A controlling shareholder in a public absorbing company in a merger proceeding, which included a cash component and a share component in the absorbing company, acted to increase the cash component in order to retain a high percentage of shares.
The Court accepted the controlling shareholder's contention of lack of personal interest. In an Israeli public company, approval of a transaction in which the controlling shareholder has a personal interest requires a majority of the shareholders who do not have a personal interest. A 'personal interest' is not a matter that results from the very holding of shares, and is determined by means of a two-tier test that examines the intensity of the difference between the personal interest and the company's interest and whether the intensity of the personal interest is significant enough to impair the ability to see the company's best interest. Control derives from the holding of the company's shares, and hence the interest in maintaining it is also the interest of the shareholder that springs from the very holding of the shares. Here, the controlling shareholder preferred to retain a percentage of shares close to the threshold of control, even at the cost of increasing the company's expenses. However, as the control stemmed from the very holding of the shares, and as a significant shareholder in the company who benefits from its success and is harmed by its losses, it cannot be argued that his preference to maintain his holdings will harm his ability to see the best interests of the company. Therefore, this is not a 'personal interest’ and he was entitled to vote.