Israeli Court eases TASE listing rules for foreign listed companies

The Economics Department of the Tel-Aviv – Jaffa District Court is continuing to issue precedent rulings, and this time, in relation to the interpretation of section 46.B. of the Securities Law.

Discussions had been underway for some time between Mylan N.V., a foreign public company traded on the NASDAQ, and Perrigo Company Plc., a foreign company traded on the New York Stock Exchange and on the Tel-Aviv Stock Exchange, relating to Mylan’s potential acquisition of Perrigo’s shares. After these discussions failed to mature into a transaction, Mylan announced in the United States its firm intention of publishing a tender offer for Perrigo’s shares, despite the fact that Perrigo’s board of directors had rejected the offer (i.e., a hostile takeover).

Perrigo, on its part, attempted to fend off the offer, inter alia, by obtaining a temporary injunction from a court in Israel, on the grounds that Mylan’s offer had been unlawfully made.

Perrigo’s principal pleas were:

(a) that Mylan is not permitted to issue a tender offer without publishing a prospectus, in compliance with the provisions of the Israeli Securities Law, and that the Israel Securities Authority’s decision to permit Mylan to list for trading on the TASE with an exemption from publishing a prospectus, constitutes a violation of provisions of the law and therefore, is invalid; (b) Mylan does not qualify for listing for trading because of contractual mechanisms (poison pill) and provisions in its articles of association (staggered board of directors) that were designed to strengthen the control over the company by Mylan’s Management, mechanisms that contravene provisions of section 46.B. of the Israeli Securities Law, which prescribes that a company’s shares listed for trading must be shares of a single class, conferring equal voting rights proportionate to their nominal value.

Due to the fact that Mylan had already received an exemption from the ISA to publish a prospectus in Israel at the time of the hearing of the motion, the focus of the dispute shifted to Perrigo’s second plea.

The court ruling

The court did not accept Perrigo’s pleas, inter alia, because dual-listed foreign companies that are listed on the TASE cannot be denied the possibility of adopting control-protection mechanisms, if their country of incorporation allows this. Therefore, it is unwarranted to interpret section 46.B. of the law as absolutely and in every instance prohibiting a dual-listed foreign company that has a poison pill mechanism from being traded on the TASE, and the ISA shall reach its decision about each specific company according to the entire set of circumstances and those considerations that the ISA shall deem relevant.

In this regard, it is interesting to note the ISA’s demands in exchange for the exemption from publishing a prospectus. Mylan undertook, inter alia, that it would remain listed on the TASE for a minimum of one year, if its tender offer for Perrigo’s shares is unsuccessful, and for a minimum of three years, if its offer is successful; that any future operation of the poison-pill mechanism prescribed in its articles of association will trigger Mylan’s voluntary delisting from trading on the TASE, and undertook to adopt provisions of the Israeli Companies Law if Mylan shall be delisted from trading on a foreign stock exchange but continues to be traded in Israel.

One can assume that additional considerations that swayed the ISA’s decision were Mylan’s reputation, the country of its incorporation and the stock exchange on which it was traded.

A salient point to keep in mind is that the court’s decision applies solely to dual-listed foreign companies that are listed in Israel, and not to dual-listed Israeli companies.

The court ruling in the Mylan case constitutes a precedent addressing the interpretation of section 46.B as it pertains to foreign companies that are listed or that are seeking to list on the TASE under a dual-listing mechanism. Essentially, this ruling imposes fewer corporate governance mechanisms on and affords significant reliefs to these foreign companies in connection with the possibility of their being traded in Israel.