Finance Committee Approves Tougher Terms for Concentration Law

Provision by finance committee sets higher standard for monopolies to hold financial firms.

The Knesset Finance Committee Tuesday cleared a key part of the Business Concentration Law that would bar cross-holdings between financial and nonfinancial businesses and toughened other provisions in the legislation as originally proposed by the government.

The latest elements follow the approval two weeks ago of the sections dealing with holding groups structured as pyramids. Those rules will bar a group from comprising more than two tiers of companies.

But the final two votes on the law in the full Knesset won’t take place until the winter session after the Finance Committee has debated and voted on allocating rights in privatizations.

The section of the legislation that cleared Tuesday prohibits a “major” nonfinancial company, defined as one with assets above NIS 40 billion, from holding a stake in a major financial company.

The government’s draft law defined “major” as a business with an annual turnover or outstanding debt of NIS 6 billion, but the Finance Committee approved an extra condition that also bans “monopolies” from holding stakes in financial companies. Monopolies, under the proposed law, face a stricter test − turnover of NIS 300 million in a market of NIS 2 billion.

Upheavals for business

If passed by the full Knesset in its current form, the law would create huge upheavals in the business sector as companies are forced to sell holdings. But not immediately; most businesses would have six years to meet the law’s provisions after it went into effect.

“We have made a revolution in the economic life of the country,” Finance Committee chief Nissan Slomiansky said after his panel approved the measures, answering critics who said the strictures would complicate business and perhaps achieve the opposite effect of their aims.

“We sought to create a delicate balance that mitigates any negative impact or thwarts competition while enabling the economy to develop and grow,” said MK Slomiansky ‏(Habayit Hayehudi‏).

But Meretz chief Zahava Gal-On called the proposed law toothless. “The Finance Committee has legislated business concentration into a permanent fixture and has given its seal of approval for giant corporations to control the economy,” she said. MKs had surrendered to lobbying pressure and approved “an empty law that doesn’t reduce concentration but perpetuates it.”

The new monopolies provision, for example, would affect Apax Partners, with its controlling stake in food maker Tnuva, because it also controls financial services firm Psagot Investment House. Tnuva is a designated monopoly in milk and hard cheese.

In any case, Tnuva’s estimated NIS 7.5 billion in turnover would qualify it as a major company even if it were not a monopoly.

The monopoly clause is likely to add to the burden of the antitrust commission, which will now have to examine many industries to see whether they fall under the monopoly designation.

Thus Muzi Wertheim, who holds 22% of Bank Mizrahi-Tefahot, will face the monopoly test regarding his Central Bottling Company, which is the biggest player in the soft drinks market.

Among changes to the law, Slomiansky Tuesday removed a clause that would let the NIS 40 billion eventually rise to NIS 60 billion. Others amendments introduced by Slomiansky and another by MK Ofer Shelah ‏(Yesh Atid‏) limit the stake held by a major banking or financial company in a major nonfinancial business to 10%, half the maximum now permit permitted.

That tougher standard would force Bank Leumi to reduce its stake in The Israel Corporation from 18% to 8%.

Another ceiling bars anyone controlling a major financial company from holding more than 5% of a major nonfinancial company. A financial company not designated major can hold up to 25% in a nonfinanical business, but cannot own a controlling stake, the bill now says.

Arison must divest

Since Israel Salt Industries falls below the threshold of a major concern, Bank Hapoalim’s controlling shareholder Shari Arison apparently won’t need to divest her holdings in the company. But this cannot be said for her Housing & Construction Ltd. with its NIS 10 billion in short- and long-term liabilities.

Among business groups likely to be forced to divest holdings are Melisron, a mall developer controlled by the Ofer family, which will have to divest its 23% stake in the bank. Zadik Bino’s Paz Group would be forced to sell its holding in First International Bank of Israel and David Azrieli’s Azriel Group its 20% stake in Leumi Card.

Among the pyramid groups affected by the legislation, if passed, will be Nochi Dankner’s IDB group, the Gazit-Globe group, Ofer Idan’s The Israel Corporation, Yitzhak Tshuva’s Delek Group and Lev Leviev’s Africa-Israel, according to a document compiled by Morris Dorfman, deputy chairman of the National Economic Council attached to the Prime Minister’s Office. 

Michal Fattal