A bidder has made a full tender offer for the Israeli company whose shares I hold in London. Can they force me out?

Being taken out of a holding you never intended to sell is a real feature of Israeli company law, not an accident. Acquisitions by full tender offer are governed by Sections 336 to 340 of the Companies Law 5759-1999 together with the Securities Regulations (Tender Offer) 5760-2000, and the mechanism is deliberately blunt: if the offer is accepted by holders of at least 95% of the shares, the balance transfers to the offeror by operation of law. A UK investor who ignores the offer document is still carried by it.

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Detailed Answer

The threshold does most of the work. Because 95% acceptance is required for the squeeze-out to bite, a bidder that falls short is not permitted to complete above 90%, which produces the familiar outcome of a bid lapsing rather than leaving a 93% controlled company with a rump minority. Where the 95% is reached, the shares of every non-accepting holder pass to the offeror at the offer price, and the remedy for a holder who thinks the price was wrong is an application to court for appraisal, available for six months following completion. That remedy has a well-known qualification: the offeror is entitled to stipulate in the offer that shareholders who tender their shares forfeit the appraisal right, and offers routinely do. This produces a genuine tactical choice on the closing date. Tender and take certain cash, usually at the price on the table and without the option of arguing about it later; or decline, accept the risk of being swept up if 95% is reached, and keep the appraisal application alive. The Israeli courts hearing appraisal applications sit in the Economic Department of the Tel Aviv District Court, and valuation cases there are expert-led and slow.

Nothing about the process is designed for a holder outside Israel, and the friction is procedural rather than legal. The offer document, the acceptance form and the timetable are published in Hebrew, and if you hold through a UK broker or nominee you will see the corporate action only as your custodian chooses to summarise it, sometimes with a deadline that closes days before the Israeli one. Instruct your custodian in writing, keep the record of the instruction, and if you intend to preserve appraisal rights make sure the non-tender is deliberate rather than the product of a missed notice. On the British side the disposal is a chargeable event for UK capital gains tax whether you tendered or were carried out compulsorily, and the price you receive from a squeeze-out is the disposal proceeds; no relief follows from the compulsion. The UK-Israel double taxation convention will generally leave the gain on quoted shares taxable in the UK, so the practical question is proof of acquisition cost in shekels, which is worth assembling before the money arrives. Where the concern is oppressive conduct by a controller rather than a bid, the remedies are different and our answer on minority shareholder rights in an Israeli company for a non-resident sets those out.

In Practice: Under Sections 336 to 340 of the Companies Law 5759-1999 and the Securities Regulations (Tender Offer) 5760-2000, a full tender offer accepted by holders of 95% of the shares transfers the remaining shares compulsorily; short of that, the offeror may not exceed 90%. An appraisal application lies to the Economic Department of the Tel Aviv District Court within six months of completion, unless the offer required tendering holders to waive it. Court fees run at 2.5% of the amount in dispute, so a claim that the correct value of a NIS 3,000,000 holding was understated by a third carries roughly NIS 25,000 in fees, and a contested appraisal typically takes 18 to 30 months.

When to Consult a Lawyer

• You want to keep the appraisal remedy. The decision has to be made before the closing date, because tendering into an offer with a waiver clause extinguishes the right, and no court will restore it afterwards.
• Your holding sits with a UK nominee or in a pooled account. Whether you are treated as the holder for the purposes of an appraisal application depends on the custody chain, and that has to be established while the six months are running.
• The offer price appears to sit below a recent valuation or a related-party transaction in the same shares. That is the fact pattern appraisal exists for, but it needs an Israeli valuation expert engaged early rather than after the application is filed.

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Speak With an Israeli Attorney

We read the Hebrew offer document for the waiver clause and the real deadline, advise whether tendering or holding out serves you better, and bring the appraisal application in Tel Aviv inside the six months if the price does not stand up.

Contact us for a confidential initial consultation.