An overview of the changes to merger filing obligations and disclosure obligations which would be engendered by the draft amendment to the Antitrust Regulations (Registry, Publication and Reporting of Transactions), which was published by the Israel Competition Authority in July 2019.
On 28 July 2019 the Israel Competition Authority (ICA) published a draft amendment to the Antitrust Regulations (Registry, Publication and Reporting of Transactions) 5764/2004 for public consultation.
The draft includes significant and far-reaching changes regarding the scope of the transactions that will require merger approval by the competition commissioner, as well as the extent of the disclosure that will be required when filing merger notifications.
It is expected that foreign entities will face difficulties and be afforded less legal certainty in assessing whether a merger filing obligation has been triggered. Further, once a merger filing obligation has been triggered, foreign entities will be subject to a significantly higher burden of disclosure to the ICA.
Changes to turnover filing threshold
Not all transactions categorised as a 'merger of companies' under the Economic Competition Law (5748/1988) are reportable. The Competition Law provides that a merger transaction is reportable only if one or more of the following thresholds are met:
- the merger is carried out by competitors and, as a result of the merger, the combined market share of the parties to the merger will exceed 50% in any relevant market in Israel;
- one of the parties to the merger holds a market share in excess of 50% of any given market; or
- the combined turnover in Israel of the merging parties exceeds NIS360 million (approximately €90 million or $102 million) and the turnover of at least two of the parties to the merger is at least NIS10 million (approximately €2.5 million or $2.8 million) (the 'minimum turnover')
The combined sales turnover amount was updated at the beginning of 2019 through an amendment to the Competition Law from NIS150 million to NIS360 million. According to the proposed draft, the minimum turnover will also be updated, such that the turnover threshold will be met only where there are at least two parties, each of whose sales turnover is not less than NIS20 million (approximately €5 million or $5.7million). This update is appropriate and necessary considering the lengthy period that has passed since the minimum turnover was set and is likely to assist in reducing the number of negligible transactions which are filed with the ICA.
On the other hand, set against an elevated reporting threshold, the director general has proposed changing the rules concerning the calculation of turnover in a manner which is liable to significantly expand the reporting requirement and increase uncertainty as regards whether the aforementioned requirement has been triggered.
Calculating the turnover of a merging party is carried out at a group level. For the purpose of defining an economic group, those companies with direct and indirect relationships of control with the merging company are taken into account. 'Control' for this purpose has until now been defined, in accordance with the test set out in the Competition Law, as holding in excess of 50% of the voting rights in the general assembly or the right to appoint directors.
The amendment to the regulations provides that the merging party's turnover will include all entities connected to the filing entity in accordance with the broader much more elastic definition of the term 'control', which appears in the Securities Law (5728/1968). The Securities Law provides that control may be established even if the shareholding level in question is lower than 50% if a merging party has "the ability to steer the business activity of the corporation".
The significance of this change is that it expands the range of the entities whose sales turnover will be taken into account when considering the turnover threshold. In addition, the change to the definition significantly increases the legal uncertainty to which parties to a merger are subject, insofar as, in contrast with the definition of control in the law, which imposes a numerical threshold that is simple to apply (ie, holdings in excess of half of certain defined types of right), the new definition of control includes an element which is subject to evaluation and interpretation.
Changes to merger reporting format
At present, the regulations provide for two different reporting tracks:
- an 'abbreviated' track, which necessitates the provision of relatively few details via an 'abbreviated' notification form and which can be used for transactions that do not display competitive complexity; and
- a more extensive report made via the 'regular' notification form, which is intended for transactions that are not appropriate for the abbreviated track. The amendment to the regulations abolishes in its entirety the abbreviated track and creates a single and fairly comprehensive notification form based on the regular form. Within the framework of the new notification form, the provision of extensive information is required, both quantitatively and qualitatively, across the full range of activity of the parties to the merger.
Further, for any merger not connected to its competitive complexity, the following information will be required:
- details of the stakeholders in each of the reporting parties;
- a detailed mapping of their holdings and of potential overlaps between the controlling parties and other significant shareholders;
- details of the activities of the other party to the merger;
- details relating to the customers and suppliers of the parties;
- details of the competitive context of the merger; and
- details of financial information regarding sales turnover and quantitative sales volume
International mergers that must be reported to the ICA under the new merger control regime will additionally require the provision of details relating to filings made in other jurisdictions. Foreign entities may also be required to provide information regarding their agents, distributors or other representatives in Israel. The overall burden on foreign entities is expected to significantly increase.
The ICA has clarified that the significantly expanded scope of information that must be provided will shorten the length of time necessary for it to examine mergers. However, insofar as the draft regulations are approved in their present form, it may be assumed that such regulations will require parties to a merger to invest significant resources in order to meet the new reporting requirements in a manner which, at times, would be unjustified and potentially impracticable. As such, the time necessary for the preparation of a merger notification is expected to expand such that the benefit of the process from the perspective of merging companies is cast into doubt.
The ICA has made the draft regulations available for public comment until 25 August 2019. Comments submitted by the public will be discussed during September 2019 at the Round Table summit being hosted by the ICA.