ISRAEL Law and Practice Contributed by: Barak Platt, Micki Shapira and Moshe Pasker, Arnon, Tadmor-Levy
11.2 Aims of Activists The Israeli market is characterised by concen - trated ownership and control through dominant shareholder blocks. Under the prevalent control structure, controlling shareholders hold major - ity voting rights, giving them dominant influence over board composition. As a result, the power of activist investors remains restricted to corpo - rate governance matters and controlling share - holder deals, limiting their influence to encour - age 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 completion of a transaction after it has been announced. In cases where a majority of the minority shareholders are required to approve the transaction, such as in controlling share - holder transactions or executive compensation approvals, the discussion between the company and activists takes place before the transaction is announced, subject to confidentiality, and before the transaction is brought to a meeting of the shareholders for approval. In rare cases, due to opposition from activists to approve a controlling shareholder transac - tion, the company is forced, after the transac - tion terms are announced, to reopen negotia - tions with the controlling shareholder, in order to improve the terms for the minority shareholders.
Additionally, the COVID-19 pandemic empha - sised the importance of thorough due dili - gence beyond financial and operational factors, encouraging buyers to assess a target’s resil - ience, supply chain vulnerabilities and adaptabil - ity to unforeseen challenges. Another critical lesson was the importance of well-drafted material adverse change (MAC) clauses, which define when a party can exit a deal due to significant negative changes. The COVID-19 pandemic exposed ambiguities in these clauses, reinforcing the need for precise language that clearly delineates the circum - stances under which a deal can be terminated. In recent years, shareholder activism has emerged as a significant force in corporate gov - ernance matters in Israel. Institutional investors have become the predominant activists, exer - cising influence through direct engagement with management and participation in annual meet - ings. Their focus is mainly on limiting 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 improving the terms of the deal for the benefit of minority shareholders. In a few cases, this has even led to the com - pany 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. Activism 11.1 Shareholder Activism
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