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Makhteshim-Agan: The Largest Transaction in the Middle East in 2011

January 2012

HFN advised Makhteshim-Agan Industries Ltd. ("MAI"), the world’s leading manufacturer and distributor of branded off-patent crop and non-crop protection products, in a reverse triangular merger transaction, in which a subsidiary of China National Chemical Corporation, a major Chinese group controlled by the Chinese government, purchased 60% of the issued and outstanding share capital of MAI, for a total consideration of approximately USD 2.5 billion. This was the largest transaction of the year in the Africa/Middle East region, according to mergermarket.

This was certainly a large-scale transaction for the Israeli market, and it is considered a significant milestone in economic relations between Israel and China.

The transaction was very unusual - a partial reverse triangular merger. In the classic form of a reverse triangular merger, the purchaser forms a wholly-owned subsidiary, which merges into the target company. The wholly-owned subsidiary ceases to exist, and all of the shares of the target are transferred to the purchaser. In the case of the MAI transaction, the purchaser, China National AgroChemical Corporation, purchased only 60% of the MAI shares, and Koor Industries Ltd., ("Koor") which held 47% of the shares of MAI prior to the transaction, remained with 40% of the shares after the transaction. This arrangement has almost no precedent in Israel.

This unusual nature of the transaction raised fundamental questions of corporate law in Israel, especially as to the required procedure for approval of the transaction. HFN's knowledge and expertise in advising clients with regard to various types of transactions, combined with our team's creative thinking, played a significant role in guiding the client through the transaction.

HFN represented MAI in highly publicised litigation proceedings that threatened to disrupt the transaction. A minority shareholder filed a claim (as a class action) in the Tel Aviv District Court, arguing that the public shareholders of MAI were deprived of the opportunity to share in an additional benefit that was given to Koor in the transaction (over and above the basic price per share paid for the MAI shares). As part of the transaction, the China National Chemical Corporation arranged for Koor to receive a non-recourse loan, backed only by Koor's remaining 40% interest in MAI.  

In a controversial intermediate decision given by the Court, the Court decided that Koor Industries was not entitled to retain all of the excess consideration (the economic value of the non-recourse loan), and that the value of such excess consideration must be divided among all MAI's shareholders in MAI. Eventually, the parties reached a settlement.

Leading M&A lawyers from many jurisdictions have requested HFN to send them details of the Court's decision. The issue of principle here was the question of whether the value of a "control premium" belongs exclusively to the controlling shareholder or whether the public shareholders are also entitled to share in any "control premium". This is an issue of major interest to M&A lawyers around the world.

The purchase of a large Israeli company by a Chinese governmental corporation is a historic event, and HFN is proud to have been a part of such a large scale transaction.

The transaction was led by Ehud Sol and Ilanit Landesman Yogev, heads of HFN's Capital Markets and Securities department.

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Herzog Fox & Neeman

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