Israel Takeover Guide

Transcription

1 Israel Takeover Guide Contacts Menachem Neeman and Daniel Lowbeer Herzog, Fox & Neeman

2 Contents Page INTRODUCTION 1 THE REGULATORY FRAMEWORK 1 SPECIAL TENDER OFFER 1 FULL TENDER OFFER 3 MANNER OF EXECUTING THE TENDER OFFER 5 THE TENDER OFFER MUST BE IRREVOCABLE EXCEPT FOR PERMITTED EXCEPTIONS 5 MISCELLANEOUS 8

3 INTRODUCTION The information included in this guide is updated to April 2008 and is of a general nature only. This guide is not a legal opinion or advice, and reliance upon it in connection with a transaction or concrete case is not permitted. The purpose of this document is to provide the reader with partial and not complete general knowledge in relation to the tender offer rules applying in Israel. In any case, prior to any intention to execute a tender offer in Israel, specific legal advice must be obtained in connection with the transaction and its legal aspects, and the information included in this document should not be relied upon. THE REGULATORY FRAMEWORK The legal framework applying to tender offers is found in the Companies Law (the "Companies Law"), in the Securities Regulations (Tender Offer) (the "Tender Offer Regulations") and in the various orders and directives circulated by the Israeli Securities Authority ("ISA") in this respect. The Companies Law includes two types of tender offer. The first is the special tender offer ( STO ). This is a tender offer in which a person acquires a substantial level of holdings of voting rights of a public company. In these instances, the law requires the acquirer to execute the share acquisition by way of a STO. The second the full tender offer ("FTO") is a tender offer in which a person wishes to acquire all the shares in the company. The Tender Offer Regulations add a further type of tender offer the regular tender offer. A regular tender offer is a tender offer which is not considered a full or STO, however the intention of the acquirer is to acquire more than 5% of the securities of a certain class registered for trading in a public company. This document deals with tender offers, the purpose of which is acquisition of control, and therefore this document does not deal with the regular tender offer. SPECIAL TENDER OFFER The duty to execute a STO and its exceptions The Companies Law sets out two circumstances in which a person in a public company must execute a share acquisition by way of STO: in a share acquisition in a company, granting the acquirer 25% or more of all voting rights at the General Meeting of the company ("Control Block"), where there is no other person in the company holding a Control Block in the company; in a share acquisition in a company, granting the acquirer more than 45% of the voting rights in the company, where there is no other person holding more than 45% of voting rights in the company. The Companies Law also sets out a number of exceptions to the rule applying to a STO: in a private placement by the company, provided that the procedure is approved at the General Meeting of the company as one intended to grant the acquirer the abovementioned levels of holdings (25% or 45%, as the case may be); in a private placement from a person who holds the shares in the abovementioned level of holdings (25% or 45%, as the case may be). page 1

4 The ISA is of the opinion that the signing of a voting agreement between shareholders which causes the shareholders to exceed the holding amounts requiring a STO, will obligate the shareholders to execute a tender offer. For example, where two shareholders each hold 30% of the voting rights in a company, they cannot sign a joint voting agreement without executing a tender offer (and not even in relation to shares of an amount less than 45% of the voting rights in the company). The tender offer will allow the minority shareholders to oppose the acquisition or creation of control in the company by way of the voting agreement. The duty of the board of directors and officers in a STO The board of directors and officers of the company in which shares are proposed to be acquired in the context of a STO, have a number of duties: the board of directors must express its opinion in relation to the merits of the tender offer. The board of directors can refrain from expressing its opinion provided that it reports the reason for doing so. The opinion of the board of directors is to be published up to 5 days prior to the date of final acceptance of the tender offer as an immediate report of the company to the public. Every holder of securities in the target company is entitled to peruse the opinion of the board of directors; the board of directors must disclose any personal interest that each director may have in the tender offer, or any personal interest arising from the tender offer; the doing of any act by an officer of the target company, the purpose of which is to cause an existing or anticipated STO to fail, or to harm its chances of acceptance, is prohibited. An officer who contravenes this provision is liable to the offerer and offerees for their damage, unless it is proven that such officer acted in good faith and had reasonable grounds to presume that the act that was taken was in the best interests of the company; notwithstanding, an officer is permitted to negotiate with the offerer in order to improve such offerer's offer, and also may negotiate with others to put together a competing tender offer. The precise scope of the duties of officers in a STO has yet to be laid out in the case law, and the scope of their duty is unclear and ambiguous. For example, it is not clear whether the approval of "poison pills" in agreements may be considered an attempt to frustrate an anticipated tender offer. Consent of shareholders in a STO A tender offer must be directed at all holders of securities of the class proposed to be acquired, on equivalent terms. A STO will be accepted only if: the holders of a majority of securities proposed to be acquired who have given notice of their position in relation to the offer have consented; and at least 5% of the voting rights in the target company are acquired. For the purpose of the above, the votes of any controlling shareholder of the offerer, any holder of a Control Block of the company, or of anyone acting on their behalf or entities related to them, are not taken into account. page 2

5 If a STO is accepted, the offerees who did not give notice of their position, as well as the offerees who opposed the offer, may consent to the offer within 4 days from the final acceptance date of the tender offer. Results of an acquisition not according to the STO rules (prohibited acquisition) Shares which are required to be acquired in the context of a STO and are not acquired in a STO do not grant their owners any rights in the company, and they are considered dormant shares. Further, a person whose level of holdings in the company exceeds the permitted threshold (without a STO) is not entitled to any right in the shares which are above the permitted threshold. This may occur where the company acquires shares in itself from some of the shareholders, and in such a way increased the amount of holdings of the remaining shareholders. It is further provided that any breach of the STO rules is considered a breach of statutory duty (a tort under the Civil Wrongs Ordinance) as against the shareholders of the company. Limitations following submission of a STO If a STO has been accepted, the offerer (its controlling shareholder, or anyone controlled by it) must not offer, for a year from the date of the tender offer, an additional tender offer to acquire shares of the company, and the offerer must not carry out a merger with the company, unless the intention to do so was provided for in the STO. FULL TENDER OFFER The duty to carry out a FTO A person may not acquire more than 90% of the shares or a class of shares in a public company other than by way of a FTO. Moreover, a person who holds more than 90% of the shares or any class of shares in a public company may not acquire additional shares of the same class for so long as such person holds more than 90% of the same class of shares. It is noted that there is a difference of scholarly opinion as to whether a reverse triangular merger transaction may be carried out in Israel, and whether a FTO is required for its execution. The dispute is deepened, amongst other things, by the fact that in a reverse triangular merger, the target company turns into a wholly-owned subsidiary of the acquirer as in a FTO. Therefore, there are those who argue that the approval mechanism of a reverse triangular merger in fact constitutes circumvention of the FTO rules (which require 95% support of the offer to be reached). The supporters of the other point of view argue that the Companies Law sets out a number of routes for the execution of transactions, and insofar as one acts in the framework of such routes, it is not possible to challenge the legality of the transaction. Recent case law of the Tel Aviv District Court (in the matter of Naftali Shani v. Malam Systems Ltd.) has given support to the latter point of view. However, the matter has yet to be heard in the Supreme Court. Compulsory sale of shares Unless offerees who hold 5% or more of the share capital of the company in relation to which the FTO is proposed do not accept the FTO, the tender offer is accepted and the offerer acquires all the shares in the company. page 3

6 Acquisition of convertible securities If a FTO is accepted, the offerer must, within a period of thirty days from the date of final acceptance of the FTO, carry out an additional tender offer for all securities convertible into the class of securities in relation to which the FTO was carried out. Such a tender offer must be made at a price not less than the offer price of the convertible security in the two months preceding the specification date of the first tender offer. Appraisal remedy Every offeree in a FTO (including an offeree who consented to the offer) may approach the district court up to three months from the date for acceptance of the tender offer, in an application that the court determine that the shares were sold at less than their fair value, and that the applicant must be paid the fair value of the shares sold. An application for an appraisal remedy may be filed as an application for a class action and be heard as a class action, if the application is approved by the court. On the question as to whether the stock exchange value of the shares reflects the fair value of the shares there is inconsistency amongst district court judgments, and there is still no Supreme Court determination on this matter. Results of an acquisition not according to the FTO rules (prohibited acquisition) Shares which ought to have been acquired in the context of a FTO and were not acquired by a FTO, do not grant their owners any rights in the company, and are considered dormant shares. It is further provided that breach of the FTO rules is considered breach of statutory duty (a tort under the Civil Wrongs Ordinance) as against shareholders of the company. Compulsory sale in a private company In this context, it should also be noted that the Companies Law allows for the execution of a compulsory acquisition of shares in a private company, where eighty percent of the shareholders who have accepted the offer to sell their shares have given their consent within two months from the making of the offer. For the purposes of calculating eighty percent, the controlling shareholder of the offerer or anyone acting on behalf of the offerer, or the controlling shareholder of the offerer, are not taken into account. A shareholder opposing the sale may approach the court in an application to prevent the compulsory sale. It is noted that the Companies Law states that the Minister is required to promulgate regulations in connection with the manner in which the offerer is required to notify an opposing shareholder in a private company of the compulsory sale of such shareholder's shares. The Minister has yet to promulgate regulations on this topic. A private company may state in its Articles of Association a different level than the eighty percent threshold. The Companies Law sets out transitional provisions in relation to companies which were incorporated prior to the commencement of the Companies Law (1 February 2000), according to which the applicable threshold for compulsory acquisition in such a company is ninety percent and not eighty percent. page 4

7 MANNER OF EXECUTING THE TENDER OFFER The tender offer must be made pursuant to a written specification to all holders of securities of the class proposed for acquisition The Tender Offer Regulations regulate the content of the tender offer document (called the "tender offer specification"), the tender offer timetable, methods of acceptance of the tender offer, and other technical aspects connected with a tender offer and its completion. The Tender Offer Regulations apply to all types of tender offer the regular tender offer, STO and FTO. Notwithstanding, and as is set out below, there are often certain distinctions between the technical aspects of the various types of tender offer. The tender offer must be made pursuant to the tender offer specification, which must be signed by the authorised signatories of the offerer, and directed towards all holders of securities of the class proposed to be acquired. The Tender Offer Regulations include specific provisions relating to the content of the tender offer specification, in accordance with the type of tender offer. The tender offer must include equivalent provisions for all offerees The tender offer and acceptance of the tender offer must be on equivalent terms for all offerees holding securities of the same class. The stock exchange member which coordinates the tender offer for the offerer must ensure payment of the consideration to all offerees in the tender offer. In addition, the offerer must provide a guarantee to the stock exchange member which coordinates the tender offer, for the purposes of ensuring payment of the consideration to all offerees. The guarantee must be to the satisfaction of the stock exchange member. THE TENDER OFFER MUST BE IRREVOCABLE EXCEPT FOR PERMITTED EXCEPTIONS A tender offer is an irrevocable offer, and must not be conditioned upon terms, other than terms set out in the Tender Offer Regulations. The terms upon which it is permitted to condition the tender offer are: receipt of approvals, permits and licenses required for completion of the tender offer (for instance, approval of the Commissioner for Restrictive Trade Practices and other regulatory approvals); conditioning the tender offer on a minimum level of acceptance of the offer; revocation of the tender offer in the case of material adverse change in circumstances, of which the offerer did not know and was not able to have known, where the terms of the tender offer in such new circumstances became materially different from the terms that a reasonable offerer would offer, if such offerer knew of such circumstances. Acceptance of a tender offer A regular or FTO is accepted by giving a positive response to the offer. A STO is accepted by giving a positive or negative response to the tender offer, since a STO is accepted only if a majority of offerees who responded to the offer agreed to accept it. In any case, an offeree may revoke its notice in connection with a tender offer up until the final acceptance date. As stated above, if a STO is accepted, offerees who did not give notice of their position in relation to the offer, and offerees who opposed it, may consent to the offer within 4 days of the final date for acceptance of the tender offer. page 5

8 If the quantity of securities which the offerees have agreed to sell exceeds the quantity required in the context of the tender offer, a proportional (pro-rata basis) acquisition is carried out from all the offerees who responded positively to the tender offer. Timetable for a tender offer The acceptance date for a regular tender offer and FTO must be a trading day not earlier than the fourteenth day from the date of the tender offer specification, and in any case, not more than sixty days from the date of the tender offer specification. The acceptance date for a STO is the trading day not earlier than the twenty first day from the date of the tender offer specification, and in any case, not later than sixty days from the date of the tender offer specification. An offerer may postpone the final date for acceptance of the tender offer within the acceptance period, provided that also after postponement of the acceptance date, the final acceptance date is not more than sixty days from the date of the tender offer specification. If a competing tender offer is submitted, an offerer may postpone the acceptance date of its offer until the final acceptance date of the other tender offer, provided that the guarantee to the stock exchange member is extended, so that it remains valid also for the additional extension period. Tender offer specification The Tender Offer Regulations include detailed provisions in relation to the content and scope of disclosure the offerer must provide in the context of the tender offer specification. In general, the broadest duty of disclosure applies in a STO, since in such context the acquirer buys control (or at least a Control Block) in the company and remains together with other shareholders in the company. Therefore the scope of information required for the purpose of decision-making by the offerees is the greatest, and includes information relating to the offerer and its plans in relation to the company. Correspondingly, the least amount of information required is in the context of a FTO, in which the offerer undertakes to carry out the tender offer only if it manages to acquire 100% of the shares in the company through the FTO process. Generally, the information an offerer is required to provide in the tender offer specification relates to: the class of security which it wishes to acquire; details of the consideration; the terms of execution of the tender offer (in accordance with the terms upon which an offerer is permitted to condition the fulfilment of the tender offer); details regarding the offerer; details of agreements of the offerer and sources of finance for the tender offer; and details regarding the obligations and intentions of the offerer. Details which must be included in a FTO The principal details which must be included in a tender offer specification for a FTO are as follows: details of the security proposed to be acquired the quantity of securities and amount as a percentage of capital and voting rights; in a share acquisition offer, the highest and lowest price of the share in the year prior to the offer (taking into account distribution of dividends); the share price immediately before submission of the offer, and the difference between it and the offer price as a percentage. In an option or warrant acquisition offer, similar details must be set out in relation to such options or warrants. details of the consideration the consideration and date of payment. If the consideration is not cash or a security, a description of the consideration and the rights and obligations accompanying it. page 6

9 details of the offerer name, place of incorporation, form of incorporation, registered address, names of parties interested in the offerer and their holdings in it and an itemisation of business and family connections between the offerer and parties interested in it, and the target company, all according to the best of the offerer's knowledge. In addition, the tender offer specification must include notices which security holders in the target company provided to the offerer regarding their intention to accept or not to accept the tender offer. Details which must be included in a STO In a STO, all the details set out in a FTO must be included, as well as the following details: details of the offerer in addition to the details set out in relation to a FTO, the offerer must add in a STO: criminal convictions of the offerer or controlling shareholder in it, for offences the registration of which has yet to pass the limitation period, and details in relation to directors and officers of the offerer. details of agreements of the offerer and sources of its finance the offerer must detail every agreement or arrangement it has with any other person in connection with the securities of the target company, including an undertaking to transfer securities to such other person, or options which the offerer granted for the acquisition or sale of securities of the target company. The offerer must specify the sources of finance by way of which it intends to finance the acquisition, including intentions to sell its assets for the purpose of finance. Moreover, the offerer must specify details of the loan it received in relation to financing the acquisition of the securities, including: identity of the lender, loan period and terms, effective interest on the loan, securities granted to the lender out of the assets of the target company or its securities, financial covenants set out in the loan and the offerer's plans for repaying the loan, and if it has no such plans, it must make a declaration to such effect. Moreover, the offerer must specify whether it undertook to pledge the purchased shares or any portion thereof. Details of obligations of the offerer and its intentions itemization of obligations (as far as possible) in relation to the intention of the offerer to execute additional tender offers within a range of one year, including the quantity and price at which it intends to acquire; obligations of the offerer to execute a merger within a range of one year, including the terms of the merger and exchange ratio. The offerer must specify its plans (insofar as it has any) in relation to the target company, information regarding which is likely to be important to a reasonable investor, including business policy, board composition, realisation of assets and distribution of profits, etc. Special cases: exchange tender offer; tender offer for self-acquisition of shares In a tender offer in which the proposed consideration is securities, the offerer must publish a prospectus in connection with the securities proposed as consideration. The prospectus must be in accordance with the provisions of the Securities Law , and the regulations promulgated thereunder. The corporations law in Israel permits a company to acquire its own shares, if the acquisition is executed out of distributable profits, so long as there is no suspicion that as a result of the self-acquisition, the company will not be able to meet its existing and anticipated debts as they fall due, or if the court has given approval, following approval by the board of directors of the company, that the self-acquisition is not capable of harming the capacity to pay of the company as stated above. The Tender Offer Regulations state page 7

10 that if a company, or a company controlled by it, executes a self-tender offer for its own shares, it must specify in the tender offer specification the sources of finance for the tender offer, including loan terms and the amount of profits available for dividend distribution in the company, and what portion thereof the company used for the purpose of the self-acquisition. In addition, the company executing the self-acquisition by way of tender offer must publish the reasons of the board of directors for executing the selftender offer. Amendment of the tender offer specification An offerer may amend the tender offer specification in a manner either benefiting the offerees or which is not capable of influencing the decision of the offerees, up until one day prior to the final acceptance date of the tender offer. If the tender offer specification is amended as aforesaid, the final acceptance date will be postponed by the number of days according to the Tender Offer Regulations, in order to give the security holders an additional period to form their position. Amendment of the tender offer specification is done only after receipt of the approval of the stock exchange member coordinating the offer, since its obligations to acquire the securities if the offerer does not acquire them remains in force also on the improved offer terms. The ISA is authorised to give orders to an offerer regarding amendment of the tender offer specification (including in relation to acceptance dates), if it is of the opinion that it is missing details important to a reasonable holder of securities, or if it does not comply with, in its opinion, the Tender Offer Regulations. MISCELLANEOUS Prohibited activities for an offerer in the tender offer period In the acceptance period of a tender offer, it is prohibited for an offerer, a corporation in its control, or a controlling shareholder in it, to execute or undertake to execute a sale or acquisition of securities of the target company. However, it is permitted for an offerer to realize convertible securities acquired prior to publication of the tender offer. Tender offer to which the laws of a foreign country apply In a tender offer to which, in addition to the provisions of the Tender Offer Regulations, the laws of another country also apply, the Chairman of the ISA may exempt the offerer from compliance with the Tender Offer Regulations, if such Chairman is of the opinion that compliance with the regulations is capable of harming the parallel tender offer under foreign law, and that non-compliance with the provisions is not capable of harming a reasonable offeree. page 8