ISRAEL Law and Practice Contributed by: Benjamin (Benny) Sheffer and Lance Blumenthal, S. Horowitz & Co.
• the business purpose must be clear and well-doc- umented; • the approvals from shareholders, boards, lenders and possibly government bodies must be secured; and • if the deal involves large energy or infrastructure assets, approvals that are likely to be needed should be sought in advance from a variety of regulatory bodies including, inter alia, the Israel Competition Authority, the Ministry of Energy and Infrastructure and the Israeli Securities Authority, if a public company is involved. 3.4 Timing and Tax Authority Ruling Timing is of importance because if the merger or sale happens too soon after the spin-off, tax relief may be denied. Therefore, before completing a spin-off, parties would be advised to consult the Israel Tax Authority and request a confirmation that the planned structure qualifies for tax relief. This is usually done by requesting a pre-ruling which will serve as a bind- ing confirmation on how the tax law will apply) and assurances that anti-avoidance rules (ie, suspecting that the spin-off was done for the incorrect reasons) will not apply. The ruling process can take several weeks or longer, depending on the complexity of the deal. 4. Acquisitions of Public (Exchange- Listed) Energy and Infrastructure Companies 4.1 Stakebuilding Buying shares in a publicly listed Israeli company before launching a takeover bid can sometimes pro- vide strategic benefits, such as: • buying shares at a price lower than the future offer price; • signalling serious intention to acquire the company; and • making it harder for another buyer to step in. However, bidders must consider the following.
• Disclosure duties – any holding of 5% or more of a listed company must be reported publicly. Any change of 1% or more must also be reported. Once a takeover intention becomes public, any share dealing must be disclosed. • Approval thresholds – if the deal requires share- holder approval (often the case in energy or infrastructure due to special regulatory approvals), shares already owned by the bidder might not count toward the approval vote. • “Special tender offer” triggers – buying shares above certain percentages can trigger Israel’s spe- cial tender offer rules unless the buyer already has board and shareholder approval. • Insider trading rules – if the bidder buys shares while holding non-public price-sensitive informa- tion, this may be viewed as insider trading under the Israeli Securities Law. • Price rules – in many cases, share purchases set a minimum price for the tender offer. Owing to the presence of these issues, many buyers prefer to avoid stake-building before the formal offer. 4.2 Mandatory Offer Israel does not have a mandatory offer. Instead, there is the special tender offer rule. • A buyer who crosses 25% or 45% control thresh- olds (without already having a majority) must make a tender offer to all shareholders. • The offer must allow other shareholders to sell their shares at a fair price. • The offer is approved only if a majority of the shareholders who have no personal interest in the deal vote in favour (excluding the bidder and related parties). If the buyer already has more than 50%, no special tender offer is required. 4.3 Transaction Structures Public company acquisitions in Israel are primarily carried out through: • tender offers – a buyer offers to purchase shares directly from all shareholders. The buyer may aim
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