ISRAEL Law and Practice Contributed by: Barak Platt, Micki Shapira, Liron Hacohen and Nataly Margalit, Arnon, Tadmor-Levy
10. Litigation 10.1 Frequency of Litigation
party can exit a transaction due to significant negative changes. The COVID-19 pandemic exposed ambigui - ties in these clauses, reinforcing the need for precise language that clearly delineates the circumstances under which a merger or share/asset purchase agree - ment can be terminated.
It is relatively common for M&A-related disputes involving public companies to be resolved through litigation. The primary causes of these legal disputes include: • disputes over deal pricing and other fairness con - siderations, particularly those related to prejudice to minority shareholders’ rights; and • claims regarding defects in the transaction approv - al process, such as failure to obtain the neces - sary approvals from the required corporate bodies (especially in transactions involving a controlling shareholder and other related parties). 10.2 Stage of Deal A dispute will generally go to litigation when the com - pany discloses information about the deal, and the public is made aware of the transaction. The key time points are: • when the report about the transaction is published (mainly in public companies); or • when the definitive documents are signed (mainly in private companies). 10.3 “Broken-Deal” Disputes The COVID-19 pandemic severely disrupted the global economy and created significant uncertainty in the M&A landscape, leading to disputes in pending transactions. One major takeaway was the increased scrutiny of force majeure clauses, as parties sought to invoke them to escape contractual obligations. This underscored the need for more specific and compre - hensive clauses explicitly addressing pandemics and similar crises. Additionally, the COVID-19 pandemic emphasised the importance of thorough due diligence beyond finan - cial and operational factors, encouraging buyers to assess a target’s resilience, supply-chain vulnerabili - ties and adaptability to unforeseen challenges. Another critical lesson of the effect of pandemic era litigation was the importance of well-drafted material adverse change (MAC) clauses, which define when a
11. Activism 11.1 Shareholder Activism
In recent years, shareholder activism has emerged as a significant force in corporate governance mat - ters in Israel. Institutional investors have become the predominant activists, exercising influence through direct engagement with management and participa - tion in annual meetings. Their focus is mainly on limit - ing executive compensation. An interesting trend that has gained ground in the last year is the extension of activism to involvement in controlling shareholder deals (where there must be a majority of shareholders who do not have a personal interest in approving the deal), with the aim of improv - ing the terms of the deal for the benefit of minority shareholders. In a few cases, this has even led to the company having to terminate the deal with the con - trolling shareholder due to the inability to reach an agreement with institutional investors on the terms of the deal. 11.2 Aims of Activists The Israeli market is characterised by concentrated ownership and control through dominant shareholder blocks. Under the prevalent control structure, con - trolling shareholders hold majority voting rights, giv - ing them dominant influence over the composition of a board. As a result, the power of activist investors remains restricted to corporate governance mat - ters and controlling shareholder deals, limiting their influence to encourage companies to enter into M&A transactions, spin-offs and other major divestitures. 11.3 Interference With Completion It is very rare for activists to interfere with the com - pletion of a transaction after it has been announced. In cases where a majority of the minority sharehold - ers are required to approve the transaction, such as
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