Goshen Rejects Yachimovich Bid to Torpedo Tefron Merger

If the shareholders want it, it isn't his business, says watchdog.

Israel Securities Authority Chairman Zohar Goshen rejected a call by Knesset Finance Committee member Shelly Yachimovich to intervene in Tefron's pending merger with the Canadian company Nouvelle Seamless.

yachimovich - Olivier Pitoussi - December 30 2010
Olivier Pitoussi

Yachimovich wrote to Goshen asking for his help ahead of yesterday's scheduled shareholders' meeting called to ratify the transaction. According to media sources, the shareholders voted in favor of the deal.

Yachimovich complained that the company's public shareholders were being forced to decide on an issue wrapping two separate issues into one vote: a move to save the company's plant along with an unfair share grab by controlling owners, led by Mivtach Shamir.

Goshen replied that he has no basis to interfere in the deal.

The transaction calls for effectively merging Tefron, located in Misgav, with Nouvelle Seamless of Montreal. Both companies manufacture underwear.

The move is meant to save Tefron from collapse by providing it with an injection of funds and work contracts, which Yachimovich supports.

The problem is that the deal is linked to approving a $2.5 million allocation of shares on conditions identical to those of the new investors, which will benefit the controlling owners. Yachimovich sees this "business opportunity" coming at the expense of the public shareholders.

"I ask that you apply your authority as regulator to prevent this double vote from being imposed," Yachimovich wrote to Goshen. "I believe it would be fair and proper if all the other shareholders were given an opportunity to purchase shares under the same conditions as Mivtach Shamir and its associates."

goshen - Haaretz - December 30 2010

Goshen replied that the transaction complied with all the applicable disclosure requirements, while admitting that the issue combined two separate but interdependent matters into one take-it-or-leave-it deal.

"In light of Mivtach Shamir's vested interest in the allocation, the complete transaction is being subject to approval of the shareholders' meeting where it requires the votes of one third of the voting shareholders not holding any vested interest in approving the deal," Goshen said.

Goshen said that, except for exceptional cases where illegal behavior is suspected, the ISA can't intervene on questions of whether a transaction is a good deal for shareholders. The shareholders who have no vested interest in the transaction have the right to decide whether or not to approve it, he explained.

"The company's officers who approve the deal have an obligation of trust and prudence toward the company," added Goshen, "and it goes without saying that violations of this obligation provide the company the right to sue the violators and receive compensation from them."

Goshen places some hope in the proposed amendment 12 of the Companies Law raising the majority of shareholders without a vested interest in the subject of a vote from one third to one half. The amendment is currently in the Knesset Constitution, Law and Justice Committee.

"The deal is legal but it still stinks," said Yachimovich. "There is no doubt that amendment 12 will improve the position of the institutional shareholders." She added that the bill was being attacked by lobbyists, but that she intends to help get it passed and will attend the committee's meetings, even though she isn't a member.