Civil Appeal 2718/09 “Gadish” Reward Funds Ltd. v. Alcint Ltd.

Judgment

President (Ret.) D.  Beinisch:

1. Appeal against the decision of the Haifa District Court (Vice President G. Ginat) Not to approve the appellants' claim as a class action in accordance with the provisions Class Actions Law, 5766-2006 (hereinafter: Class Actions Law or The Law) (Civil Case 1318/99, Miscellaneous Applications Civil 9009/07 andMiscellaneous Applications Civil 10029/09, [Published in Nevo] given on January 11, 2009).  The claim revolves around claims of discrimination against the minority shareholders of respondent 1 (hereinafter: אלסינט) which was caused by the controlling shareholders of Alcinet and officers appointed on their behalf in a combined process in which the company's coffers were depleted, it is claimed.

Factual Background

2. The affair that underlies the action was presented at length in the decision of the District Court that is the subject of the appeal, and its principles are not in dispute, we will therefore discuss them briefly. The events began at the end of 1998 when Elsynt, which at the time was a public company listed in Israel and whose shares were traded on the New York Stock Exchange, sold its medical imaging business for about $370 million.  After the transaction, the consideration accumulated in the company's coffers and was not designated at that time for profit-bearing activity.  A few months later, on February 18, 1999, Dr.  Yaakov Wortman, President of Respondent No.  2 (hereinafter: Elbit Imaging), the controlling shareholder of Elsynt, to the Chairman of the Board of Directors of Elsynt in a letter in which he announced Elbit Imaging's intention to act to consolidate its business with Elsynt (hereinafter: Wortman's Letter).  In the letter, Wortman noted that Elbit Imaging intends to acquire full ownership of Elsynt and that it believes that the appropriate price for Elsynt shares held by the public is $14 per share.  The two companies reported the contents of the letter to the New York and Tel Aviv stock exchanges, and as a result, Elcinet's share price rose from $11.563 to $13.  The share price continued to move above $13 until February 26, 1999, after which a downward trend began.  On March 17, 1999, the stock resumed trading at the price that preceded the publications regarding Wortman's letter.
3. A week after Wortman's letter was received by the Board of Directors of Elcinette, on February 25, 1999, Respondent 6 (hereinafter: Elron), the controlling shareholder of Elbit Imaging, on an agreement for the sale of its shares in Elbit Imaging to Respondent 3 (hereinafter: Europe-Israel). Elron and Europa-Israel did not publish reports about it at the stage of the negotiations, but only on the date when the agreement for the sale of control was signed.  Elbit Imaging reported this a week later, while Elsynt did not give any announcement regarding the change of control.  With regard to the intention of the business consolidation raised in Wortman's letter, on March 3, 1999, Elsynt informed Elbit Imaging that according to the decision of an independent committee appointed by the company's board of directors, Elsynt was willing to begin negotiations and even hired the services of financial advisors for this purpose.  On May 4, 1999, the date on which the agreement for the sale of control of Elbit Imaging came into effect, Elbit Imaging and Alcinet published notices of the transfer of control of Elbit Imaging, which also included a reference to the intention to consolidate their businesses.  The announcements stated that until that time, such a proposal had not yet been formulated and that the activity of the independent committees established for this purpose in both companies continued.  However, about four months later, on September 6, 1999, Elbit Imaging informed Elcint that the independent committee it had established had found that the proposed business consolidation between the companies would not be in the interest of its shareholders.  Following this announcement, the two companies immediately reported the cessation of contacts between them.  With the publication of the reports, there was a 17 percent decline in the share price of Alcinet to a low of $7.94 per share (on September 13, 1999).
4. Three days later, on September 9, 1999, Elsynt acquired its entire holdings in the company through a wholly-owned Dutch subsidiary from a wholly-owned subsidiary of Europe-Israel BEA Hotels N.V. (Hereinafter: BEA Hotels).  This company coordinated Europe-Israel activity in the field of hotels, and held rights in hotels mainly in Western Europe through a number of foreign companies.  In addition, on the same day, Elsint acquired the rights to a commercial and entertainment center venture in Herzliya's Marina (later "Arena Mall"), through a wholly-owned subsidiary company (SLS Trust Ltd.) from Marina Herzliya, a limited partnership controlled by Control Centers (the parent company of Europe-Israel).  As part of these transactions, Elsynt paid approximately $100 million and assumed accompanying liabilities of the same amount (hereinafter: Hotel & Marina Deals).  At the time of the execution of the transactions, the company suffered BEA Hotels From a deficit in equity of 24,109 thousand Dutch guilds (about ILS 46 million) and cumulative losses of 11,202 thousand Dutch guilds (about ILS 21.4 million).  The motivation for the acquisitions was explained as part of a reorganization of the Euro-Israel Group and the focus of each of the companies (Europe-Israel, Elbit Imaging and Alcinet) in a unique field of activity.  The transaction was approved by the Elsynt Board of Directors after receiving the approval of the Audit Committee.  An application submitted to the Haifa District Court for a temporary injunction instructing Elcint to convene a general meeting of its shareholders for the purpose of discussing and voting on the approval of these transactions by a special majority, was rejected by the judge's decision (as described at the time) B.  Gilor (Bankruptcy 411/99, Miscellaneous Applications Civil 9888/99 Ben Yehuda v.  Elsint in a Tax Appeal ([Published in Nevo], 22.11.1999)).
5. Parallel to these events, on January 11, 1999, Elbit Imaging's Board of Directors made a decision regarding the free allocation of warrants to 676,709 shares at a price of $7 per share to Emanuel Gil (hereinafter: Age). Gil served at the time as President and Chief Executive Officer of Elsynt as Chairman of the Board of Directors of Elbit Imaging and Elsynt and Director of Elron.  Six months later, on July 19, 1999, Elsynt purchased Gil's shares in Elbit Imaging (885,140 shares) at a price of $10 per share.  This price was about 12.5 percent higher than the average price of Elbit Imaging's shares in the period between the change of control and that date (hereinafter: Gil Deal).

Today, Elsynt shares are no longer traded.  On August 22, 2005, nearly six years after the lawsuit was filed, a merger agreement was signed between Elsynt and Elbit Imaging.  Articles 350 and351 30Companies Law, 5759-1999 (hereinafter: Companies Law).  According to this agreement, each Elsynt share was exchanged for 0.53 Elbit Imaging shares.