The implementation of a notifiable merger prior to its clearance or without an approval is a criminal offence. The sanctions determined in the Competition Law were modified in the 2019 amendment of the Law, which annulled the classification of aggravating circumstances, but raised the penalty for being a party to restrictive arrangement to a maximum of five years’ imprisonment, classifying the offense as a crime. In addition, fines may be imposed, up to about 2.2 million shekels for an individual, plus 14,000 shekels for each day the offence persists. In the case of a corporation, the fine or the additional fine, as applicable, will be doubled. Moreover, the Competition Law includes a strict liability offence for managers, under which any person serving in a corporation at the same time that an antitrust offence is being committed, in the role of an active director, a partner (other than a limited partner) or a senior administrative employee with responsibilities in the relevant field, has a criminal liability for the offence, unless it can be shown that the offence was committed without the manager’s knowledge and that this manager took all reasonable measures to ensure compliance with the Competition Law.
Alternatively, the Director General may issue an administrative declaration, stating that a merger has been executed unlawfully, thereby exposing the merging parties to civil lawsuits, as such declaration constitutes prima facie evidence in any judicial proceedings.
Furthermore, the Competition Tribunal may order the separation of an entity merged in violation of the Competition Law on the application of the Director General and upon showing a reasonable likelihood of significant harm to competition or injury to the public in respect of the product’s price, quality, quantity, or regularity or terms of supply.
In practice, the director general has taken action against allegedly unlawful mergers in only a few cases, two of which resulted in criminal sanctions. The Competition Tribunal has considered only two cases in Israel brought by the Director General to separate an allegedly illegally merged entity: one in 2007 - Prinir (Hadas 1987) Ltd and Milos (1989) Ltd and the other in 2003 - Baron-Fishman Communication Ltd and Yedioth Achronot Ltd.
Additionally, the Competition Law enables the Director General and parties to an unlawful merger to agree in the framework of a consent decree, inter alia, on an amount of money to be paid to the State Treasury in lieu of criminal procedures or an administrative declaration. The consent decree may include a provision, according to which the parties do not admit responsibility (ie, that a merger has been unlawfully executed). Over the past year, the Competition Tribunal approved two consent decrees. The first involved two construction companies: El Har Ltd and Taan Ltd. The companies made a transfer of shares according to a share purchase agreement, prior to the submission of pre-merger notification forms. The companies agreed to pay an amount of 250,000 shekels, and the director general undertook not to take additional enforcement measures in the matter. The second consent decree involved a share purchase agreement between Tal Hel Yasca Ltd and Fresh and Smooth Part 2 Ltd. Prior to the submission of pre-merger notification forms by either of the parties, the companies informed the director general that Tal Hel had transferred a sum of 5 million shekels to the acquired company, to enable its continued operation in light of its financial problems. According to the Director General, the provision of finance was part of the merger transaction, and therefore constitutes an implementation of the transaction before approval. The parties agreed to pay the State Treasury sums of 170,000 and 40,000 shekels, pursuant to an agreement that they will not admit to a violation of the provisions of the law and the Director General undertakes not to take additional enforcement measures against them in this matter.
The Director General can impose monetary sanctions in lieu of criminal indictment, inter alia, in case of an unlawful merger. In this respect, the ICA’s guidelines on the enforcement procedures for the use of financial sanctions state that financial sanctions will be imposed mostly in the case of non-horizontal mergers (this does not, however, negate the possibility that in the appropriate circumstances the ICA would choose other administrative enforcement tools over criminal ones, in respect of horizontal mergers). The monetary sanction under the new amendment is up to 1 million shekels for a person that, inter alia, executed an unlawful merger. Regarding corporations, the 2019 amendment of the Law raised the amount of monetary sanctions to up to 100 million shekels, but not more than 8 per cent of the annual revenues for a corporation whose revenues in the preceding financial year exceeded 10 million shekels.
In October 2016, the Competition Authority published guidelines regarding the considerations of the Director General in determining the amount of financial sanctions. According to the said guideline, the amount of the sanction will be determined according to the following four stages:
- determination of the maximum amount of the sanction;
- determination of the severity of the violation based on the circumstances of the case (with an emphasis on the degree of damage that the breach may cause to competition or the public);
- examination of the violator’s part in the violation, the extent of the violating party’s influence on the performance of the violation and the actions taken by the violating party to stop or prevent the recurrence of the violation; and
- evaluation of external circumstances of the violation, such as the existence or absence of previous violations.
Between 2018 and mid-2019, the ICA objected to four merger notifications and approved with conditions three others. The ICA’s research and analysis of the market for purchasing digital and physical commercial ‘areas’ of advertisement led to objection to a merger between two out of the five leading competitors. The ICA based its decision on the possible aggregate market power that the merger might create. The Director General expressed her concern that the merger might eventually lead to a decrease in the TV channels’ advertisement income and, consequently, of their investment in creating original valuable content.
In its opposition to a merger between two medium-sized banks, the ICA’s analysis revealed that the domestic banking sector is characterised by significant entry barriers that led to the absence of a new bank in Israel for decades. Consequently, this raised the ICA’s concern that the merger would pave the way for the existing banks’ ability to reach a balanced equilibrium and, eventually, increase banking prices. The examination took into consideration the regulator’s efforts to ease customers’ mobility between banks.
In another merger between banks (the Discount banking group and Dexia-Israel), the ICA’s analysis found that the merging banks compete on providing credit facilities to municipalities and regional authorities. The merger was approved, conditioned on divestiture of some of the credit activities of the merging entities.
Another objection was raised by the Director General in the Israeli airliners sector, to a merger between Sun-Dor International Airlines and Israir Aviation. In this case, EL AL, Israel’s largest airline, sought to merge its wholly owned subsidiary Sun-Dor with Israir. Israir, one of EL AL’s only Israeli competitors, has a significant share in the domestic air market, and in recent years also recorded an increase in its international operations. Following the ICA’s analysis, the Director General decided to oppose the merger for two main reasons. First, the merger will prevent EL AL from potentially competing on the routes to the southern city of Eilat, and thus strengthen the existing duopoly of Arkia and Israir in these routes. Second, EL AL’s absolute and exclusive dominance in the provision of security services outside Israel, to all Israeli airlines flying abroad, raised concerns about EL AL’s ability to refuse to provide the security services to it competitors, in order to push them out of some international lines.
In another case, the Director General approved an amendment to the conditions set on the already approved merger from 2002 between various telecommunications cable companies operating in Israel. The amendment resulted in a decision not to remove or reduce the prohibition on the merged company to participate in the market of sports channels and local original content production, distribution and ownership holdings. The decision was led by the concern that, if removed, the merged company will be able to ‘push’ competitors out of the multi-channel market, raise barriers to their entry and expansion, as well as diluting the variety of content and opinions because of the possible suppression of independent channel producers.
In the case of a merger between Reshet Media, one of Israel’s leading media entities, and Channel 10 that was under financial duress, the Director General decided to approve the merger but to conditioned it by the sale of Reshet’s holdings in its news company. The approval was based on the ‘failing firm’ doctrine weighing the potential competitive harm against the effect of the collapse and removal of a major TV channel from the market.
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