Why require a merger notification for every transaction? There is a lack of logic in the requirement to submit a merger notification in every transaction involving a corporation that is a monopoly. Is it necessary when a conglomerate sells one of its fields of activity?
Adv. Ronit Amir-Yaniv
[Line cut off at the top of the column] ... "Telma", Unilever Israel, for the second merger in the company Shikstel Industries Ltd. was acquired. The transaction required the submission of a merger notification solely because Unilever Israel is a monopoly in other fields - mayonnaise and margarine.
In another case, also from the recent period, a transaction was signed in which a large corporation sold one of its divisions to a smaller company. The total sales turnover of the selling corporation and the acquiring company exceeded NIS 150 million, a fact that ostensibly required the submission of a merger notification. However, the sales turnover of the sold activity alone, together with the turnover of the acquiring company, did not reach this amount, and therefore the General Director of the Antitrust Authority decided to grant an exemption from filing a merger notification in this case.
These examples illustrate the lack of economic logic in the legislator's requirement to submit a merger notification in every transaction involving a monopoly (or its subsidiary) and in any case where a large corporation (whose sales turnover exceeds the threshold set in the Restrictive Trade Practices Law) sells/acquires a division or defined activity on a relatively "small" scale compared to its business, but which exceeds the NIS 10 million threshold set in the regulations.
Two tests
The need to obtain the General Director's approval arises subject to two preliminary tests. First, the definition of the term "merger of companies" in Section 1 of the Restrictive Trade Practices Law is examined, and then - only if the examined transaction falls within the definition of a "merger of companies" - one moves to the next stage of the "market tests" set out in Section 17 of the Law. These are the following alternative conditions: (1) As a result of the merger, the share of the merging companies in the total production, sale, marketing, or purchase of a certain asset and a similar asset exceeds half; (2) The combined sales turnover of the merging companies, in the balance sheet year preceding the merger, exceeds the sum of NIS 150 million; (3) One of the merging companies is a monopoly.
If these two tests are met, the General Director may exercise his discretion and oppose the merger or condition it on terms "if there is a reasonable concern that as a result of the proposed merger, the public will be harmed regarding the price level, quantity, or quality of the asset or service in question.
It is not enough to examine the tests of Section 1 and Section 17 of the Restrictive Trade Practices Law, but additional tests must be performed, in accordance with the General Director's prevailing interpretation of the term "most of a company's assets" in Section 1 of the Restrictive Trade Practices Law, as well as in accordance with the principles set out by the General Director in his decisions, the main one being regarding the de facto merger of Golkal 1992 Ltd. and Tzover Trading Company Ltd. (dated 11.7.98). The technical measurement of whether less than a quarter of the means of control in a company were acquired is ostensibly not enough. Because, for example, if it turns out that due to the dispersion of holdings in a certain company, the acquisition of a rate lower than a quarter of the means of control in the company will grant the buyer de facto control, the acquisition transaction may be defined as a "merger of companies".
No logic
The General Director takes a similar approach in a transaction for the acquisition of the assets of a separate division or a separate activity. The General Director interprets the term "most of a company's assets" as a term that is not measured by a purely accounting test, referring to this or that page of the value of the sold assets or the volume of activity derived from them. The test is a substantive-economic test: whether a field of activity is sold that is distinct and separate from the seller's other fields of activity. The practical result is that if a transaction is the sale of most of the assets of a separate division or most of the assets of a separate activity within the company - there is a good chance that the transaction will be considered a "merger of companies". And if the conditions of Section 17 of the Restrictive Trade Practices Law also apply to it - a merger notification must be submitted.
Section 17(a)(2) of the Restrictive Trade Practices Law states that one of the alternative conditions for submitting a merger notification is: "The sales turnover of the merging companies together, in the balance sheet year preceding the merger, exceeds the sum of 150 million New Shekels...". This condition - together with Regulation 8 of the Restrictive Trade Practices Regulations, which clarifies how to calculate the sales turnover and sets the NIS 10 million threshold - creates a problematic situation. Whenever one of the merging companies is a medium-sized company or larger, the submission of a merger notification will be required, since the aggregate sales turnover exceeds the minimum threshold.
This requirement is logical when a large conglomerate in the food sector, such as Osem, Elite-Strauss, or Unilever, acquires a new division or a small company. However, in the opposite case, if the same conglomerate sells one of its divisions to a small company and exits the activity in this field - there is no logic for such a transaction to have to go through the supervision and examination procedures solely because of the overall sales turnover of that large conglomerate.
Why require
The aggregate sales turnover of the acquiring company together with the sales turnover of the sold activity / asset, and not the general sales turnover of the large conglomerate.
It is possible to apply to the Authority with a pre-ruling request or an inquiry and receive its written consent, instead of submitting a merger notification. This is an example of a very practical and desirable policy practiced by the Antitrust Authority, which constitutes a lenient interpretation when signing a transaction in which a corporation sells a negligible subsidiary of cleaning products, it becomes clear to it that it must submit a merger notification. This is solely because it has another subsidiary that is a monopoly, even if in a field that does not relate at all and is not close to the field of the transaction - for example, in certain food products. The obligation of merger notification must be canceled in certain cases.
In light of the wording of Section 17(a)(2) of the Law, it is to be hoped that such an explicit amendment will be introduced into the Law as soon as possible or within the framework of the amendments expected to be approved soon.
Another amendment that the legislator should introduce, in my opinion, is in Section 17(a)(3) of the Restrictive Trade Practices Law. Today there is an obligation to submit a merger notification in any transaction where one of the parties to it (or its parent/subsidiary company) is a monopoly. The harsh result is that upon signing a transaction in which a corporation sells a negligible subsidiary of cleaning products, it becomes clear to it that it must submit a merger notification. This is solely because it has another subsidiary that is a monopoly, even if in a field that does not relate at all and is not close to the field of the transaction - for example, in certain food products. If it had acquired additional activity and "increased general market power" - so be it. But why require it to submit a merger notification in a transaction in which the corporation sells and exits the activity in the field? The obligation of merger notification must be canceled in such cases.
The author, a partner at the Yigal Arnon & Co. law firm, represented Unilever in the agreement for the sale of the controlling shares to the buyers of Shikstel Industries Ltd.