Concentration Law Forcing High-profile Families to Choose Between Financial, Other Businesses

Antitrust Authority publishes list of companies set to be affected by Business Concentration Law, coming into effect next year.

Moti Milrod

A year after passage of the Business Concentration Law, which will limit the size and nature of corporate pyramids in Israel, the Antitrust Authority published information Thursday related to the companies that will be affected. It includes the Wertheim and Ofer families’ business interests.

Based on lists released by the authority, the Wertheim family will have to choose between its interest in Bank Mizrahi-Tefahot or the Central Bottling Company (the local Coca-Cola bottler) due to the law’s limitations on holdings that include both financial and nonfinancial companies.

The Wertheims control Mizrahi-Tefahot jointly with Liora and Doron Ofer, and the Ofer family will have to choose between continued control of the bank and its interest in Melisron, the property development firm and mall operator.

The new law will also require the Azrieli Group to divest from credit card company Leumi Card.

The publication of the company list comes a year before the law comes into force.

The antitrust commissioner found 31 corporate “concentration groups” relevant to the law, and they collectively have holdings in 2,500 companies. Eleven have major control of financial firms, including five banks and seven insurance and investment firms.

The law was passed to address what was seen as the excessive economic concentration of Israeli business among a relatively small group of people, sometimes through pyramids of control involving relatively little investment at the top.

It defines a “concentration group” as one with a substantial interest in the nonfinancial business sector – including real estate, retailing and technology. “Substantial” is defined as having more than 6 billion shekels (about $1.5 billion) in sales or finance credit. The law also applies to companies with “substantial” interests in the financial sector, including banks and insurance/investment firms managing more than 40 billion shekels of the public’s assets, as well as credit card companies of any size.

The law requires concentration groups with interests in both financial and nonfinancial businesses within the scope of the law to divest from one or the other within the next five years.

The provision is designed to prevent the corporate pyramids from giving preference in the extension of credit to their own businesses and favoring their own narrow business interests over the general public good. It is also aimed at reducing barriers to competition.

In addition to requiring the Wertheim and Ofer families and the Azrieli Group to halt their ownership of both so-called “real” business interests and financial ones, it will also impose the same requirement upon the IDB group – the country’s most prominent business pyramid – requiring it to sell off Clal Insurance. The Delek Group is already selling its Phoenix insurance firm as a result. Apax Partners, which owns the Psagot investment firm, is required to sell its interest in the Tnuva dairy firm, while Zadik Bino will shortly be forced to choose between his interest in First International Bank of Israel (FIBI) and Paz Oil. However, some of these businesses are choosing to sell for reasons unrelated to the Business Concentration Law.

Some holding companies might also take steps to restructure their holdings so the law does not apply to them. On the other hand, Shari Arison’s business interests will not run afoul of the law; she will not be barred from cross-ownership in Bank Hapoalim and the Shikun & Binui real estate and construction firm.