Public Companies, Financial Statements and Competition

Companies’ public statements regarding their business situation is a recurring concern in competition law discussions. Recent headlines have spotlighted the ambiguity in this field and the regulatory tension that emerges between the principles of competition law and legal obligations resulting from securities law. Pending a hearing, the Israel Competition Authority intends to indict the Strauss Group for alleged restrictive arrangement attempts made via public statements. This indictment follows a late 2021 investigation targeting prominent food and consumer goods companies for suspected restrictive arrangements. As part of that investigation, Competition Authority investigators conducted raids at food companies (including Osem, Unilever and Diplomat) and retail chains (Shufersal, Victory, Rami Levy and others). They also questioned senior company officers.

According to the Competition Authority’s announcement, Strauss’s statements in the media and in its financial statements signaled to competitors that it was considering raising the prices of its products. The Competition Authority considers this is an attempt by Strauss to reach a restrictive arrangement with its competitors. This marks the first time the Competition Authority’s Director-General intends to initiate criminal enforcement actions in connection with statements published in a public company’s financial reports.

Public Statements – The Tension between Competition Law and Securities Law

Back in 2014, the Competition Authority published a draft policy document on the subject of public statements by companies in the business sector that harm competition. The document emphasized that, in certain situations, public statements could potentially undermine competition and, at a minimum, indicate an intent to create a restrictive trade agreement. The Competition Authority also stated in the draft policy document that even comments published in the media as “trial balloons” may help competitors better understand each other’s future intentions, thus facilitating coordination between them that may harm consumers.

Competition law aspires to prevent public disclosures of competitors’ sensitive business information. However, there is inherent tension between the desire to maintain uncertainty among competitors in order to protect competition and the disclosure obligation that applies to public companies under the Securities Law (For more information on this topic, see here).

Reporting corporations, as per the Securities Law, must disclose material business information, including the impact of macroeconomic trends and events, to investors and the public. This duty ensures transparency in their operations.

The structure of competition in the market is also a matter that requires reporting. In a 2022 position paper, the Israel Securities Authority emphasized that reporting corporations must assess the effects of inflation and interest rate changes on their current and future financial results and provide corresponding disclosures. This requirement aims to enhance transparency in reporting. One key element in evaluating the effects of inflation and determining the extent of disclosure is considering the anticipation of price hikes resulting from the increase in the corporation’s expenses.

Disclosure of Information

Pursuant to the Competition Law, disclosure of information required by law will not be deemed an unlawful restrictive arrangement or an attempt to achieve a restrictive arrangement. However, the challenge is to determine and understand the borderline between information the law requires companies to disclose and information whose disclosure is not compulsory but is intended to convey intentions to the company’s competitors. Obviously, it is important to examine each case according to its concrete circumstances.

However, the lack of legal certainty in this regard is problematic. On the one hand, it may excessively deter public corporations from disclosing information, resulting in violation of their obligations pursuant to the Securities Law and violation of investors’ rights to receive full information about the corporation. On the other hand, the uncertainty might expose law-abiding public corporations and their officers to violations of the Competition Law, thereby resulting in unreasonable prejudice to their rights and in legitimate claims of abuse of process and selective enforcement. Therefore, the Competition Authority, the Israel Securities Authority, and the Ministry of Justice should have jointly regulated this tension and clearly delineate the scope of the information disclosure, prior to implementing enforcement measures by virtue of the Competition Law in respect of public corporations’ reports to investors.

Joint Regulation

Unfortunately, such joint regulation has not yet occurred. The outcome is that the criminal enforcement measures the Competition Authority now intends to implement not only fail to resolve the uncertainty, but actually exacerbate it. Public corporations may find themselves between a rock and a hard place when it comes to reporting to the public, and forced to choose between the risk of violating the Securities Law and the risk of violating the Competition Law.

But better late than never: the regulatory authorities should formulate and publish a joint position statement that sets relevant criteria and “safe harbors” enabling public corporations to disclose material information to investors and the public without fear of being accused of violating the Competition Law.

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Barnea Jaffa Lande’s Competition Department is at your service to assist you and answer any questions about public statements, disclosures in financial statements, and other issues.

Adv. Irit Brodsky is a partner in the department.