ISRAEL Law and Practice Contributed by: Benjamin (Benny) Sheffer and Lance Blumenthal, S. Horowitz & Co.
A special tender offer must be approved by a majority of shareholders who are not personally interested in the deal, while a full tender offer normally succeeds if very few shares remain outside the offer (typically less than 5%, or less than 2% in some cases). These rules are designed to protect minority shareholders, prevent creeping takeovers, and ensure transparency when control of a public company changes hands. 4.8 Squeeze-Out Mechanisms If a bidder reaches 95% tender acceptance, it can force the remaining 5% to sell their shares (“squeeze- out”) at the offer price. If the 95% level is not reached, the minority sharehold- ers stay on and the company continues to operate as a public company unless de-listing rules are satisfied. 4.9 Requirement to Have Certain Funds/ Financing to Launch a Takeover Offer In Israel, there is no formal “certain funds” requirement like in some other jurisdictions, but the bidder must demonstrate that it has reliable and sufficient financ- ing before launching a tender offer or merger. Practi- cally, this means financing arrangements are made at announcement, and the buyer (not the financing banks) is the party making the offer. Generally speaking, a takeover offer cannot be con- ditional solely on obtaining financing, as this would create uncertainty and risk to minority shareholders. That said, however, closing can be subject to con- ditions including, inter alia, regulatory approvals and no material adverse change. Buyers therefore secure committed financing upfront to avoid the offer being blocked or viewed as non-credible by the Israel Secu- rities Authority or the target board. 4.10 Types of Deal Protection Measures In Israel, a target company can agree to limited deal protections, such as giving the bidder access to infor- mation, agreeing to keep running the business nor- mally, and in some cases a reasonable no-shop or matching right so the bidder can respond to a better offer. Break-up fees are allowed only if they are lim- ited and not harmful to minority shareholders, while reverse break fees (where the bidder pays) are more common. Strong defensive measures like poison pills
or force-the-vote requirements are generally not used and may be challenged under Israeli law because these measures, while common in other jurisdictions, are viewed as inconsistent with directors’ duties to protect all shareholders, especially minorities. 4.11 Additional Governance Rights In Israel, there are no domination or profit-sharing arrangements like in some other jurisdictions. Gov- ernance rights depend on the percentage of voting rights obtained: • with over 50%, the bidder gains control of the board and day-to-day decision-making; • with 75% or more, the bidder can approve major corporate actions such as amending articles of association or restructuring; and • once 95% is reached, the bidder can de-list the company and squeeze out the remaining share- holders. Any additional governance rights would normal- ly come through negotiated agreements or board appointments and may require regulatory approvals in specific sectors which include energy and infra- structure. 4.12 Irrevocable Commitments In Israel, it is common for a bidder to seek irrevocable commitments from major shareholders and directors to support or tender into the transaction, especially in friendly deals. These undertakings are usually limited and often include an “out” that allows the shareholder to with- draw the commitment if a better offer comes about, consistent with fiduciary duties and minority share- holder protections. To demonstrate by way of example, if a principal shareholder holding 18% of the target company signs an agreement with the bidder in which it promises to accept the tender offer for all their shares, not to sell those shares to anyone else before the offer closes and to co-operate with providing required information etc, this commitment does not preclude an “out” that would allow the shareholder to withdraw the commit- ment if a better offer is made that is at least x% higher
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