-specific licences or permits. For example, the acquisition of 5% or more of an Israeli bank, insurance company or other financial institution requires government permits. Meanwhile the acquisition of interests in a telecommunications company may trigger a permit requirement from Israel’s Ministry of Communications. Additionally, the State of Israel has the right to restrict the acquisition of interests in natural resources or other essential services.

Israel has no general unified legislation or approval regime for foreign direct investment (FDI). As a result, there are no broad, cross-sector consolidated controls on foreign investments in the country.

Foreign entities can generally purchase and sell assets and securities in Israel at will, and FDI is not categorically prohibited in any particular sector. That said, there are a series of standalone, sector-specific FDI regulations and requirements. These regulations and requirements often relate to investments in companies operating in the public utility and infrastructure fields. FDI requirements may also stem from terms included in government licences, public tenders or concessions.

In addition, under Israeli law there are various restrictions and prohibitions related to anti-terrorism and national security concerns. For example:

• the Israeli State bans all economic activity of Israelis with “enemy states, entities or nationals”, including direct and indirect trade. Iran, Syria, Lebanon and Iraq (with certain exemptions for Iraq) are considered to be “enemy states” by the Israeli State;
• the Israeli State also restricts imports from “non-enemy states” without diplomatic ties with Israel, which require special permits; and
• defence-related exports and knowledge transfer are strictly regulated to protect national security, and the export of certain civilian goods that could have military applications (ie, dual-use goods) is also highly regulated.

Within Israel’s regulatory structure, regulators overseeing a specific sector typically have wide discretion in issuing and revoking licences, concessions and permits. As such, regulators can include specific conditions, restrictions or approval requirements regarding FDI and subsequently alter them as they see fit. The exercise of regulatory discretion, as well as any action by a regulator, is subject to the principle of legality, the rules of the administrative process and the principles of judicial review of administrative discretion.

Alongside the FDI-related obligations that may be implemented in licences, concessions and permits, contractual regulations have become increasingly common in Israel. FDI conditions can also be found in agreements between public and private entities.

A transaction requires prior approval from the ICA Commissioner if:

• it qualifies as a “merger of companies”;
• at least two of the merging parties have a sufficient nexus to Israel; and
• at least one of the three statutory filing thresholds is met.

A “merger of companies” is defined specifically and generally. The specific definition refers to acquiring the target company’s principal assets, or more than 25% of its shares, voting rights, rights to appoint directors or dividend rights. The general definition applies even if these criteria are not met if the transaction creates substantial and ongoing influence between the parties’ decision-making processes. The ICA has increasingly focused on this broader interpretation of the “merger of companies” definition.

The nexus requirement can be met by fulfilling any of the following conditions:

• owning more than 25% (directly or indirectly) of the voting rights, rights to appoint directors, dividend rights or outstanding shares in an Israeli entity;
• having a registered office or being incorporated in Israel; or
• operating a place of business in Israel, either through direct activity (such as a branch office or local employees) or by exercising decisive influence over the commercial decisions of a local agent, representative or distributor.

A “merger of companies” which meets the nexus requirement is reportable if any of the following thresholds are met:

• the combined local turnover of the merging parties, along with the individual local turnover of at least two of the merging parties in Israel, exceeds certain thresholds (currently, ILS414,010,000 for the combined turnover and ILS22,510,000 for each party);
• a party to the merger transaction is a monopoly, defined as an entity that holds a market share exceeding 50% in any defined market in Israel, including any segment or geographical area in which the parties operate in Israel. This threshold can also be triggered by markets unrelated to the transaction; or
• as a result of the merger transaction, the combined market share of the parties will exceed 50% at any level of the supply chain of any relevant market in Israel, including any segment or geographical area in which the parties operate.

The nexus and filing requirements are assessed on a group level, meaning that they encompass all entities that are either controlling or controlled by the merging party, as well as any entities under the control of the ultimate controlling entity, whether directly or indirectly. Control is defined as holding more than 50%.

The Work and Rest Hours Law, 1951, which applies to employees in Israel (unless a specific exemption applies), requires overtime payments if an employee exceeds daily and weekly hour limits.

Additionally, Israeli law requires Israeli employers to monitor and record attendance as well as working hours and overtime of employees. Failure to properly record work hours may expose the company to claims by employees that the actual overtime performed by the employees exceeds the number of hours covered by the global overtime compensation. Companies at times do not correctly treat certain components of compensation as salary (notably commissions), as required for the purposes of severance pay obligations.

As a general rule, Israeli law requires employers to pay severance pay to their employees upon termination of employment by the employer. The amount of severance pay is equal to one month of the current base salary, multiplied by the number of years of employment.

Under Section 14 of the Severance Pay Law, 1963 (“Section 14”), and a general permit issued by the Minister of Industry, Trade and Labour, an employer and employee may agree to limit the employer’s liability for severance pay to those amounts accrued in a severance pay insurance policy, provided that certain pre-conditions are met. The employer must undertake to release the accruals upon cessation of employment in all but the most extreme “for cause” termination situations, including upon resignation of the employee.

In addition, the insurance policy must meet certain criteria, including:

• with respect to disbursements of pension/provident and disability insurance;
• the employment agreement must explicitly specify that the parties have entered into the arrangement; and
• both employer and employee deposits must be made in line with the percentages set out in Section 14.

The Advisory Committee for Evaluating National Security Aspects of Foreign Investments (the “Advisory Committee”) was formed in 2019 to examine foreign investments from a national security perspective, in a centralised way. It began its work in 2020, establishing a mechanism to handle regulator queries concerning transactions that may give rise to national security considerations. This ensures more encompassing and effective scrutiny of national security concerns across those sectors that the government views as critical to the economy and national security.

Although substantial oversight powers over national security considerations in foreign investments are included in existing legislation, the Advisory Committee has authority to review transactions that are not subject to FDI regulatory requirements. While the Advisory Committee published a general methodology and guidelines in August 2024, as of now the transactions that it has reviewed and its recommendations have not been made public.

For additional national security-related restrictions please see 2.3 Restrictions on Foreign Investments.

Class Action: Nestlé-Osem Merger Deal (December 2021)

This was a class action lawsuit in which unfair pricing was alleged regarding a “going-private” merger between Osem and its controlling shareholder, Nestlé. The allegation was based on conflicts of interest and procedural flaws in the work of the independent board committee appointed by Osem to oversee the merger.

The Supreme Court of Israel ruled that, when negotiations for a transaction with a controlling shareholder are conducted independently through a special committee (which will consist solely of external and independent directors), and the transaction is approved by the audit committee, the board of directors, and the general meeting by a special majority that excludes interested parties, a rebuttable presumption of fairness arises, indicating that the transaction is fair (ie, “the business judgement rule”).

However, if it is found that significant flaws exist in the work of the independent committee, the court may exercise judicial review. This ruling strengthens the protection of the special independent committee’s work and the incentives for its establishment, while raising the threshold required to demonstrate flaws in its conduct.

Proposed Amendment No 37 to the Israeli Companies Law will introduce significant changes to corporate governance, particularly in public companies without a controlling shareholder, which may affect takeover matters.

Key changes include, inter alia:

• setting a rebuttable presumption of control for shareholders holding 25% (if no one holds 50%);
• replacing the requirement for two external directors with a majority of independent directors;
• limiting director terms in public companies to three years, with most of the board expected to change within two years. The Proposed Amendment may limit the ability of companies to adopt takeover protections such as the “staggered board” mechanism; and
• requiring an audit committee and board approval for major transactions with shareholders holding 10% or more.

Under Israeli law, several provisions limit a buyer’s ability to quietly accumulate shares in a public company before launching an official offer. Specifically, any acquisition that would result in the purchaser holding:

• more than 25% of shares (when no other shareholder holds at least 25%); or
• more than 45% of shares (when no other shareholder holds at least 45%) must be conducted through a special tender offer process, which is subject to specific regulatory requirements.

Furthermore, in the context of a partial tender offer, the offeror is required to disclose whether it has any commitments or intentions to increase its holdings in the company (see 4.6 Transparency).

Additionally, bidders building a stake in a target company are subject to the disclosure obligation mentioned in 4.2 Material Shareholding Disclosure Threshold.

Under Israeli securities laws, any person who acquires 5% or more of the shares or voting rights in a public company must:

• disclose their identity and detailed holdings information to the company; and
• report all subsequent purchases or sales of the company’s securities.

This information becomes publicly available through the company’s mandatory disclosures to the market.

Israeli law does not permit public companies to modify the mandatory 5% reporting threshold for substantial shareholders through corporate documents or by-laws. This requirement is statutory and cannot be waived or altered.

Additional quantitative limitations apply to tender offers as detailed in 4.1 Principal Stakebuilding Strategies, creating further structural hurdles to stakebuilding.

As a general rule, there is no prohibition on independent trading in derivatives is Israel. However, certain restrictions may apply regarding the provision of advice/marketing related to derivatives, or trading with Israeli clients (such as in a trading platform), which are regulated financial activities and require appropriate licensing in Israel.

Any interested party in a public company (ie, holders of 5% or more of shares or voting rights) is required, among other things, to disclose to the company its holdings in derivative securities, the value of which is derived from the value of the public company’s securities.

Additionally, there are certain provisions set by the ISA regarding the disclosure of holdings in the shares of a public company that are subject to SWAP transactions, except for SWAP transactions that are solely for the purpose of acquiring financial exposure or do not result in crossing the mandatory reporting thresholds (such as the 5% threshold for interested parties).

Under Israeli law, in the context of a partial tender offer, the offeror must disclose:

• any commitment to make another purchase of shares in the target company or a merger of the target company, within one year;
• any intention to make another purchase of shares in the target company, within six months; and
• any significant plans for the target company, such as delisting, changes to corporate policies, capital changes or changes to the board or management.

Israeli securities law requires public companies to disclose any transaction that could materially impact the company or its stock price. For significant asset acquisitions, disclosure is generally required at multiple stages, namely:

• when negotiations commence;
• upon signing a preliminary agreement (LOI); and
• upon executing the definitive purchase agreement.

However, the company is allowed to delay reporting on the negotiations prior to entering into the LOI, provided that no information about the deal has been publicly disclosed. Public companies that are dual listed on certain exchanges will be allowed to operate according to the reporting obligations of the exchanges they are traded on.

Disclosure on a deal can be delayed if its submission is likely to prevent the completion of the deal or significantly worsen the terms of the deal, provided that no information about the deal has been published in the media. Companies often tend to use this exception to postpone the disclosure of negotiations they are conducting until they are close to signing a definitive agreement.

Buyers usually conduct business, accounting and legal due diligence. The scope of due diligence is determined according to the size and complexity of the deal. When it comes to the acquisition of a public company, the scope of due diligence is typically more limited compared to the acquisition of a private company, as most of the material information is already reported to the stock exchange as part of the public company’s reporting obligations.

A buyer negotiating the acquisition of a private company will usually receive exclusivity for a certain period agreed upon by the parties, as a condition for conducting the negotiations. For a public company, it is also common to grant exclusivity for a limited period to conduct negotiations and perform due diligence.

However, in cases where a tender offer is submitted, or the company wishes to hold an auction, the seller may reach a standstill agreement with a potential buyer to allow flexibility in negotiating with additional bidders. Recently, in the context of public company transactions involving the acquisition of control, “fiduciary out” mechanisms have been used, granting the board of directors the authority to terminate an existing deal in light of a superior offer from another buyer.

It is not common for the terms of a tender offer to be documented in a definitive agreement. However, it is permissible to do so. A public company receiving a tender offer to purchase its shares is required to publish a report to the stock exchange detailing the terms of the tender offer.

With the exception of a reverse triangular merger (which the Israeli Companies Law sets out minimum time periods for) there are no minimum or maximum time periods for acquiring or selling a business in Israel. If the circumstances permit, the acquisition can sign and close simultaneously.

With respect to statutory mergers, the Israeli Companies Law provides that the merger may not be consummated until the later of:

• 50 days following the filing of a merger notice by the merging companies with the Israeli Registrar of Companies (which is not filed until the merger agreement is executed); and
• 30 days following the approval of the merger by the shareholders of the merging companies.

Accordingly, it typically takes nearly two months at least following signing to consummate a statutory merger in Israel.

The Israeli Companies Law provides that holdings of certain thresholds in public companies may only be obtained through a special tender offer. A purchaser who wishes to acquire a 25% interest in a public company may only do so by way of a special tender offer for at least 5% of the company’s shares. This requirement does not apply if the target company already has a shareholder holding of at least 25% of the target’s shares.

Similarly, a purchaser who wishes to exceed the 45% threshold may only do so by way of a 5% or more special tender offer, unless there is already a shareholder of the target company holding at least 45% of the target company’s shares.

Israeli law does not dictate the type of consideration which can be used to make an acquisition. While cash is most commonly used, shares of the acquirer or a combination of cash and shares are both permissible and not uncommon. Earn-outs are frequently used in acquisitions in Israel to bridge valuation gaps.

Depending on the circumstances of the parties to a transaction, various regulatory consents may be required in order to consummate the transaction. The size of the transaction and the market share of the parties may also trigger a requirement to obtain the approval of the ICA.

If the target company has received funding from the IIA or tax benefits from the ITA pre-approval may then be required in order to consummate the transaction. Furthermore, if a research and development grant from the IIA has been received by the target company, and the acquirer wants to transfer the target company’s IP out of Israel, an additional payment will likely be required by the IIA.

If the acquirer is using securities as consideration, then the target company will typically seek a ruling from the ITA deferring payment of taxes and, if no exemption applies under Israeli securities law, the acquirer will need to file a prospectus in Israel.

The Israeli Companies Law provides that, in order to acquire 100% of the issued shares of a company by way of a tender offer, shareholders holding at least 95% of the issued share capital must accept the offer.

Additionally, as noted in 6.2 Mandatory Offer Threshold, a purchaser that wishes to acquire a 25% interest in a public company may only do so by way of a special tender offer for at least 5% of the company’s shares. This requirement does not apply if the target company already has a shareholder holding of at least 25% of the target company’s shares.

Similarly, a purchaser that wishes to exceed the 45% threshold may only do so by way of a 5% or more special tender offer, unless there is already a shareholder of the target company holding at least 45% of the target company’s shares.

A business combination can be conditional on the bidder obtaining financing. Israeli law does not prevent an acquirer from subjecting the transaction to a condition that the acquirer obtain financing to support the transaction.

Break-up fees are common in acquisitions of Israeli public companies. There is no clear Israeli statute or case law addressing “fiduciary outs” in Israel. Many Israeli practitioners believe that, in the absence of any clear restrictions, a board of directors of an Israeli company has the authority to agree to a limited no-shop period as part of the negotiations to finalise a transaction.

Others believe that, if an Israeli court were presented with the issue, it would look to Delaware law for guidance and may require the board of directors to retain the flexibility to accept superior offers.

There have been no real changes to the regulatory environment that have impacted the length of interim periods.

Israeli law does not restrict the governance rights that shareholders may agree to. Accordingly, a bidder buying less than 100% ownership of a target company may seek to appoint members to the target company’s board of directors and may require that the target company refrain from certain actions or decisions without the bidder’s prior written consent.

Shareholders can vote by proxy in Israel and voting by proxy is commonly used by shareholders in Israel.

As noted in 2.1 Acquiring a Company, tender offers are rarely used to acquire all of the issued shares of a public company in Israel for two primary reasons:

• holders of at least 95% of the target’s issued shares must accept the offer; and
• appraisal rights continue for six months following the closing.

A statutory merger (requiring the consent of the holders of a majority of each class of shares of the merging company) is typically used instead to acquire Israeli public companies, as well as certain private companies.

With respect to private companies, the Israeli Companies Law creates a squeeze-out mechanism pursuant to which, if the holders of at least 80% of each class and series of a target’s share capital agree to sell their shares, the remaining shareholders can be forced to sell their shares as part of the transaction.

The Israeli Companies Law additionally provides that the 80% threshold can be changed by the shareholders of a company in the company’s charter. However, the statutory squeeze-out provision is drafted unclearly and there has been no case law interpreting it. As a result, many acquirers are reluctant to rely on it and opt to use a statutory merger if there is a concern that not substantially all of the target company’s shareholders will support the transaction.

It is common for acquirers to require principal shareholders to sign supporting agreements undertaking to vote in favour of the transaction.

Bid disclosure obligations and timing vary, depending on the type of transaction and entities involved.

Public Companies

Acquisitions

Disclosure is typically required upon the signing of a memorandum of understanding or a definitive agreement (depending on the material nature of the deal). If the transaction is material, disclosure may be required once key terms are agreed upon.

Mergers

Disclosure is required when the board approves the merger, or earlier if a preliminary agreement is signed.

Tender offers

The parties to a tender offer must publish a tender offer description upon submitting the offer, or earlier if a preliminary agreement exists.

The relevant reports are submitted to the ISA and the Tel Aviv Stock Exchange (the “TASE”) and made publicly available.

Private Companies

In the case of a merger, there is an obligation to inform the public and creditors about the intention to carry out the merger, a certain period in advance. Otherwise, as a general rule, no immediate disclosure is required.

Should a deal result in changes to the corporate details (such as changes in the company’s capital, board of directors, articles of association, etc), the parties are required to notify the Israeli Registrar of Companies of these changes shortly after the transaction. The Registrar’s records are publicly accessible.

In the case of a company issuing its shares to the public for the first time (ie, an initial public offering), or a public company wishing to issue additional shares to the public, the company is required to publish a prospectus that includes extensive information about the offering, as well as the company’s activities and financial results. This prospectus is subject to approval by the ISA and the TASE, if the shares are listed for trading on the TASE.

In the case of a public company conducting a private placement, it is required to publish a private placement report that includes certain details about the issuance, such as the number of shares issued, the offerees, price, and more, depending on the type of the private placement (regular/material/extraordinary). For example, in the case of a material/extraordinary private placement, if the issuance is made as part of a transaction, the company is required to disclose details about the transaction and its terms.

Where the acquirer of shares in a public company is the controlling shareholder, the report on the transaction must include additional information.

In private companies, any issuance of shares requires an update to the Israeli Registrar of Companies, shortly after it is completed.

In general, a bidder in a tender offer is not required to include financial statements in their offer, unless the consideration in the tender offer is in securities. In this case, the tender offer must include a prospectus that has been approved by the ISA, which includes the financial statements of the relevant company.

The financial statements included in the prospectus must be audited/reviewed in line with the International Financial Reporting Standards (IFRS). In certain circumstances, there may also be an obligation to include pro forma financial statements (for example, in the case of a significant business combination or the sale of a substantial part of the company’s operations).

In the case of a public company acquiring securities or assets of another company, the acquiring company is required to include key financial details of the acquired company in the transaction report. This includes information about total assets and liabilities and revenue and profit of the acquired company and must specify the accounting principles used to reach these figures.

In general, there is no obligation for a public company to disclose full copies of transaction documents in its reports. However, there are two main exceptions: financial statements and valuation reports of the target company. In certain circumstances, there is an obligation to include these in the company’s public reports.

Additionally, the ISA has the authority to require disclosure of certain documents in full, in special ad hoc cases where the ISA deems this to be necessary for proper disclosure to the public.

It is worth noting that, despite this, in cases where extensive or sensitive disclosure is required, such as in a transaction with a controlling shareholder, some companies voluntarily elect to disclose full copies of certain transaction documents, such as the purchase agreement.

Under Israeli law, directors are subject to a general duty of care and a duty of loyalty towards the company, including in the context of approving M&A transactions. As part of these duties, the board must exercise independent judgement, acting solely in the best interests of the company (and not, for example, in favour of a particular shareholder), by thoroughly assessing the prospective transaction, including considering terms, risks, effects and alternatives.

In the context of a special tender offer, the board of directors of the target company is required to provide its opinion regarding the fairness of the offer to the offerees (and if it is unable to do so, it must specify the reasons). The board must also disclose in advance any personal interest that any of its directors may have in the tender offer or in connection therewith.

A director of the target company who acts with the intention of thwarting the tender offer may be held liable for damages to the bidder and the offerees, unless the director acted in good faith and had reasonable grounds to believe that their actions were in the best interests of the company.

Although not legally required, in recent years, there has been growing use of independent special or ad hoc committees in Israel to negotiate significant transactions involving controlling shareholders. Their purpose is to ensure a fair, market-like process that secures the best terms for the company, simulating an arm’s-length negotiation with an unrelated party.

The use of independent special committees for approving transactions with controlling shareholders (mainly in “going-private” transactions) has increased following several court rulings, which established that if a company appoints an independent committee that conducts effective and unbiased negotiations, the business judgement rule will generally apply in judicial review of the transaction. This serves to limit the scope and standard of scrutiny over the transaction approval process (see 3.1 Significant Court Decisions or Legal Developments and 8.3 Business Judgement Rule).

The common practice is that such an independent special committee will consist solely of external and independent directors, who have no conflicts of interest or ties to the controlling shareholder or the transaction.

The Supreme Court of Israel has embraced the business judgement rule with respect to judicial review of board decisions. According to this rule, decisions made by the board are presumed valid and protected from judicial review, provided that the decision was made without conflict of interest, in good faith and based on all relevant information.

This rule generally applies to board decisions regarding M&As, as well as transactions with controlling shareholders, provided that an independent special committee is established, as mentioned in 8.2 Special or Ad Hoc Committees.

As a general practice, the company’s legal counsel, whether external or in-house, advises the directors on various corporate governance matters, including regarding business combination issues. It should be noted that, under Israeli law, a director has the right to appoint independent professional advisors (including legal counsel), at the company’s expense, in “special cases” where they deem it necessary, subject to board or court approval. This right is rarely exercised.

However, the appointment of external advisors is common in the context of an independent committee reviewing transactions with a controlling shareholder (as noted in 8.2 Special or Ad Hoc Committees). To ensure an informed and independent decision-making process, these committees typically engage professional advisors, including legal and financial experts.

Under Israeli law, officers and directors are required to refrain from conflicts of interest and act in the company’s best interests. In addition, transactions involving conflicts of interest may be subject to strict approval mechanisms and enhanced disclosure obligations. In recent years, courts in Israel have conducted quite extensive judicial review of the conduct of shareholders (due to the absence of their obligation to report on personal interest), as well as of officers and directors in conflict of interest situations, both in private and public companies.

This scrutiny is particularly rigourous in cases of a transaction between a company and its officers or controlling shareholders, which fails to meet the applicable legal requirements (for example, transactions against the best interests of the company), or which may prejudice the rights of minority shareholders.

Under Israeli law, there is no prohibition against conducting a hostile tender offer, as long as the tender offer complies with the relevant regulations. In the case of a full tender offer, there is a requirement to obtain a special majority of 95% of the shareholders to enforce the sale on minority shareholders, along with a right of shareholders to appeal to the court regarding the price in the tender offer within six months, which reduces the attractiveness of these deals.

Furthermore, in many public companies, there is a controlling shareholder holding more than 50% of the share capital, which significantly reduces the likelihood of a successful hostile tender offer.

As mentioned in 8.1 Principal Directors’ Duties, in the case of a special tender offer, the board of directors is required to express its opinion on the fairness of the offer price (or explain why it cannot do so), and it must also disclose any personal interest it has in the offer. Additionally, directors are prohibited from acting to thwart the tender offer.

Furthermore, when discussing and approving transactions involving the company (such as M&As), directors are obliged to act in the best interests of the company and in line with their fiduciary duties (see 9.4 Directors’ Duties). Therefore, if the board believes that a certain transaction is not beneficial to the company, it may exercise its power and reject it and/or recommend the company’s shareholders reject it, as applicable.

Hostile takeover prevention mechanisms do exist in Israel, including a “staggered board” and “poison pill”. However, these are mainly used in private companies due to legal restrictions on their implementation in publicly traded companies on the TASE, which are only permitted to issue one class of shares.

However, regarding the “staggered board” mechanism, the ISA has previously allowed companies to adopt a mechanism in which only one-third of the board can be replaced each year, for up to three years following an initial public offering.

The board must act in the company’s best interests, adhering to its fiduciary duty and duty of care. Consequently, the board must provide justification for its support or opposition to the deal once it is finalised. Any refusal based on personal reasons will be deemed a breach of fiduciary duty.

Directors are subject to fiduciary duties and must act solely in the best interests of the company, while disclosing any personal interest in the proposed transaction. Therefore, when a director wishes to reject a particular transaction, they are generally required to provide the main reasons for their rejection.

It is relatively common for M&A-related disputes involving public companies to be resolved through litigation. The primary causes of these legal disputes include:

• disputes over deal pricing and other fairness considerations, particularly those related to prejudice to minority shareholders’ rights; and
• claims regarding defects in the transaction approval process, such as failure to obtain the necessary approvals from the required corporate bodies (especially in transactions involving a controlling shareholder and other related parties).

A dispute will generally go to litigation when the company discloses information about the deal and the public is made aware of the transaction. The key time points are:

• when the report about the transaction is published (mainly in public companies); or
• when the definitive documents are signed (mainly in private companies).

The COVID-19 pandemic severely disrupted the global economy and created significant uncertainty in the M&A landscape, leading to disputes in pending transactions. One major takeaway was the increased scrutiny of force majeure clauses, as parties sought to invoke them to escape contractual obligations. This underscored the need for more specific and comprehensive clauses explicitly addressing pandemics and similar crises.

Additionally, the COVID-19 pandemic emphasised the importance of thorough due diligence beyond financial and operational factors, encouraging buyers to assess a target’s resilience, supply chain vulnerabilities and adaptability to unforeseen challenges.

Another critical lesson was the importance of well-drafted material adverse change (MAC) clauses, which define when a party can exit a deal due to significant negative changes. The COVID-19 pandemic exposed ambiguities in these clauses, reinforcing the need for precise language that clearly delineates the circumstances under which a deal can be terminated.

In recent years, shareholder activism has emerged as a significant force in corporate governance matters in Israel. Institutional investors have become the predominant activists, exercising influence through direct engagement with management and participation in annual meetings. Their focus is mainly on limiting executive compensation.

An interesting trend that has gained ground in the last year is the extension of activism to involvement in controlling shareholder deals (where there must be a majority of shareholders who do not have a personal interest in approving the deal), with the aim of improving the terms of the deal for the benefit of minority shareholders. In a few cases, this has even led to the company having to terminate the deal with the controlling shareholder due to the inability to reach an agreement with institutional investors on the terms of the deal.

The Israeli market is characterised by concentrated ownership and control through dominant shareholder blocks. Under the prevalent control structure, controlling shareholders hold majority voting rights, giving them dominant influence over board composition. As a result, the power of activist investors remains restricted to corporate governance matters and controlling shareholder deals, limiting their influence to encourage companies to enter into M&A transactions, spin-offs and other major divestitures.

It is very rare for activists to interfere with the completion of a transaction after it has been announced. In cases where a majority of the minority shareholders are required to approve the transaction, such as in controlling shareholder transactions or executive compensation approvals, the discussion between the company and activists takes place before the transaction is announced, subject to confidentiality, and before the transaction is brought to a meeting of the shareholders for approval.

In rare cases, due to opposition from activists to approve a controlling shareholder transaction, the company is forced, after the transaction terms are announced, to reopen negotiations with the controlling shareholder, in order to improve the terms for the minority shareholders.