Significant Change in Format to Report Mergers to Competition Authority

On March 20, 2022, the Israel Competition Authority (ICA) declared a drastic amendment to the regulations governing the mode of reporting merger transactions that require its approval. The new regulations were declared in the official gazette, Reshumot. The new regulations revise the format for reporting mergers to the ICA’s Director-General. Their stated purpose is to ensure the ICA receives all of the information it needs to examine the merger, already at the filing stage, in order to streamline and shorten the merger examination process and ensure more efficient use of the ICA’s resources. These regulations will now be called the Economic Competition Regulations (Registration, Publication and Reporting of Transactions) of 2004.

The regulations focus on two principal changes:

The first is reducing the number of transactions that require reporting by raising the reporting threshold relating to sales turnover. From now on, the Director-General’s approval of a merger is only required if the minimum annual turnover of at least two of the merging companies is ILS 20 million, instead of the previous ILS 10 million threshold.

The second and primary change significantly increases the scope of information parties to a merger must collect and provide to the Director-General when filing their merger notices.

The change in the scope of the required information will likely impose a heavy burden on the parties to transactions requiring reporting. For each such transaction, the parties must devote a considerable amount of time collecting the relevant information and preparing the merger notices, concurrent with work on the transaction itself.

A. Raising the Merger Reporting Threshold in Terms of Sales Turnover

Today, companies must report a merger only if the aggregate sales turnover of the parties to the merger exceeds about ILS 367 million. Another condition is that the sales turnover of each of at least two of the merging companies is a minimum of ILS 10 million. The new regulations raise the minimum reporting threshold to ILS 20 million for each of the companies. The ICA will update the minimum turnover annually according to the CPI.

This amendment came into effect on the inception date of the regulations—March 20, 2022.

There was no amendment to other conditions requiring the filing of merger notices, such as if the merger creates a market share that exceeds 50%, or if one of the parties holds more than 50% market share.

B. Change to Format of Reporting Mergers as of May 20, 2022

The change in the format of reporting mergers includes replacing the current merger notice forms, for both a full merger notice and an abbreviated notice, with a new unified merger notice form. The new form significantly increases the scope of information merging companies must provide in the merger notice.

Two months after the inception of the new regulations, i.e., as of May 20, 2022, merging companies must file the new form, and the ICA will no longer accept the previous forms.

From now on, the parties must provide information regarding their related parties to the ICA, already when filing the merger notice. This information is of far wider scope, and at a higher resolution, than that previously required. The parties do not always have such information in their possession, and it can be difficult to obtain it, particularly in instances of a decentralized or dispersed ownership structure.

For example, details about the following are required:

• All holders of 10% or more of the rights in the merging company, whether directly or indirectly.
• The ultimate controlling shareholder of any entity holding 20% or more of the merging company, and details about the competitive affinity between each of those rights holders and the other party to the merger.
• All companies in which the merging company holds more than 10%, whether directly or indirectly, operating in markets subject to an increased reporting obligation (as defined below). Also required are details about the competitive affinity between each of those companies and the other party to the merger.
• The ultimate controlling shareholder of the merging company and of every company in which it holds more than 20%, whether directly or indirectly, operating in markets subject to an increased reporting obligation. In this instance, too, details are required about the competitive affinity between each of those companies and the other party to the merger.

Additionally, the new format requires extensive information from every party to a horizontal merger (among competitors) and from every party to a vertical merger (among players operating in the different links in the manufacturing chain). Every party must disclose its sales volumes and market shares in the operating segments where there is horizontal or vertical overlap, as well as information about competitors, suppliers, and customers. These details are required even if the market share of that party is minuscule. Prior to the amendment, only parties whose market share exceeded 25% had to provide details of such scope.

For mergers in which the parties command relatively high market shares, the new format dictates considerable additional and detailed information:

• If the aggregate market share of the parties to a horizontal merger is 25% or more, a description of the characteristics of the competition in the market is required, including how customers choose between suppliers, distinct customer groups, differentiation between competitors in the market, and more. Each party must also provide details of arrangements with competitors in the operating segments relevant to the merger. This includes any specific cooperation, any purely financial arrangements, such as loans, and more.
• If a party’s share of a vertical merger is 30% or more in a market where there may be a vertical affinity between the parties, details are required about the arrangements between that party and its competitors in the operating segments relevant to the merger.

Markets Subject to an Increased Reporting Obligation

The new regulations define “markets subject to an increased reporting obligation” and impose an even broader reporting obligation on parties to mergers in these markets.

On such occasions, the parties must provide additional information about each of the operating segments relevant to the merger transaction under increased reporting obligations. These include entry and exit of competitors during the three years preceding the filing of the merger notice, entry barriers and expansion barriers, regulatory requirements, details about the increased efficiency or streamlining expected to result from the merger transaction, and information about the competition from imports.

In a horizontal merger, the ICA will impose an increased reporting obligation in markets where the aggregate share of the merging companies is 20% or more. In a vertical merger, the obligation will apply in markets where the share of one of the merging companies is 30% or more.

C. Merger Regulations – What’s Next?

The new reporting format will likely significantly increase the burden on filers of merger notices. Parties to transactions not posing any competitive concerns will particularly feel this burden. Up until now, the parties to such transactions had to provide minimal information to the ICA, and mergers were often approved without requesting any additional information.

According to official press releases, the purpose of the amendment is to provide the ICA with all the information it needs to examine the merger already at the time of the filing, thereby streamlining and shortening the merger examination process and ensuring a more efficient use of resources. This explanation is questionable, certainly as far as the vast majority of mergers are concerned, which, in any case, did not have to disclose such volumes of information prior to their approval. In any case, it will be interesting to see if this new format indeed results in shortening the merger examination and approval times in a way that justifies imposing such a heavy reporting obligation on relevant parties.

Another interesting question concerns the fate of the “ultra-green” track. This track aimed to approve mergers clearly posing no competitive concerns within a few days. From now on, the ICA expects, in any case, to receive the additional details in each merger notice currently only required in the “ultra-green” track, and even more than that. Does this mean many mergers will be approved in an “ultra-green track,” i.e., within a few days? Alternatively, could it be that it will become unnecessary to incentivize parties to provide the ICA with additional details through a fast track, and this track will become superfluous?

Click here to read the new regulations (Hebrew).

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We are at your service to answer any question in this regard, and provide a preliminary explanation of how to prepare merger notices under the new regulations, handle this issue during the negotiations for the transaction, and to prepare the merger notices for any specific transaction.