Dear Clients and Colleagues,

On October 29 2024, the Israeli Competition Commissioner (the “Commissioner“) issued a decision (the “Decision“) to impose an unprecedented financial penalty on Strauss Group Ltd. (“Strauss“) at the maximum allowable rate. Strauss was fined approximately NIS 111 million (approx. USD 30 million), and Meshek Weiler Ltd. (“Weiler“) was fined around NIS 1 million (approx. USD 267,000). Additionally, the Commissioner imposed personal financial penalties of around NIS 600,000 (approx. USD 160,000) on Strauss’s officeholders and penalties of approximately NIS 120,000-150,000 (approx. USD 32,000-40,000) on the officeholders of Weiler.

According to the Commissioner, Strauss and Weiler carried out an a de facto merger (a merger performed where notifications had been submitted but not yet approved; commonly known as “gun jumping”) in breach of Section 19 of the Economic Competition Law, 1988 (the “Law“). Specifically, a clause in the merger agreement governing the interim period between signing and closing stipulated that Weiler would refrain from certain activities during this interim period (these are referred to as “status quo clauses” or “interim clauses“, which restrict a company’s activity between the decision to merge and the Commissioner’s approval). In the Commissioner’s view, this constituted an actual execution of the merger before receiving her approval.

This decision marks a significant milestone in the Commissioner’s approach, reflecting a harsher stance toward companies and officeholders engaging in actual mergers in violation of the Law.

Decision Background

Israeli merger control regime Under the Law is suspensive, requiring that parties to a merger obtain approval from the Commissioner before executing the transaction. According to the Law, a merger cannot proceed until it has received explicit authorization. According to the Competition Commissioner, this pre-clearance requirement is designed to prevent anti-competitive effects that could harm the market and consumer welfare. Any action constituting an actual effective merger can result in significant penalties.

According to the Decision, on June 26 2021, Strauss and Weiler submitted merger notifications to the Commissioner in connection with an agreement under which Strauss would acquire control over Weiler. Strauss is one of Israel’s largest food suppliers. It manufactures locally and imports a wide range of food products, including dairy products, snacks and sweets. Strauss is the sole licensee in Israel of Danone’s products, including Danone’s non-dairy brand Alpro. Weiler is a small manufacturer of tofu, which, according to the decision, also had some other dairy replacement products in develpement, such as non-dairy beverages, yogurts and cheese.

The Competition Authority’s investigation raised concerns about potential harm to competition and the public, particularly in the fresh tofu and fresh plant-based beverage markets. Regarding the latter, there was concern that the merger would eliminate Weiler as a potential competitor in a market currently dominated by another prominent dairy and non-dairy supplier – Tnuva. All within a market with few anticipated new entrants other than Weiler and Strauss. Consequently, on February 23, 2022, the Commissioner announced her objection to the merger (to view the notice of objection, click here  [Hebrew] ).

But the proceedings did not end with the objection. As noted, the Commissioner went on to an enforcement proceeding involving alleged gun-jumping. Under the agreement between the parties prior to the merger’s execution, Weiler agreed not to expand its activities during the interim period until the transaction’s completion. The Decision found that Weiler initially resisted Strauss’s restrictions on its activity in the dairy substitute market but ultimately agreed to limit its operations to the production and marketing of tofu-based products, which, according to the Decision, constituted an effective restriction on activity in the dairy substitute market.

According to the Commissioner, these status quo clauses, which broadly restricted Weiler’s operations in the dairy substitute market, were overly comprehensive and extended beyond what was necessary to preserve the asset. As such, they unduly curtailed Weiler’s independent discretion, effectively transferring control over its activities in this sector to Strauss, contrary to Weiler’s interests.

Penalty Policy Prior to Strauss’s Fine

Under the Law, the maximum financial penalty for unauthorized mergers at the relevant time was set at NIS 111,331,200 (approx. USD 30 million) (currently it is set at NIS 115,053,500) for corporate entities with a turnover exceeding NIS 10 million. For individuals and smaller corporations, the maximum fine was NIS 1,004,000 (approx. USD 268,000) (currently it is set at NIS 1,150,530).

The administrative fine imposed on Strauss is unprecedented as it is the first time the maximum statutory fine has been levied on any company. Previous penalties emphasize the exceptional nature of this fine.

Until this decision, the highest financial penalties imposed by the Commissioner on a company were close to NIS 40 million (approx. USD 11 million), imposed on the Central Bottling Company Ltd. [Hebrew] for multiple violations, including abuse of its monopolistic position, unreasonable refusal to supply, regulatory violations, among others.

In cases involving merger control breaches, the highest previous fine was NIS 25 million (approx. USD 7 million), pursuant to a consent decree  between the Commissioner and Meta Platforms Inc. [Hebrew] (“Meta“) in May 2024. Under that agreement, Meta committed to pay this amount without admitting liability in connection with its acquisition of two startup companies with operations in Israel.

In past cases where fines were imposed for gun jumping, the fines were significantly lower, reaching up to NIS 2 million (approx. USD 533,000), as in the cases of Mizra, Bitan Wines, and Merkava Transportation [Hebrew] – all mergers that were eventually approved.

A Shift in Penalty Policy

The imposition of the maximum statutory financial penalty on Strauss is unprecedented in its scale, albeit not necessarily in its severity compared to previous cases. This scale suggests a shift in the Competition Authority’s penalty policy, indicating that when determining penalty amounts, the Authority may consider not only the severity of the violation but also the economic impact of the companies involved, sometimes without regard to the specific context of the violation.

Unlike previous cases, where penalties were imposed for breaches of the waiting period, but where the mergers were eventually either approved or at least not challenged by the Authority, in Strauss’s instance, the Commissioner opposed the merger, and Strauss did not appeal that decision. This also appears to have contributed to the unprecedented scope of the penalty, reflecting both the Commissioner’s stance that the merger would substantially harm competition as well as a possibly stricter penalty policy.

The emerging nature of dairy alternatives market did not result in a reduction of the fine. To the contrary: the Commissioner argued that current sales volumes do not reflect the future potential and significance of the market, and a narrow view of the market scope could lead to insufficient deterrence, especially when potential competitors are investing in R&D as they prepare to enter the market.

Impact of Legal Advice on the Fine Amount

According to the Competition Authority’s guidelines on its considerations when determining the size of administrative fines, obtaining legal advice can result in a reduction of the penalty. In Strauss’s case, the Authority considered the legal advice received by the parties, but found it insufficient for a penalty reduction. According to the Authority, criteria for leniency based on legal advice include:

• Advice from a qualified legal expert;
• Advice based on all relevant information;
• Advice given prior to and in anticipation of the violation;
• Formal, written advice;
• Good faith on the part of the advice recipient.

To summarize, administrative fines serve as the primary enforcement tool against merger control breaches in Israel. However, violations can theoretically lead to criminal charges, making the role of qualified legal guidance all the more critical in navigating compliance with merger regulations.

Notably, obtaining legal advice, if it meets the specific criteria, may provide a complete defense against criminal prosecution.

Status quo clauses are typically included in merger agreements to preserve the value of the assets during the interim period until completion of the transaction and are generally accepted and lawful. However, it is recommended to scrutinize the language of these clauses carefully, with legal assistance, along with any clause restricting the acquired company’s activities during the interim period, to ensure full compliance with competition laws and avoid violations.

For the Commissioner’s Decision – click here [Hebrew]

For a Previous Client Update on This Matter – click here [Hebrew]

We are at your disposal for any questions or clarifications.

Competition and Antitrust Department, Herzog Fox & Neeman