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Merging without Approval: Strauss Group Might Pay ILS 111 million

The Israel Competition Authority’s Director General recently announced that, subject to a hearing, she intends to rule that Strauss and Wyler Farm violated the Economic Competition Law and implemented a merger that could harm competition, without her approval. The Director General intends to impose the maximum sanction prescribed by law on Strauss (about ILS 111 million) and to impose a sanction of about ILS 1.5 million on Wyler Farm. She also plans to fine their officers hundreds of thousands of shekels.


Strauss manufactures, markets, sells, and distributes a diverse range of food products, including milk and dairy products, vegetable drinks, salads, etc. Wyler Farm manufactures tofu products under the Wyler Farm brand that Strauss distributes to chains, tofu products for other companies’ private labels, and fresh plant based beverages (based on soy milk, almonds, etc.) for Strauss.


The Merger


Strauss sought to acquire control of Wyler Farm. In July 2021, the parties applied to the Director General for approval of the merger. In February 2022, the Director General opposed the merger, inter alia, due to the expected harm to competition in the field of fresh vegetable beverages.


The Director General learned that, during negotiations prior to the merger, Strauss designed that, after the merger, Wyler Farm focus solely on tofu products, contrary to Wyler Farm’s business plan from the outset. Nevertheless, Wyler Farm agreed to this. The parties further agreed on a negative covenant whereby, as of the signing date of the merger agreement and until its execution or cancellation, Wyler Farm would refrain from entering new operation segments (including vegan products) beyond those included in Wyler Farm’s tofu products operating segment.


According to the Director General, this negative covenant created an effective merger between the companies prior to receiving her approval, since Strauss acquired “a foothold” in Wyler Farm’s vegetable-based products operating segment as of the signing date of the merger agreement and until its cancellation (due to the Director General’s opposition). The Director General stated that, since Wyler Farm acted in conformity with the negative covenant, the constraint on its segments of operations could have delayed or even thwarted its plans to develop new products and expand its independent operations in the field of plant-based products in a manner that, at the very least, could harm competition.


Negative Covenants


The Director General’s position indicates intervention in the scope of negative covenants, i.e., the restrictions a buyer customarily imposes on the activities of the target business during the period between the signing of the agreement and the transaction consummation date. Negative covenants are a common practice in merger transactions. Their aim is to prevent material changes in the acquired business that could adversely impact the profitability of the acquisition or even thwart it during the interim period until approval is received. However, the Director General is indicating that companies must ensure that such covenants, which the Director General recognizes as legitimate in principle, do not potentially or actually harm competition or constitute illegitimate interference in the business of the target, before she approves the merger.


The scale of the fine the Director General intends to impose on Strauss indicates that she considers Strauss to have committed a very grave violation of the Economic Competition Law. We assume the reasons for this are the following: First, this was a merger between competitors, which the Director General opposed due to concerns of harm to competition. Thus, the Director General deems this a violation that is not merely technical, but rather materially harmful. Second, the lengthy time frame that elapsed between the signing date of the agreement and the Director General’s opposition to the transaction, during which these negative covenants were in force, intensifies the gravity of the violation.


The Director General’s position, as reflected in this case, requires companies to carefully scrutinize the content, scope, and duration of negative covenants that may be included in merger agreements, and certainly in merger agreements between potential or actual competitors. The Director General’s position also requires parties to ensure these negative covenants do not harm competition or constitute actual implementation of a merger prior to obtaining the Director General’s approval.




Barnea Jaffa Lande’s Antitrust and Competition Department is at your service to advise and assist you in relation to all aspects of contractual-business preparations for mergers, and any other related issues.


Adv. Gal Rozent heads the Antitrust and Competition Department.


Adv. Ran Karmi is an associate in the department.

Tags: ICA | Merger Approval | Strauss