Israel: Merger Parties Fined for Exchanging Sensitive Information

At the end of May, the Israel Competition Authority’s Director General published a consent decree with Mizra Delicacy Food Industries and Zilber Meat and Sausage Products Industries. Both companies agreed to pay approximately ILS 1.5 million to the State treasury for violating the Competition Law. The consent decree is now open for public comment.

The violations occurred amid a merger deal between Mizra and Zilber, two companies active in the meat products market. The companies sought approval from the ICA’s Director General, who found the merger itself did not raise significant competitive concerns. However, the Director General later discovered that Zilber, the target company, shared sensitive commercial data with Mizra during due diligence and merger preparations, prior to the merger’s official approval. According to the Director General’s statement, this action violated the Director General’s rules on information disclosure between competitors (outlined in Public Statement 2/14).

This marks the first instance of the Director General taking enforcement measures for information exchanges between competitors during due diligence and merger preparations. It also signifies the first implementation of the rules of conduct in this respect, following their publication by the then-Director General in 2014.

What Is Considered Business Information That May Harm Competition?

The Director General indeed recognizes that disclosures of information during due diligence examinations and merger preparations are essential for deciding the merits of a merger. However, even within this framework, competitors may not exchange business information in a way that might harm competition between them.

In this case, the Director General held that Mizra and Zilber exchanged sensitive commercial information without taking the necessary precautions. Inter alia, they exchanged:

• A detailed list of customers and their contact details, including the type of customer and details of the products purchased by each customer.
• The debts and outstanding balances of each customer.
• Zilber’s bank account statements and the revenues expected from each customer.
• The credit terms of each customer.
• A comparison of sales data for each customer.
• Information about Zilber’s retail prices and product inventories, including the quantity and cost of the products in stock, information about Zilber’s suppliers, and data on sales of Zilber’s products.

According to the Director General’s announcement, the information disclosed to Mizra also enabled it to obtain high-resolution segmentation and classification data. Possession of such data had the power to subsequently reduce Mizra’s uncertainty about Zilber’s business activities.

According to the consent decree, Mizra also forwarded certain information to a significant number of parties, including managers and employees in Mizra, in Mizra’s parent company, and in its distribution division. Moreover, Mizra did not instruct those who received the information to maintain confidentiality or refrain from sharing it with other Mizra employees.

As a result of these violations, the Director General opened an enforcement proceeding against the companies, culminating in the consent decree. The consent decree is available for public comment for 30 days. The ICA will then submit it to the Competition Tribunal for approval.

Mechanisms for Examining Data Exchanges between Parties to a Transaction

With this enforcement measure, the Director General is sending a strong message to the market that the ICA will not tolerate disclosures of sensitive information during transaction preparations. Moreover, the Director General implemented this enforcement measure for a merger that did not itself raise any competitive concerns. This leads to the conclusion that parties should expect significant exposure to enforcement measures if they disclose sensitive information during more complex competitive transactions.

Heightened vigilance is thus necessary during exchanges of sensitive competitive data between potential or actual competitors preparing for a merger or other transactions (such as a joint venture). This is especially true when the transaction requires the Director General’s approval. Parties must establish appropriate mechanisms to ensure the legality of such data disclosures. In addition, they must limit information sharing to only to the extent necessary for evaluating the transaction.  It is especially crucial to exercise extra caution if there is significant competitive intensity between the parties involved and if the transaction might raise competition concerns.

***

Barnea Jaffa Lande’s Antitrust and Competition Department is at your service to answer any questions about information exchanges between competitors, merger transactions, and more.

Adv. Gal Rozent heads the firm’s Antitrust and Competition Department.

Adv. Irit Brodsky is a partner in the department