Editor’s note: This is general educational information about how tender offers work under Israeli company law, based on the filings and regulations listed at the end. It is not investment advice and is not a view on any company or transaction.
Israeli law does not let a buyer drift past the point of near total ownership. A person who wishes to acquire shares in a public Israeli company and would as a result hold over 90 percent of the voting rights, or of the issued and outstanding share capital or a class of it, is required by the Companies Law to make a tender offer to all shareholders for all of the outstanding shares. That is the full tender offer. It is a compulsory step rather than a strategy, and what happens next depends entirely on how much stock stays out. Section 336 of the statute is explicit about the trigger: a person may acquire shares to the point of holding more than 90% of a company’s shares only by way of a full purchase offer, and once past that line he is barred from acquiring further shares by any other route.
The two ways a full tender offer succeeds
Once the offer closes, the statute provides two alternative tests. Under the first, all the shares the offeror sought are transferred to it by operation of law if the shareholders who did not accept hold less than 5 percent of the issued and outstanding share capital, and the shareholders who did accept constitute a majority of the offerees without a personal interest in accepting. Under the second, the transfer happens if the shareholders who did not accept hold less than 2 percent of the issued and outstanding share capital, with no separate majority test.
The design is deliberate. The 5 percent path asks two questions, one about how much stock remains outside and one about whether disinterested holders actually chose to sell. The 2 percent path dispenses with the second question, on the basis that a residue that small cannot support any inference about what the minority wanted. Both paths end in the same place: shares belonging to holders who never responded, and to holders who refused, move to the acquirer without their agreement.
Failure has teeth as well. If the offer is not accepted under either alternative, the acquirer may not buy shares from those who did accept if doing so would take its holding above 90 percent of the voting rights or of the share capital. Shares purchased in breach of the full tender offer rules carry no rights and become dormant shares. A buyer that misjudges the threshold is not left with a large minority stake, it is barred from completing the purchase at all.
The price remedy that survives the transfer
Because the transfer is compulsory, the statute supplies a separate route to challenge the price. A shareholder whose shares were transferred may petition an Israeli court within six months from the date of acceptance of the full tender offer, regardless of whether that shareholder agreed to the offer, for a determination of whether the offer was for less than fair value and whether the court should set the value to be paid.
There is an important qualification that offerors use. The offeror may provide in the offer itself that a shareholder who accepts will not be entitled to petition the court, provided that the offeror and the company disclosed the information required by law in connection with the offer. The choice presented to a holder is therefore not only about price. Accepting can mean surrendering the appraisal remedy, while refusing preserves it and leaves the outcome to whichever threshold the offer clears.
The offer that comes earlier: the special tender offer
Israeli law regulates the approach to control as well as its completion. An acquisition must be made by special tender offer if the purchaser would become a holder of 25 percent or more of the voting rights and no other holder is already at that level, and again if the purchaser would pass 45 percent of the voting rights and no other shareholder holds more than 45 percent. Purchases from an existing holder above the same thresholds, and private placements approved by shareholders for that purpose, are excluded.
A special tender offer must be extended to all shareholders and may be completed only if the offeror acquires at least 5 percent of the voting power and the shares tendered exceed the shares whose holders objected, with the purchaser, its controlling shareholders, holders of 25 percent or more of the voting rights and anyone with a personal interest excluded from that count. The board must give an opinion on the advisability of the offer or explain why it cannot, and must disclose any director’s personal interest. An office holder who acts to cause the failure of such an offer is liable to the purchaser and to shareholders for damages unless acting in good faith on reasonable grounds. If the offer succeeds, holders who objected or did not respond may still accept within four days of the closing date, and the purchaser is barred for one year from a further tender offer or a merger with the target unless it committed to one in the original offer.
Analysis: a threshold rule, not a fairness rule
Everything in the full tender offer turns on counting shares, and that has consequences a reader should hold onto. The statute never asks whether the price is right before the transfer happens. It asks how much stock declined, and it then routes the price question to a court afterwards, on a six month clock, at the initiative of individual holders. The offeror can narrow even that by conditioning acceptance on the waiver, provided its disclosure was complete.
The residue thresholds also explain offeror behaviour better than any theory about premiums. The gap between a holding of just under 90 percent and one of 100 percent is worth a great deal to a buyer, and the cost of missing both the 5 percent and the 2 percent tests is not a smaller stake but a prohibition on completing the purchase, plus the risk that shares bought in breach become dormant. That asymmetry pushes offerors toward pricing and disclosure that clears the tests with room to spare, and it means a small determined block of holders has more influence over the outcome than its size suggests.
The comparison with the United States sharpens the point. Rule 13e-3 addresses the same conflict, an affiliate taking a company private, but with disclosure rather than counting: a Schedule 13E-3 filed with the Commission and amended for material changes and again with the final results, a summary term sheet, purpose and fairness disclosure carried in a Special Factors section at the front of the document, information on appraisal rights, and a cover legend stating that no regulator has passed upon the merits or fairness of the transaction. Israeli law fixes the numbers and leaves fairness to a court. United States law fixes the disclosure and leaves the numbers to the parties. A reader looking at any Israeli offer document should therefore find, in order, the offeror’s holding before the offer, which threshold it is aiming at, and whether the offer purports to waive appraisal rights for accepting holders.
