Bennett, Hauser clash over pyramid limitations

Naftali Bennett and Israel Securities Authority Chairman Shmuel Hauser disagree over the extent that pyramid companies should be limited in the market-concentration reform.

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May 12, 2013 22:13
2 minute read.
Naftali Bennett.

Naftali Bennett 370. (photo credit: Marc Israel Sellem/The Jerusalem Post)

Economy and Trade Minister Naftali Bennett and Israel Securities Authority Chairman Shmuel Hauser on Sunday clashed over the extent that pyramid companies should be limited in the market-concentration reform.

So-called pyramid companies refer to structures in which one large company owns several subsidiaries that own more subsidiaries. Controlling stakeholders of the company at the top of the pyramid can make decisions for all the companies lower down in the chain, even though they hold only minority shares in some of them.

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“The law is good, but it’s not good enough,” Bennett said. “I call for limiting the layers in the pyramid to two levels alone in a speedy manner.”

In the original concentration bill, which the cabinet approved in 2012 but never passed into law, existing companies would be limited to three pyramid levels, but new companies would be limited to two levels; for example, subsidiaries would not be allowed to own subsidiaries. Breaking up pyramid companies, together with separating ownership of financial and nonfinancial institutions, was one of the pillars of bill.

“The current situation is such that a few stockholders play with the public’s money without responsibility,” Bennett said. “One family can hold 3 percent of a company and then control its finances and decisions. This is a situation that is not moral.”

On average, the noncontrolling shareholders of companies at the top of the pyramid represent 40% of the shares.

That rises to 55% in the second level, 65% in the third, 80% in the fourth and 91% in the fifth.

Hauser, on the other hand, thought three levels were preferable, though he agreed with Bennett that setting different levels for old and new companies did not make sense.

“Even at three, we’re at the world average or lower,” Hauser said. More stringent limitations could be detrimental to the market, he said. The restrictions apply not just to the companies that would have to break apart and sell their pyramid structures, but also to potential buyers, he said.

If limiting pyramids to three levels didn’t break the concentration, Hauser said, the regulations could become more stringent further down the line.

Given that Israel was breaking regulatory ground with the last, meant it should tread cautiously.

“Nowhere else outside of Israel has broken apart pyramids,” he said. “Why in Israel? Apparently Israel went overboard.”

Eugene Kandel, head of the National Economic Council, said since the original concentration recommendations were passed, the market had taken care of part of the problem on its own.

The 112 companies in pyramid structures today are about half the number there were just a few years ago, he said.

Of those, 28 are third-level companies, 12 are fourth-level and only three are fifth-level. In other words, while 15 companies will definitely need to be sold off once the legislation passes, the fate of the 28 companies at level three hang in the balance.

In international comparisons, Israel lies on the high end of market concentration, with the top 10 families controlling 30% of the companies. In Sweden, the Philippines and Indonesia, the figure fell between 50%-60%, while in the UK it was 5%.


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