Pyramid companies may have no more than three levels - the parent company, its subsidiaries, and the subsidiaries' subsidiaries - under a reform the committee on economic concentration is considering.
The committee, charged with suggesting ways to break up the concentration of economic power among a small number of players, is looking for a way to limit the size of pyramid companies.
Past proposals met sharp opposition from company representatives during hearings the committee held last month, and may also be legally and technically difficult to carry out.
Many of the country's largest companies are pyramid companies, which means that one holding company controls a handful of subsidiaries, which in turn control multiple subsidiaries, and on downward.
Since shareholders need to own only 51% of a company to control it, the person or company at the top of the pyramid can control "grandchild" and "great-grandchild" companies with increasingly small investments - it's enough to own 51% of a subsidiary and for that subsidiary to own 51% of the grandchild company for the person at the top to control the grandchild company.
This way, the person at the top is making less of an investment than if he had to buy the grandchild directly - he controls it even though he owns only 26% of that company (51% of 51% ).
The members of the concentration committee, headed by former Prime Minister's Office Director General Haim Shani, are reportedly divided over how best to limit the size of pyramid companies.
However, they reportedly agree that limiting the number of levels in a pyramid is one of the best ways to do so.
Committee members reportedly believe that four levels - great-grandchildren - are too many. They reportedly have not come to an agreement over whether pyramids should be limited to three levels or two, and whether the limits should apply only in cases where companies hold a small share in grandchildren.
It's not clear whether the limit would count the private holding companies through which controlling shareholders often own the firm at the top of the pyramid. If so, this would limit pyramid size even further.
Limiting the number of levels in a pyramid would reduce their size because the companies at the top would need to invest more of their own money to buy subsidiaries.
Existing pyramids would need to either sell off great-grandchild companies or turn them into direct subsidiaries (or grandchild companies, depending on the precise directive ). This would necessitate investing more in the great-grandchildren, and possibly force the pyramids to choose between their holdings.
The committee members reportedly do not agree how much time pyramids should be given to downsize their holdings - three or five years.
Another matter that reportedly has members' agreement is the need to force institutional investors to loan more money to a wider range of businesses. Currently, institutionals loan 50% of their money - meaning the public's savings - to the country's 10 largest conglomerates, by buying these companies' bonds.
Committee members reportedly support imposing lending restrictions similar to those imposed on banks. This would mean limiting how much can be lent to one borrower, how much can be lent to one conglomerate (including all its different companies ) and how much can be lent in total to a defined group of major borrowers.
One of the committee's main recommendations to date has been blocking companies from owning both a major financial institution and nonfinancial companies.
The committee is due to submit its final recommendations to the finance minister and the prime minister by the end of the month. From there, the proposal will be passed on to the cabinet to approval, and from there will head to the Knesset to be voted into law.
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