Israel’s most influential business tycoons are facing the prospect of a forced break-up of their conglomerates under government plans to shake up the country’s economy.
The proposed measures outlined on Wednesday would see large conglomerates split into financial and non-financial holdings and ban the extensive use of “business pyramids”, in which one group controls a network of companies, sometimes through small equity stakes. The measures would ultimately press some of Israel’s best-known companies to divest assets worth billions of dollars.
“If this is implemented it will make history. It will substantially improve a regime that has lasted six decades,” said Dror Strum, a former director of the Israeli competition authority who heads the Institute for Economic Planning.
Eugene Kandel, the government’s chief economic adviser, said the proposed changes would also make Israel more attractive to foreign investors. “Foreign investors shy away from putting money into conglomerates. They would much rather invest in standalone companies,” he said.
The dominant role played by Israeli conglomerates has long worried regulators and economists, who argue that the high degree of concentration in many crucial markets undermines competition and drives up prices for consumers.
Israeli business tycoons – such as Nochi Dankner, Yitzhak Tshuva and Shari Arison – also emerged as targets in protests last year that brought hundreds of thousands of people on to the streets to call for economic and social reform.
Wednesday’s proposals were contained in the final report of an expert panel appointed by the government in the wake of those protests. They have yet to be backed by parliament and are certain to face furious opposition from the groups targeted by the new rules.
But signalling his support for the plan, Benjamin Netanyahu, the prime minister , said: “I have no doubt that we will accept these conclusions and implement them.” The panel’s work was praised by Stanley Fischer, the governor of the Bank of Israel.
Officials declined to say which groups would be affected. However, conglomerates with big holdings in financial and non-financial markets include Mr Dankner’s IDB group and Mr Tshuva’s Delek group. Ms Arison’s group owns Bank Hapoalim.
A separation would be required in all cases where a non-financial company earned revenues in Israel in excess of Shk6bn ($1.6bn) and the related financial company controlled assets worth more than Shk40bn. They would have four years to implement the measures, most likely mainly by selling off assets.
In addition, the panel calls for strict limits on pyramid holdings. Such pyramids would be limited to three layers at most. According to one Israeli official, the rule would be likely to affect 20 to 40 business groups.
According to a recent study by the Bank of Israel, no less than a quarter of all companies listed on the Tel Aviv Stock Exchange are controlled by “some 20 business groups, nearly all of a family nature and structured in a pronounced pyramid form”.
Analysts often describe Israel as one of the most concentrated economies in the developed world.
IDB declined to comment.
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