ISRAEL Law and Practice Contributed by: Barak Platt, Micki Shapira, Liron Hacohen and Nataly Margalit, Arnon, Tadmor-Levy
share capital, or very close to 100%, co-operate in the transaction and sign the share purchase agree - ment. While the Israeli Companies Law provides for a statutory squeeze-out mechanism, as do the char - ter 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 guid - ance. 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 frame - work 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 pri - vate 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 com - pany’s board of directors, as well as from 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 merg - er 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 fol - lowing the transaction. The only real disadvantage of using a reverse triangu - lar 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 fewer 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 com - pany 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 why asset transactions are not more commonly used. Firstly, unlike a share purchase agreement or merg - er 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 tar - get 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 compa - ny’s shareholders will typically need to wait a number of months before receiving the proceeds of an asset transaction. 2.2 Primary Regulators 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.
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