The Mobileye-Intel deal advances towards the finish line

Mobileye received pre-ruling from the Israel Tax Authority, overcoming a major hurdle in the run up to close the deal. What could the parties do to make it happen? 

Last Friday (July 14th), Mobileye reported to its shareholders in the US that an important condition to its US $15.3 billion deal with Intel was satisfied, overcoming a major hurdle in the run-up to close the deal. The condition related to the receipt of the coveted pre-ruling from the Israel Tax Authority, confirming that neither Mobileye nor Intel will be liable for taxation regarding the deal. Obtaining such a ruling was not trivial, and it is expected to have tax implications on the Israeli market.

Simultaneously, Mobileye also reported that the deadline for Intel’s tender offer for Mobileye’s shares was extended by additional seven days to July 27, 2017 (instead of July 20th).

Much has been written on the unprecedented Mobileye-Intel deal. Indeed, it is a magnificent achievement and a source of pride to Mobileye’s founders, employees and every Israeli. Having said that, Mobileye is a company registered in the Netherlands, rather than Israel. Namely, its body is Dutch, even if its brains and heart are Israeli. Mobileye’s shares are traded in the US (NYSE), adding another regulatory system to the legal cauldron.

Under this multi-jurisdictional backdrop, the tender offer structure originally required an acceptance from shareholders holding at least 95 percent of the outstanding shares of Mobileye (a high threshold constituting a difficult hurdle, existing under both Dutch law and Israeli law).  A shareholder not actively responding (for any reason or no reason), is deemed effectively objecting. To reduce this risk, the deal documents between Mobileye and Intel included two elements, effectively reducing the required threshold.

The first element is a call option granted to Intel to acquire newly-issued shares constituting up to 15% of Mobileye’s shares (at the deal price). To the extent that the tender offer threshold (as may be lowered) is not met (i.e., not enough shares are tendered by Mobileye shareholders), Intel could exercise the option and acquire Mobileye shares that will be counted together with the shares tendered by the shareholders, thus de facto reducing the tender offer threshold. This element was approved by Mobileye’s shareholders at the Shareholders Meeting held in June this year (but is still subject to judicial review).

The second element is a route comprised of tender offer and acquisition of Mobileye assets (a “backup” to the main route of just the tender offer). At the same shareholders meeting, Mobileye’s shareholders have approved yet another resolution, stating that conditional on receipt of the Israel Tax Authority’s pre-ruling, the threshold for the tender offer (together with shares held by Intel) will be automatically lowered to 67% of the outstanding shares.

Thereafter, Intel will acquire Mobileye’s assets, and the consideration received by Mobileye will be distributed to Mobileye’s remaining shareholders as dividend, to be followed by Mobileye’s dissolution. Although a similar mechanism was utilized in several deals in the Netherlands, it is still subject to judicial review.

At the same Mobileye shareholders meeting, an overwhelming majority of the voted shares (over 98%) supported the proposed deal-related resolutions, albeit these voted shares represented only about 58% of the outstanding Mobileye shares (about 2% of the outstanding shares were voted against and 40% of these shares were not voted at all in the meeting).  To the extent that sufficient shares will not be actively tendered to meet the (now-lowered) threshold of 67% of the outstanding shares, Intel could exercise its option and acquire newly-issued Mobileye shares that would, together with the shares tendered in the tender offer, meet that threshold.

Before the parties utilize the unusual two-prong mechanism of a parallel acquisition of shares and tender offer, one presumes that they would prefer to rely on existing shares held by other shareholders. Hence, it is expected that in the coming two weeks, Mobileye (and its advisors) will undertake a rigorous effort to reach as many shareholders as possible and have them tender their shares in the tender offer.

Barring surprises (such as legal proceedings in the Netherlands), the Mobileye-Intel deal seems to have leaped over most of the hurdles on its track, and to be advancing towards the finish line of one of the most prominent deals in Israeli tech-history.

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The above does not constitute legal opinion or an investment recommendation.

The writer is a Senior Partner and Head of the Mergers and Acquisitions, Securities and International Transactions Department at the law firm of Ron Gazit, Rotenberg & Co.