Merger Control 2019

Last Updated August 05, 2019

Israel

Law and Practice

Authors



Goldfarb Seligman & Co Law Offices is one of Israel’s largest law firms and is among the elite group of firms that deliver top-tier legal services at international standards. The professional hallmark of the firm, which traces its history back over 80 years, is the unrelenting pursuit of the highest professional and ethical standards in the service of its clients. Goldfarb Seligman provides legal counsel in antitrust, competition and regulation matters to companies and corporations, from swift solutions of specific issues to setting long-term regulatory strategies. The firm also advises on antitrust and competition aspects arising from transactions, and represents local and international clients in these matters. Goldfarb Seligman's antitrust and competition department provides comprehensive strategic advice in the fields of antitrust and competition, as well as in the regulation field. The attorneys’ deep understanding and broad knowledge of the field, partially derived from long years of public service in senior regulatory positions, alongside the attorneys' close working relations with various regulatory authorities, allow the department's legal teams to provide top-tier legal-strategic counsel to clients.

Under Israeli law, mergers are supervised pursuant to the Economic Competition Law, 5748-1988 (the Law) and the regulations promulgated pursuant to it. The most relevant regulation is the Regulation of Restrictive Trade Practices (Prescription Publication and Reporting of Transactions), 2004.

The Israeli Competition Authority (ICA) and the General Director that heads the ICA (the General Director) have published several additional documents regarding mergers, including the following:

  • Guidelines of the General Director of the Israel Antitrust Authority for Reporting and Evaluating Mergers Pursuant to the Restrictive Trade Practices Law, 1988;
  • the General Director's Opinion Regarding Remedies to Mergers Raising a Reasonable Likelihood of Substantial Harm to the Competition;
  • the General Director's Guidelines to a Competitive Assessment of Horizontal Mergers; and
  • the procedure for handling mergers that clearly do not establish a reasonable likelihood to harm competition (see 3.11 Accelerated Procedure).

There is no legislation that is relevant for foreign transactions, or investment relating to particular sectors.

The ICA is the relevant competition authority in Israel. The ICA is an independent governmental agency headed by its General Director.

In cases in which a pre-merger notification is filed to the ICA and the activity of merging parties falls under the jurisdiction of one of the government ministries, the General Director shall forward a copy of the application to the director-general of such ministry.

The Antitrust Tribunal (the Tribunal) is an administrative court that hears appeals on the General Director’s merger decisions (for elaboration regarding the appeal process, see 8.1 Access to Appeal and Judicial Review).

Prior to clearing a merger, the General Director is obliged to consult with the Committee for Exemptions and Mergers, comprised of representatives from the government and the public. Although there is no legal duty to consult with the committee prior to blocking a merger, in practice its advice is also sought when a negative decision is considered.

If the filing thresholds are met, notification is compulsory. Usually, if one of the filing thresholds is met, there are no available exceptions. The only exception is if only the monopoly threshold is met (for elaboration regarding the filing thresholds, see 2.5 Jurisdictional Thresholds). In such cases, if the monopoly is in a market that is not related to the market in which the merger takes place, an exemption from filing could be provided by the ICA. Obtaining such an exemption requires a request from the ICA in which the parties explain the specific circumstances of the transaction and the lack of any linkage to the monopoly.

According to the Law, failure to notify is a criminal offence, punishable by imprisonment and fines. In practice, however, mergers that are not horizontal will be enforced by administrative fines in lieu of criminal means. With respect to horizontal mergers, while criminal enforcement is a possibility, it is not likely that a technical failure to notify mergers that do not harm competition would be enforced by such means.

Administrative fines could amount to up to 8% of the company's previous year revenues with a ceiling of ILS100 million.

In addition, personal administrative fines of up to ILS1.035 million are possible.

If the Tribunal is of the opinion that there is a reasonable likelihood that competition in the relevant sector would be significantly harmed or that the public would be injured, as a result of a merger made contrary to the provisions of the Law, it may order to hold separate the merged companies (ie, 'unscramble the eggs'). In practice, the Tribunal has applied this authority only once (Prinir – Miloz case, 2009).

In addition, private enforcement is available to aggrieved third parties, including by way of injunctions.

The ICA has once before applied criminal sanctions due to failure to file. It should be noted, however, that the specific case included a long line of violations of the Law, including with regard to abuse of monopoly and restrictive arrangements.

In March a consent decree at the sum of ILS338,000 was agreed upon between the ICA and a foreign company, for failure to notify a foreign-to-foreign merger. The relatively low sum reflects both the fact that it was the first time that a foreign company was fined for failing to file a merger notice and the fact that the parties agreed to a consent decree. This should be viewed as a step-up in the ICA's enforcement with regard to foreign-to-foreign mergers and it is highly likely that the future enforcement would be made with higher fines.

Penalties that are imposed by the ICA are made public. There are three alternative paths in which the ICA's penalties for failing to notify would become public. The first is the ICA's public notification that it is conducting a hearing with regard to the violation of the Law (the ICA would not make such a notification in all cases). The second is that a consent decree would be agreed upon between the ICA and the parties, after which the ICA would make it public. The third is the ICA's formal decision to impose penalties.

'Corporate mergers' are defined in the Law as including the acquisition of any of the following: more than a quarter of the nominal value of the issued share capital, or of the voting power, or the power to appoint more than a quarter of the directors, or participation in more than a quarter of the company's profits.

Nevertheless, this is not a 'closed list'. According to the ICA's guidelines, the definition of corporate mergers covers “all transactions that give one company a substantial structural link to another company (or which strengthen an existing link, in a not inconsequential manner), whatever the formal structure of such transaction and whatever technique is used to create such link”.

According to the ICA's guidelines and several General Director's decisions, a corporate merger exists when one company receives a foothold in another company's decision-making mechanism. For instance, in light of this standard, the appointment of a joint CEO could be regarded as a corporate merger.

According to the ICA's policy, any crossing of a 25% threshold will be considered a corporate merger. Thus, a transaction in which a company holding 20% of the voting rights in a different company acquires an additional 10% will be considered a corporate merger as it crosses the 25% threshold. In a similar manner, a voting agreement between two shareholders, each holding 15% of the company's shares, in which they agree to use their voting powers jointly would be deemed a corporate merger, due to the fact that together, these shareholders would exceed the 25% threshold.

With regard to internal restructurings or reorganisations, the ICA's policy is not to demand filing when the rights in all of the involved entities (ie, the transferring and the receiving) are held entirely by the same entity.

Due to the definition of a corporate merger, the definition of control does not play a role in determining which transactions will be caught.   

As mentioned in 2.3 Types of Transactions, any crossing of the 25% threshold with respect to each of the criteria defined thereto will be considered a merger.

It is possible that in cases in which more than 25% of any of such rights are sold, filing will be required even if each of the purchasers, by itself, did not acquire more than 25% of any such right. The ICA views acquisitions made by different entities as a shared purchase in an array of circumstances, especially when voting agreements exist between such purchasers.

Finally, it is important to note that in several cases the ICA position was that a transaction in which less than 25% of an interest in a competitor has been acquired does not amount to a merger, but might nevertheless be considered a restrictive arrangement.

The jurisdictional thresholds for filing merger notifications apply if, and only if, both parties have sufficient presence in Israel. (For elaboration regarding the presence requirement, see 2.4 Definition of 'Control'.)

In such cases, filing would be required if any of the following thresholds applies:

  • one of the merging companies is a monopoly in any market in Israel (where 'monopoly' is defined as "a person that controls more than one half of the total supply or acquisition of an asset or a service within the relevant Israeli market");
  • as a consequence of the merger, the market share of the merging companies in the production of a certain asset/service and of similar assets/services, or in the provision of a certain asset/service and of similar assets/services, will exceed one half (thus creating a monopoly under the above-mentioned definition); or
  • the total turnover in Israel of the merging companies in the previous financial year exceeds ILS360 million and the turnover in Israel of at least two companies that are a party to the merger is not less than ILS10 million each (the ICA has stated its intention to update the ILS10 million threshold to ILS20-25 million, but there is no clear timeline for this change).

Both the market share and the turnover thresholds are not limited solely to the merging entity but rather also include any entity that controls it, directly or indirectly, and any entity that is controlled by both the latter and the merging entity.

For this purpose, 'control' is possession of more than half of (i) the right to vote at the general assembly of a company or the equivalent body of another corporation, or (ii) the right to appoint the directors of a corporation.

In the case of a merger with an entity that conducts business in and outside Israel, the provisions regarding the jurisdictional thresholds apply only to the entity's turnover, or market share, in Israel.

While there are no clear guidelines with regards to the conversion of foreign currency, in practice it is converted according to the official rate published at the time of the transaction.   

Both the market share and turnover thresholds are not limited solely to the merging entity but also to any entity that controls it, directly or indirectly, and any entity that is controlled by the latter or the merging entity.

According to the General Director's guidelines, the seller’s turnover does not need to be included with that of the target in cases in which the seller sells its entire stake in the target and post-merger it will have no links to the target. In all other cases, the seller’s turnover will be included with that of the target.

The Law is a territorial law; however, it can apply to foreign-to-foreign mergers if presence in Israel exists. The ICA's position is that a foreign entity has sufficient presence in Israel and will be considered an Israeli entity if one of the following applies: the foreign entity has an interest of 25% or more in an Israeli entity or it has a 'place of business' in Israel.

According to the ICA's guidelines, a 'place of business' in Israel is defined as follows: "A foreign company may be regarded as having a place of business in Israel whenever it has a substantial influence on the activity of a local representative. In this regard, the Authority will examine whether the foreign company has the ability, either through an arrangement or de facto, to determine, with respect to the Israeli representative (be it called an agent, a distributor, a representative, or otherwise), the price level, the level of inventory, the nature of display or any other aspect of the business management. The more a foreign company has powers and rights of this kind – the stronger will be the tendency to regard it as having a presence in Israel and as an entity that operates a business in Israel through a long arm..."

The mere fact that an entity’s products are sold into the Israeli market does not, by itself, establish sufficient presence for it in Israel.

Note that with respect to mergers, neither the Law nor the ICA applies the 'effect doctrine' for extraterritorial jurisdiction.

If the monopoly threshold is met by either one of the merging firms, filing would be required, even if there is no overlap whatsoever.

In some circumstances, joint ventures are regarded as mergers and are thus subject to the merger control regime.

It is important to draw the line between a joint venture and a merger; the main guideline being whether one party receives a foothold in the decision-making process with regard to the majority of the assets in a relevant market of the other party, which prior to the agreement acted independently. In such cases, the ICA will consider the agreement to be a corporate merger.

If the jurisdictional thresholds are not met, the authorities have no power to investigate a transaction. Statute of limitations is irrelevant as the authority is not allowed to investigate such transactions.

A merger that requires the ICA's clearance cannot be executed by any means prior to obtaining the General Director's clearance. Such means include closing, transferring assets or shares, transferring payment or otherwise being involved in the management of the acquired entity. Any of these actions, prior to obtaining the clearance, might be considered as 'gun jumping'.

If the parties implement the transaction before the ICA clearance, they are exposed to administrative and criminal enforcement. In 2015, the ICA imposed a fine of USD20,000 and USD1,300 respectively on entities that performed gun jumping. This was the first formal decision (of an administrative enforcement) the ICA published regarding gun jumping (previously there were several criminal cases regarding gun jumping). The fact that the target was a distressed firm in a very poor financial state has been acknowledged by the ICA but was considered only as a mitigating factor regarding the fine's sum. An appeal was filed, and the Antirust Tribunal rejected the appeal and reaffirmed the ICA decision and its approach regarding gun jumping.

While administrative fines are a new tool in the ICA's toolbox, it is likely that future completions of transactions prior to receiving the General Director's clearance would continue to be treated with such tools.

Penalties are made public.

This firm is unaware of any penalties that were imposed in a case of a foreign-to-foreign transaction.

It is possible that an exception to the suspensive effect would be granted following a specific request to the ICA. The ICA may grant such request in cases of financially distressed companies or public bids and must allow this exception before any action is taken by the parties.

The ICA will not permit closing before clearance or carving out any businesses.

As mentioned above (see 2.1 Notification), notification is compulsory and must take place before the merger is consummated. There is no deadline for filing, except for the fact that the merger cannot be consummated prior to receiving the clearance.

It is possible to file the merger to the ICA prior to reaching a binding agreement (for example, on the basis of a memorandum of understanding). It is required, however, that the agreement will be concrete and that prior to filing, certain basic issues would be agreed upon, such as the amount of rights transferred in the transaction, the price and the timeframe. In any case, it is within the ICA's discretion to decide that it will not examine transactions in which the probability of their occurrence is low.

The ICA will not examine a transaction without any kind of writing agreement.   

There are no filing fees in Israel.

The target and the acquirer are the parties to the merger and both are responsible for filing.   

In comparison to other jurisdictions, the notice of merger in Israel requires little information. The scope of the information required for filing depends on the transaction. In certain circumstances, an abbreviated notification form could be filed.

In general, the information required includes details concerning the filing person, highlights of the merger transaction, business and areas of activity, classification of business and areas of activity (horizontal or vertical goods), scope of activities in the relevant markets (sales and market shares, revenues and quantities), alternative suppliers, etc.

Although the level of detail in the notice of merger is low, it is acceptable to attach to the notice of merger a cover letter in which the competitive picture is drawn more extensively.

The filing must include the following documents:

  • the binding agreement and its appendices (for exceptions see 3.2 Type of Agreement Required Prior to Notification);
  • audited financial statements of the last two fiscal years of the entity filing the notification (a foreign company that files a notification may attach audited financial statements of entities through which it operates in Israel, instead of filing its financial statements); and
  • prospectuses filed by the entity filing notification during the last five fiscal years.

A new procedure for mergers that clearly do not establish a reasonable likelihood to harm competition was published by the ICA on May 2016. This procedure allows for a quicker scrutiny process, in cases in which it is clear that there are no real competitive concerns. However, this procedure requires information that is not required in 'regular' mergers; inter alia, the following (see 3.11 Accelerated Procedure): (i) the filing documents should be signed by the CEO and the inhouse legal counsel (as opposed to a regular merger that should be signed by an authorised signer on behalf of the company), and (ii) the companies' holding structure.

There are no special requirements for submission of documents (eg, certifications, notarisations, or apostilles).

The merger notification form can be in English, but a translation to Hebrew is also needed. All other documents (the agreements, financial statements and prospectuses) could be filed in English without accompanying translation.   

There are no penalties for incomplete notifications made in goodwill. Nevertheless, in consequence, the ICA will not start (or may discontinue) the review process and the timeframe for the process will not commence until the complete notification is filed.

The person filing the notice of merger is obliged to provide full and correct information, and must declare that all the information contained in the notice of merger is indeed correct, complete and current; that the documents annexed to the notice of merger are correct and complete, and do not lack any material information or exhibit; and that it is known that the General Director will use the information contained in the notice and in its exhibits in deciding whether to approve the merger that is the subject of the notice.

A party that files inaccurate or misleading information could be deemed as filing an incomplete notice, and thus merging the firms without the ICA's clearance.     

There is no specific penalty concerning inaccurate or misleading information in the Restrictive Trade Practices Law, but there are prohibitions from the general law that could be relevant in such cases.

This firm does not recognise a case in which the ICA has taken enforcement measures against misleading information in a notice of merger, although it is reasonable to assume that in such cases, the ICA will not 'save' any efforts.

There is no Phase I–Phase II review process, or any similar stages. Within 120 days from filing, the General Director shall notify whether he or she agrees to the merger, objects to it or conditions it upon the remedies prescribed in his or her notice. If the General Director has not notified his or her decision within 60 days of the date of receipt of a merger notice from all the companies wishing to merge, he or she may, after consultation with the Relief and Mergers Committee, extend the period by an additional 60 days. In such extensions, the General Director shall give the parties a written reasoned notice.

In practice, most mergers would be decided upon within a 30-day period and the ICA will take longer only in mergers that raise competitive difficulties.

Parties can engage in formal or informal pre-notification discussions with the ICA. A formal process of pre-ruling exists and is relevant mostly in cases in which there is a substantial question whether clearance would be granted.

It needs to be noted that in the past the ICA has objected to a merger once it has been filed, even though the pre-ruling decision was to clear the merger. In addition, the parties can approach the ICA in an informal procedure to discuss the merger.

Both formal and informal pre-notification discussions are not common and are recommended only when the specific circumstances of the transaction justify such discussions.

The parties may ask the General Director to keep confidential the fact of the submission of the pre-ruling, the contents of the application, or any portion of its details. If the parties make such a request, the General Director shall not publish the details for which confidentiality is requested.

However, it shall not preclude the General Director from refusing to discuss the pre-ruling if it is convinced that it is essential to examine of the contents of the application with other parties in order to form the pre-ruling.

If the pre-ruling is confidential, and the ICA could not contact third parties, there is a more substantial likelihood that the position of the ICA regarding the merger will change during the examination of the merger.

Requests for information during the review process are very common and can be quite burdensome; such requests, however, do not stop the clock or suspend the review.

With regard to the notification form, there are three alternatives to the 'regular' full notification form.

The first alternative is an abbreviated form that may be filed if certain conditions are met. These conditions require that all of the following would apply:

  • the combined market share of the merging parties in the market subject to the merger does not exceed 30%;
  • neither of the merging companies is a monopoly in an adjacent market to the merger market; and
  • neither of the merging companies is party to an arrangement with a third-party competitor in the merger market.

The abbreviated form requires less information and in practice many mergers are filed using the abbreviated form. Generally, mergers that satisfy the criteria for the abbreviated form tend to be less complex to analyse; thus, the period of scrutiny is often quick.

The second alternative is to file a notice by way of cross reference to a previous merger filing that has been made by the same entity in the previous twelve months. Such filing is particularly short, but it is usually relevant only to entities that frequently perform mergers in Israel.

The third alternative is to file an extend notice if the merger clearly does not establish a reasonable likelihood to harm competition. The objective of this alternative is to shorten the 30-day merger review process. This procedure was first published by the ICA in May 2016 and according to an ICA press release (November 2016), 22% of such mergers were reviewed within five days.

Other than these alternatives, there is no formal way to expedite the 30-day merger review process. In cases of special urgency (in which the reason for the urgency could be explained), the ICA is open to an expedited scrutiny process, given that the process would not compromise the competitive analysis of the ICA.     

The substantive test for reviewing a merger is whether there is a reasonable likelihood that as a result of the merger as proposed, competition in the relevant sector would be significantly harmed or that the public would be injured.

If the merger does not raise such a reasonable likelihood, the General Director will clear the merger. If the General Director is of the opinion that there is a reasonable likelihood that as a result of the merger, competition in the relevant sector would be significantly harmed or that the public would be injured, it will subject the merger to remedies that fully restore any harm to competition. If no such remedies apply, the General Director would block the merger.

The ICA has rich experience in determining which markets may be affected by the transaction. The starting point is the notices of merger of the parties, although if the ICA finds that there may be other relevant markets that may be affected by the merger, they will also be examined. Markets, as mentioned, could be both horizontal and vertical.

Where parties’ activities overlap, the ICA would examine their market shares (as well as additional details such as entry and expansion barriers). Although there is no fixed overlap below which competitive concerns are deemed unlikely, if the aggregate market share is low, any competitive concern will be deemed unlikely.

In general, the ICA examines market definitions (as well as other examinations) on their own, without relying on case law from other jurisdictions. However, if there are no indications for unique consumer behaviour in Israel, case law from different jurisdictions may be at least a good starting point.

The ICA routinely investigates a wide array of competitive concerns. Such concerns include unilateral effects, co-ordinated effects and vertical concerns.

There is no public ICA decision that has applied the portfolio effect theory. In conglomerate mergers, the ICA has investigated only concerns relating to elimination of potential competition; there are several ICA decisions that block mergers due to the elimination of potential competitors, few of the decisions have been approved by the Tribunal and by the Supreme Court (the highest court in Israel).

According to the ICA's guidelines, efficiencies are taken into account during the analysis of the merger's effect on competition and consumers.

The ICA will examine efficiencies to decide whether they can counteract the adverse effects on competition that the merger might otherwise have. The ICA will consider efficiency claims that substantially benefit consumers (such as lower prices due to cost efficiencies).

The ICA will only consider merger-specific efficiency claims and would ignore efficiencies that could be achieved by less anti-competitive alternatives.

It should be noted that the above-mentioned ICA guidelines regard only horizontal mergers (there are no guidelines regarding non-horizontal mergers). Nevertheless, in practice, the ICA will take into account efficiency considerations in vertical mergers.

The ICA does not take into account non-competitive issues during the review process.

Recently, and for the first time since the Law was enacted, the government declared it is considering using Section 52 of the Law, which allows the Minister of Economy to exempt a restraint of trade for reasons of foreign policy or national security. Theoretically, this section could apply to a merger.

In a nutshell, the natural gas case includes a very unique set of circumstances; inter alia, the fact that this case would have a very substantial effect on the Israeli economy and that the parties and the ICA have reached a consent decree from which the ICA has pulled out in the last minute.       

Due to these unique circumstances, the Minister is contemplating applying this provision with respect to a restrictive arrangement in the natural gas market.

Nevertheless, given the very specific set of circumstances of the case, this firm does not believe that the application of this unique power will repeat, as it is hard to imagine that the stars will realign in such a manner.

There are no special considerations for the review of joint ventures that amount to a merger (for elaborations, see 2.10 Joint Ventures). While reviewing the merger, the ICA would examine, amongst other concerns, possible co-ordination effects between the joint venture's parent companies.

As noted, the substantive test for reviewing a merger is whether there is a reasonable likelihood that as a result of the merger as proposed, competition in the relevant sector would be significantly harmed or that the public would be injured (for elaboration, see 4.1 Substantive Test)

If such concerns apply, the ICA could clear the merger subject to remedies, given that such remedies would sufficiently mitigate the competitive concerns the merger raises. If no such remedies exist, the ICA will block the merger.

In any case, the ICA would issue a formal decision regarding the merger.

The Law provides that the General Director may approve a merger subject to conditions, and this process is generally negotiated with the parties. Both the initiative and the discretion to set remedies belong to the General Director.

While from the perspective of the ICA, parties' acceptance of the remedies is preferable, the power to impose remedies is not subject to the parties' willingness to accept them. These remedies could be structural (such as divestiture) and/or behavioural.

If there are no reasonable concerns that the merger will harm competition, the ICA will approve the merger. If, however, there are reasonable concerns that can be neutralised by remedies, the ICA must prefer this alternative over opposition to the merger. Therefore, for the remedies to be deemed acceptable, they should not be used as a tool to fix markets by the ICA and must rather be used as a means to assist in approving the mergers; hence dull the competitive concerns that the merger raises.

According to the ICA guidelines, the ICA clearly prefers structural remedies over behavioural ones. In practice, during the previous year, all mergers that have been cleared subject to remedies were subject to structural remedies.

The ICA has no authority to subject the merger to remedies for non-competitive concerns and in practice it does not do so.

The negotiation of remedies starts after the ICA reaches its preliminary decision that the merger raises competition concerns and the ICA is considering blocking the merger or approving it subject to remedies. When competitive concerns arise and remedies are being negotiated, it is highly likely that the 30-day period would need to be extended.

The ICA can, and often does, offer the remedies at its own initiative. There is no formal procedure regarding remedies but the common practice is as follows: the ICA would orally inform the parties of its competitive concerns that need to be mitigated; following this notification, negotiations would start between the sides. Down the road, the ICA would present a written draft of remedies, after which a discussion will be held based on that document.

According to its guidelines, the ICA will tend to require divestiture to an extent large enough to enable long-term competition. Preferably the ICA will order the selling of independent economic entities over selling specific assets.

The ICA's clear preference is a 'fix-it-first' approach in which the divestiture must be completed prior to the merger. If the divestiture is not completed prior to the merger, the guidelines allow a maximum period of up to one year to divest. In practice, this timeframe can be extended by up to 18 months.   

While this is the ICA's formal position, in practice, when there are compelling arguments as to why fix-it-first is impractical in the circumstances of the specific case, the ICA is willing to forgo this demand. It is also possible that the remedies would not be in the form of fix-it-first but rather allow a timeframe for compliance with the other remedies.

Compliance with the ICA's remedies is extremely important; the ICA's stated policy is to seek criminal proceedings for violations of merger remedies. The violation of remedies is held as one of the hard-core violations of the law and is considered to be only one step below an explicit cartel. A few years ago, the Supreme Court (the highest court in Israel) sentenced the CEO of a major retail chain store to imprisonment time for violation of merger remedies (CA 5823/14 Shufersal et al v State of Israel (10.8.2015)).

Recently, the ICA cleared, subject to remedies, a merger between two major food chain retailers. Due to geographical concerns, the ICA found that the acquirer ought to sell stores in eight locations. The ICA's position, which is coherent with its Merger Guidelines, was that the parties must apply a fix-it-first approach, thus sell these eight stores prior to performing the merger. Nevertheless, the parties approached the ICA and asked for a longer time period, allowing the acquirer 80 days to sell one of two stores in a specific location. The parties approached the ICA to reconsider its position due to a substantial change in the circumstances but the ICA upheld its preliminary position. An appeal was filed and the Antitrust Tribunal rejected the appeal, stating the clear preference of a fix-it-first approach to mergers.

The ICA's decision is formally issued to the parties and decisions are made publicly available.

Nevertheless, parties are allowed to withdraw their filing, prior to the General Director's formal decision, in which case no formal decision would be made and no information regarding the merger would become public. A clearance or a clearance that is subject to remedies is rarely, if ever, explained, while a decision to block a merger must always be explained by the General Director.

The ICA does not require remedies frequently; according to the ICA's yearly statement in 2018, only 0.5% of all merger notifications filed were cleared subject to remedies. It should be noted that the data above may be misleading, since in cases in which the parties receive a negative signalling from the ICA, they tend to withdraw their filing.

In 2018 the ICA blocked four mergers.

Nara Medical Center LTD Maayan Einayim Medical Center LTD

The ICA blocked this horizontal merger between two of the leading private institutions that operate private operating rooms used for small eye surgeries in the Haifa and the Northern regions. According to the ICA analysis, the merger would have turned the merged company into a monopoly in this market and would have provided it with significant market power.

Union Media Israel Ltd TMF Media Force (Limited Partnership)

This was a horizontal merger between two companies for procurement and media planning. The ICA's examination revealed that the merger raises a reasonable risk of significant harm to competition and the public in both the segment for television channels and the segment for advertisers that require the services of media acquisition companies. This decision was in part made due to the fact that the ICA reached the conclusion that the industry was a concentrated industry with a limited number of competitors, characterised by major barriers to entry and expansion, and in fact a new media acquisition company has not entered the market for a long time.

Bank Mizrahi Tefahot Ltd Bank Igud of Israel Ltd

This was a horizontal merger between two banks dealing, inter alia, with the provision of a bundle of banking services to the retail sector, including current account management services, the provision of deposit loans, investment portfolio management and payment services.

The ICA reached the conclusion that the sector had high barriers to entry, which led to the absence of a new bank in Israel for decades. In addition, the ICA's opinion was that retail banking is also characterised by very high switching barriers and in practice the number of customers switching between banks was very small.

In addition, the ICA's examination found that there was also a unilateral concern that post-merger prices would rise for the group of non-captive customers, as a result of the stabilisation of a new equilibrium.

Sun-Dor International Air Lines Ltd Israir Aviation & Tourism Ltd

This was a horizontal merger between El Al, the largest Israeli airline, and Israir, one of El Al's two Israeli competitors.

The merger was blocked due to the potential competition on the part of El Al on the Ben-Gurion Airport-Eilat line and in view of the increased incentive to drive Arkia out of other routes by abusing the provision of aviation security services abroad that are provided by El-Al.

To this firm's knowledge, no foreign-to-foreign transactions have been blocked or cleared subject to remedies in recent years; in 2012 the ICA considered blocking a foreign-to-foreign merger, but the parties withdrew their filing after the merger was blocked in other jurisdictions.   

Recently, the Block Exemption for Restraints Ancillary to a merger has been updated.

Prior to the amendment, only restraints that met certain technical conditions were exempted. Parties that wished to agree upon restraints that did not meet these technical requirements had to file separate requests for exemption to the ICA even if the arrangement did not raise a concern of harm to competition.

The amendment to the block exemption transfers the examination to a material examination of the predicted influence on competition and allows the parties to self-assess whether the arrangement is likely to harm competition. Thus, in cases in which self-assessment leads to the conclusion that the ancillary restraints are not likely to harm competition, and provided that these are not 'naked restraints', the parties can perform the agreements without filing additional requests to the ICA.

During the review process, the ICA may approach clients, suppliers and competitors of the merging parties, and require data and ask for their view regarding the merger. The ICA is experienced and well aware of the commercial interests of such third parties, and criticism of the merger that has no real merit does not usually play a significant role in the General Director's final decision.

Third parties that, on their own initiative, wish to object to the merger will be heard by the ICA. If the ICA is of the opinion that a meeting is required, such third parties will be able to meet with the ICA to put forward their objections.

In simple mergers that do not raise complex competitive concerns, especially 'ultra green' mergers (mergers that clearly do not create a reasonable risk of significant harm to competition), it is highly likely that the ICA would not contact third parties at all.

Regarding other mergers, especially complex ones, the ICA would contact third parties, usually by telephone call first, and also may deliver requests for information (the notice of merger includes questions regarding competitors and, if necessary, details of suppliers and consumers). In contrast to other jurisdictions, the parties could not offer possible remedies. The remedies, if needed, will be set according to the ICA's discretion only. However, the ICA may examine the appropriateness of the remedies it is considering with third parties.

The fact that notification has been made is not made public. Nevertheless, the filing could be made public as a result of information requests and the conversations the ICA conducts with customers, suppliers and competitors.

Following the General Director’s decision, parts of the notification form become public (such as general information concerning the person filing the notice of merger, the reason for filing the notice of merger and highlights of the merger transaction). Other details will remain confidential unless the ICA or a court makes a particular decision to disclose them. Such details include:

  • the areas of activity;
  • names of customers and suppliers;
  • barriers in the markets for the parties’ products; and
  • information relevant to analysis of the impact of the merger on competition and prior mergers of the party filing the notice of merger.

In addition, the Freedom of Information Law, 1998 allows disclosure of information relating to governmental bodies, including the ICA.

Exposure of information under the Freedom of Information Law requires the submission of a formal request in accordance with the procedure set out under the law. The Freedom of Information Law provides for a list of situations in which the relevant governmental authority has discretion as to whether to refrain from transferring certain kinds of information, one of which is for the sake of the protection of business secrets.

The ICA must receive the permission of the entity that provided the information, prior to revealing it to third parties. If the ICA is convinced that the information does indeed include business secrets, it will not transfer such information (or the information will be transferred subject to blackening). The ICA’s decision is subject to the courts’ review.

Another situation in which information might be disclosed is during an appeal process. In the case of an appeal made by a third party with regard to the General Director’s decision to clear a merger or clear a merger subject to conditions, the appellant is entitled to review the information in the ICA’s files. In a similar manner to the procedure in accordance with the Freedom of Information Law, protection of business secrets is a possible valid ground for restricting the review rights of the appellant.

In practice, procedural arrangements that balance the appellant review rights and the information provider interest are agreed upon.

It is noteworthy that in November 2016, the ICA published a Memorandum of legislation calling for an amendment of the Law. The Memorandum proposes a significant reform in the information confidentiality regime in the ICA. If enacted, this Memorandum will have a fundamental effect on the existing regime.

Since the Memorandum is yet to be passed in the Knesset, the Israeli Parliament, the response in this section is made according to the current legislation.

Confidentiality is a sensitive matter as often third parties that are not themselves parties to the merger are required to provide large amounts of information, including highly confidential material.

Recently, following the General Director's decision to block the merger between Mizrahi Bank and Igud Bank, the parties appealed to the Competition Tribunal.

The parties requested to review the information and materials collected by the Competition Authority from the other banks: information gathered from 36 other third parties.

The Tribunal agreed to the vast majority of the request to review the documents and had authorised the parties' legal representatives or economic experts to review the material in the information room of the competition authority's offices, subject to the signing of confidentiality statements.

The non-merging banks appealed this decision; the main concern being preventing the exposure of their trade secrets.

The Supreme Court, in an expanding decision, approved the decision of the Competition Tribunal and rejected the third-party banks' demand for the confidentiality of the documents they provided.

General policy discussions are mostly conducted within the framework of the Organisation for Economic Co-operation and Development's Competition Committee (of which the ICA is a member).

It is unusual for the ICA to approach other competition authorities with regard to specific cases. Nevertheless, there are cases in which the ICA would ask for assistance with regard to another competition authority’s policy on certain kinds of transaction. This was the case only recently, when the ICA requested information on the OFT’s and the Swedish competition authority’s general policy with regard to network sharing agreements between cellular providers.

The ICA is not required to supply information regarding a specific case to other competition authorities. If the ICA were to consider supplying such information, it is likely that it will first receive the information provider’s position.

The parties to the merger may appeal to the Tribunal a decision to block the merger or to approve it subject to remedies. The Tribunal, on hearing the appeal, applies an 'error in the decision' standard of review and can reaffirm the General Director’s decision, revoke it or amend it.

The timeline requires that such an appeal is made within 30 days from the General Director’s decision. However, it is possible to extend the period by the parties' consent and this is done as a matter of routine. The Tribunal decision is usually rendered within a year or so from the appeal.   

In practice, there are very few successes in appeals against the General Director’s decisions regarding mergers. In recent years, the few times that an appeal was accepted, the Supreme Court (the highest instance in Israel) revoked the appeal decision, thus reaffirming the ICA's original view.

Any person, including third parties, who might be harmed by the merger, as well as industry associations and consumers’ organisations, may appeal to the Tribunal against the General Director's decision to approve or conditionally approve a merger. Case law has held that the harm to the plaintiff must be a competitive injury of the type that the Law seeks to prevent; ie, an antitrust injury.

Although third parties have appealed a clearance decision of the ICA to the Tribunal before, this has never been done successfully.

In January, as part of an amendment to the Competition Law, significant changes have been made for Chapter III of the Law, which regulates mergers.

  • A significant change is in the jurisdiction threshold for filing merger notices, raising the threshold for the combined sales turnover of the parties, which stood at ILS150 million, to ILS360 million. It is anticipated that the ILS10 million threshold will be updated to ILS20-25 million but there is no clear timeline for this change.
  • The ICA's review period for mergers has changed and now the General Director may, without any judicial proceedings, extend the period in a reasoned administrative decision. The General Director may use this authority to extend several times, provided that the cumulative extension does not exceed 120 additional days.
  • Change in the definition of a 'monopoly' for purposes of filing merger notification. Following the amendment, a monopoly for the purpose of filing merger notifications in Israel is defined as follows: "A person whose share in the total provision of assets or in their purchase, in general, the provision of services or in the purchase thereof, exceeds half."

Imposing Fines

The ICA fined an Israeli food retailer, Yainot Bitan, due to violation of merger remedies. According to the remedies, Yainot Bitan had to sell eight branches in different geographic locations (in which there was an overlap with the acquired party, Mega, a competitor in the food retail market). The final date for the sale of these branches was set by the ICA but by that date Yainot Bitan had sold only one of these eight branches.

At that stage, and in accordance with the merger remedies, the right in the remaining seven branches has been assigned to a trustee for sale. The remedies also set an explicit obligation to co-operate with the trustee. Yet, Yainot Bitan was accused of acting in a manner that frustrated the trustee's work, such as refraining from resolving a dispute between the landowners, delaying the transfer of information that was necessary to the trustee and other actions that harmed the trustee's efforts to sell the stores.

Therefore, the ICA announced its intent to impose an administrative sanction in the amount of ILS6,640,225 on Yainot Bitan and ILS700,000 on one of the company's officers. A hearing was held on that matter, followed by a consent decree that states that Yainot Bitan will sell the remaining branches and provide 18 months of credit to the buyer to mitigate the competitive harm in these areas. It will also pay ILS2 million to the State Treasury.

Remedies

During 2019, the Authority approved a merger between Mercantile Discount Bank Ltd, Discount Bank of Israel Ltd and Dexia Israel Ltd, subject to remedies that require the merging companies to sell the credit portfolio in full and irrevocably to the purchaser prior to the merger. The purchaser must not be one of the merging companies and/or related to them and/or an officer thereof.

During 2019, the Authority approved a merger between Reshet Media Ltd and the 10 New Channel Ltd, subject to conditions that will obligate the merging companies not to perform any act that constitutes a full or partial merger before sale and transfer in a final and irrevocable manner of all its holdings and rights in the new company to an independent body whose identity will be approved by the General Director in advance.

Recent Record

The ICA’s recent record regarding the outcome of the review process is as follows.

  • 2016: 96% of mergers cleared, 2% of mergers blocked, 2% of mergers cleared subject to remedies.
  • 2017: 97.2%, 0%, 2.77%.
  • 2018: 97.9%, 2.1%, 0.5%.

* From 2018 to mid-2019, there were four mergers that were blocked by the General Director and two mergers that have been cleared subject to remedies.

In practice, no remedies have been imposed in foreign-to-foreign mergers since the merger between Ben & Jerry’s and Unilever (2000). In 2012 the ICA considered blocking a foreign-to-foreign merger, but the parties withdrew their filing after the merger was blocked in other jurisdictions.

As the above figures portray, it appears that the ICA tends to abstain from clearing mergers subject to remedies and especially behavioural remedies. It seems that the ICA is trying to avoid behavioural remedies since they could be difficult to enforce. Therefore, it seems that future mergers will be approved by the ICA with no remedies or blocked. From recent decisions of the ICA it appears that it tends to use narrower market definitions than ever before. For example, the ICA has differentiated between 'regular' water bars and branded water bars (includes companies that invest heavily in branding and their business model is based on subscribers) as separate markets, and therefore refused to approve a merger between two water bar companies.

Recent decisions and market research published by the ICA indicate that it is focusing on the examination of geographic competition and this aspect of competition is examined today more than ever. Thus, the geographic competition was subject to a thorough examination by the ICA, inter alia, during a complex merger between the retailers Shufersal and New-Pharm, both of which have branches throughout the country. The geographic competition was also subject to examination during other mergers, such as mergers between two malls.

Moreover, recently the ICA published market research regarding the geographical competition at gas stations, including a methodology for defining geographical concentration in the gas station segment. Similarly, the ICA has published market research regarding the aggregates quarries industry that includes a methodology for examining geographical concentration and policy recommendations.

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Goldfarb Seligman & Co Law Offices is one of Israel’s largest law firms and is among the elite group of firms that deliver top-tier legal services at international standards. The professional hallmark of the firm, which traces its history back over 80 years, is the unrelenting pursuit of the highest professional and ethical standards in the service of its clients. Goldfarb Seligman provides legal counsel in antitrust, competition and regulation matters to companies and corporations, from swift solutions of specific issues to setting long-term regulatory strategies. The firm also advises on antitrust and competition aspects arising from transactions, and represents local and international clients in these matters. Goldfarb Seligman's antitrust and competition department provides comprehensive strategic advice in the fields of antitrust and competition, as well as in the regulation field. The attorneys’ deep understanding and broad knowledge of the field, partially derived from long years of public service in senior regulatory positions, alongside the attorneys' close working relations with various regulatory authorities, allow the department's legal teams to provide top-tier legal-strategic counsel to clients.

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