ISRAEL Law and Practice Contributed by: Barak Platt, Micki Shapira, Liron Hacohen and Nataly Margalit, Arnon, Tadmor-Levy
9.2 Directors’ Use of Defensive Measures As mentioned in 8.1 Principal Directors’ Duties , in the case of a special tender offer, the board of directors is required to express its opinion on the fairness of the offer price (or explain why it cannot do so), and it must also disclose any personal interest it has in the offer. Additionally, directors are prohibited from acting to thwart the tender offer. Furthermore, when discussing and approving transac - tions involving the company (such as M&As), directors are obliged to act in the best interests of the company and in line with their fiduciary duties (see 9.4 Direc- tors’ Duties ). Therefore, if the board believes that a certain transaction is not beneficial to the company, it may exercise its power and reject it and/or recom - mend that the company’s shareholders reject it, as applicable. 9.3 Common Defensive Measures Hostile takeover prevention mechanisms do exist in Israel, including a “staggered board” and “poison pill”. However, these are mainly used in private companies due to legal restrictions on their implementation in publicly traded companies on the TASE, which are only permitted to issue one class of shares. However, regarding the “staggered board” mecha - nism, the ISA has previously allowed companies to adopt a mechanism in which only one third of the board can be replaced each year, for up to three years following an initial public offering. 9.4 Directors’ Duties The board must act in the company’s best interests, adhering to its fiduciary duty and duty of care. Con - sequently, the board must provide justification for its support or opposition to the deal once it is finalised. Any refusal based on personal reasons will be deemed a breach of fiduciary duty. 9.5 Directors’ Ability to “Just Say No” Directors are subject to fiduciary duties and must act solely in the best interests of the company, while dis - closing any personal interest in the proposed trans - action. Therefore, when a director wishes to reject a particular transaction, they are generally required to provide the main reasons for their rejection.
However, the appointment of external advisers is common in the context of an independent committee reviewing transactions with a controlling shareholder (as noted in 8.2 Special or Ad Hoc Committees ). To ensure an informed and independent decision-making process, these committees typically engage profes - sional advisers, including legal and financial experts. 8.5 Conflicts of Interest Under Israeli law, officers and directors are required to refrain from conflicts of interest and act in the compa - ny’s best interests. In addition, transactions involving conflicts of interest may be subject to strict approval mechanisms and enhanced disclosure obligations. In recent years, courts in Israel have conducted quite extensive judicial review of the conduct of sharehold - ers (due to the absence of their obligation to report on personal interest), as well as of officers and directors in conflict-of-interest situations, both in private and public companies. This scrutiny is particularly rigorous in cases of a transaction between a company and its officers or controlling shareholders, which fails to meet the appli - cable legal requirements (for example, transactions against the best interests of the company), or which may prejudice the rights of minority shareholders. Under Israeli law, there is no prohibition against con - ducting a hostile tender offer as long as the tender offer complies with the relevant regulations. In the case of a full tender offer, there is a requirement to obtain a special majority of 95% of the shareholders to enforce the sale on minority shareholders, along with a right of shareholders to appeal to the court regarding the price in the tender offer within six months, which reduces the attractiveness of these deals. Furthermore, in many public companies, there is a controlling shareholder holding more than 50% of the share capital, which significantly reduces the likeli - hood of a successful hostile tender offer. 9. Defensive Measures 9.1 Hostile Tender Offers
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