M& M&A A in in Is Isra rael el by Barry Levenfeld Se - PowerPoint PPT Presentation

US-Israel Cross-Border Corporate Transactions Tuesday, March 29, 2011 4:00 PM to 6:00 PM Boston Bar Association - 16 Beacon Street, Boston, MA M& M&A A in in Is Isra rael el by Barry Levenfeld

Se Sele lected ted Rec ecen ent t M& M&A A Tr Tran ansactions actions Barry Levenfeld, Yigal Arnon & Co. barry@arnon.co.il

Sel elec ected ted Rec ecen ent t M& M&A Tran ansaction actions s (con ont.) t.) Barry Levenfeld, Yigal Arnon & Co. barry@arnon.co.il

Ou Outlin line e of of Pr Pres esen entation tation  M&A Structures  Regulatory Issues Barry Levenfeld, Yigal Arnon & Co. Barry Levenfeld, Yigal Arnon & Co. barry@arnon.co.il barry@arnon.co.il

M& M&A S A Struc ucture tures  Asset Acquisition  Acquisition by way of share purchase ◦ public target ◦ private target  Acquisition by way of merger ◦ Statutory Merger ◦ Court Approved Arrangement Barry Levenfeld, Yigal Arnon & Co. Barry Levenfeld, Yigal Arnon & Co. barry@arnon.co.il barry@arnon.co.il

Asset As set Ac Acqu quisit isition ion 1. Start: 3. Finish: Target Acquirer Target Acquirer Shareholders Shareholders Shareholders Shareholders Target Acquirer Target Acquirer Consideration Assets Assets 2. Transaction: $ or shares Needed Approva rovals ls • Majority of Board Target Acquirer • Shareholders with Veto Rights Assets Barry Levenfeld, Yigal Arnon & Co. barry@arnon.co.il

As Asset et Ac Acqu quisit sition ion Pr Pro Con  Can be fastest  Two levels of tax on seller –  Easier decision making company and shareholder process in target and  Non-Israeli shareholders of acquirer (often no target pay more tax shareholder approval is  Target may be left with needed) unwanted liabilities  Acquirer can avoid unknown liabilities  May have OCS complications  Need to assign contracts, rehire employees Barry Levenfeld, Yigal Arnon & Co. barry@arnon.co.il

Shar Sh are e Ac Acqu quisit isition ion 1. Start: 3. Finish: Target Shareholders (if Acquirer consideration was shares Shareholders of Acquirer) Target Acquirer Shareholders Shareholders Acquirer Acquirer Target Target 2. Transaction: Nee eeded ed Approva provals ls $ and/or shares • 100% of Shareholders or or • 80 % or less with “bring along” Acquirer Target Shareholders • 95% if target is public Shares of Target Barry Levenfeld, Yigal Arnon & Co. barry@arnon.co.il

Share are Purchase hase – Private vate Ta Target et Pro Pr Con  If all shareholders agree,  If not all shareholders agree, can be very fast need contractual or statutory bring-along  In theory, no target board approval required  Bring-along may require 80% or 90%, sometimes less, and may  Only capital gains taxes – take up to 90 days foreign shareholders often  Questions regarding exempt enforceability if: ◦ differs from statute ◦ consideration allocated according to liquidation preferences  If no bring along – potential for blackmail by minority shareholders Barry Levenfeld, Yigal Arnon & Co. barry@arnon.co.il

Share are Purchase hase – Public lic Ta Target get (te tender nder off ffer) r) Co Con Pr Pro  Tender offer rules apply  No target board approval  Need 95% positive required response! – not practical  In theory, can be very fast  Right to appraisal for 3  Relatively simple months following – even if documentation you agreed! Barry Levenfeld, Yigal Arnon & Co. barry@arnon.co.il

Re Revers rse e Tr Triangula ular Merger 1. Start: 3. Finish: Target Shareholders (if Acquirer Target Acquirer consideration was shares Shareholders Shareholders Shareholders of Acquirer) Acquirer Acquirer Target Target Acquisition 2. Transaction: Subsidiary (survives merger) $ and/or Required Approvals Acquirer Target shares • Majority of Board Shareholders • 51% of shareholders attending meeting merger (דעי) (תטלוק) Acquisition Subsidiary Target Barry Levenfeld, Yigal Arnon & Co. barry@arnon.co.il

Rev everse erse Tria iang ngul ular ar Me Merge ger Pr Pro Con Co  Certainty, if you have majority  Originally, some uncertainty (50% or 75%) of target regarding reverse mergers, but shareholders now the courts have “blessed” ◦ May require class vote this structure ◦ Can substitute court approval  Can close only on latter of 50  US companies/lawyers understand days from signing or 30 days it better from shareholder approval  All agreements, etc. of target remain – no assignments needed  Only capital gains taxes – foreign shareholders often exempt  Only viable option for public targets Barry Levenfeld, Yigal Arnon & Co. barry@arnon.co.il

Court urt Approved roved Plan n Of Of Arrang angement ement Companies may adopt a “Plan of Arrangement” which is  basically a court-approved merger Application made to the District Court to convene a  meeting of Target’s shareholders. Transaction must be approved by the shareholders (and  possibly the creditors). Vote required is 51% of the voters that are present and  that represent 75% of shares present (for each class) Court must then approve the transaction and find it to be  fair Barry Levenfeld, Yigal Arnon & Co. Barry Levenfeld, Yigal Arnon & Co. barry@arnon.co.il barry@arnon.co.il

When you need a “Plan of Arrangement” Where stock is used as consideration  Where different consideration provided to different classes  of shares In “going private” transactions or any transaction where  some shareholders remain in the company Anywhere the statutory merger might not be available  Barry Levenfeld, Yigal Arnon & Co. Barry Levenfeld, Yigal Arnon & Co. barry@arnon.co.il barry@arnon.co.il

Reg egul ulat atory ory Con oncerns erns  Antitrust  Israel Securities Authority  Taxation  Office of the Chief Scientist Barry Levenfeld, Yigal Arnon & Co. Barry Levenfeld, Yigal Arnon & Co. barry@arnon.co.il barry@arnon.co.il

Ant ntitrust itrust  Restrictive Trade Practices (Antitrust/HSR) approval required depending on: ◦ Size of turnover in Israel ◦ Either party is a declared monopoly ◦ Merged entity will control over 50% of product or service in Israel  “Short Form” Merger notice now available  No need if not a “company”  30 day clock Barry Levenfeld, Yigal Arnon & Co. Barry Levenfeld, Yigal Arnon & Co. barry@arnon.co.il barry@arnon.co.il

Sec ecuriti urities es La Law Is Issues ues  Background: Exemption from Israel Securities Authority (ISA) required for offering securities to more than 35 Israeli residents in any rolling 12 month period (excluding “qualified investors”). ◦ Qualified Investors include most financial institutions and VC funds ◦ Does not include high net worth individuals  Option Substitution constitutes an offering, but an exemption is available under Section 15D if appli lied ed for in advanc nce. e.  New ISA policies allow for monetary sanctions if target company has previously granted options without complying with Section 15D. ◦ Diligence and indemnification needed to address possible prior violations Barry Levenfeld, Yigal Arnon & Co. Barry Levenfeld, Yigal Arnon & Co. barry@arnon.co.il barry@arnon.co.il

Sec ecuriti urities es La Law Is Issues ues – Sto tock ck Dea eals ls  Complications in receiving approvals where U.S. listed Purchaser uses stock to make acquisition (where there are more than 35 Israeli resident selling shareholders).  Possible solutions: ◦ Court approved arrangement – works for Israeli target, but applicability for Israeli-Related target not clear ◦ Dual listing on the Tel Aviv Stock Exchange – often not practical ◦ Israeli prospectus – never practical ◦ Alternative: offering Israeli residents cash only Barry Levenfeld, Yigal Arnon & Co. Barry Levenfeld, Yigal Arnon & Co. barry@arnon.co.il barry@arnon.co.il

Tax axat ation ion – Cap apit ital al Gai ains ns Tax ax an and P d Pur urchase haser r Wit ithh hhol olding ding Obl blig igat ations ions  If the sellers are subject to Israeli capital gains tax, then the Purchaser may be subject to Israeli tax withholding obligations  Withholding obligation may apply to purchase of Delaware corporation if: ◦ Management and control exercised from Israel ◦ Significant assets (IP) held by Israeli subsidiary  Result – Del Corp buys Del corp needs Israeli withholding Barry Levenfeld, Yigal Arnon & Co. Barry Levenfeld, Yigal Arnon & Co. barry@arnon.co.il barry@arnon.co.il

Im Impo positio sition n of of Is Israe rael l Cap apit ital al Gai ains ns Ta Tax – Whe hen? n?  Management and Control from Israel – depends on facts and circumstances, including ◦ General control of company policy from Israel ◦ Most board meetings in Israel ◦ CEO and other key management figures based in Israel  Majority of Assets – particularly intellectual property – located in Israel (via the Israeli subsidiary) ◦ Sometimes linked to OCS funding for research and development Barry Levenfeld, Yigal Arnon & Co. Barry Levenfeld, Yigal Arnon & Co. barry@arnon.co.il barry@arnon.co.il