What are the key means of effecting a merger?
Mergers & Acquisitions
Most M&A transactions are executed in the form of share deals. Less common are asset deals and acquisitions carried out by corporate reorganisations (mergers, spin-offs, contribution of assets or transformations).
The term “merger” tends to be used as a catch phrase for combinations. However, under Bermuda law, whilst mergers can take place under the merger provisions of the Companies Act, they may also be undertaken pursuant to the amalgamation provisions of the Companies Act. The processes to complete either are similar, however from a technical stand point, produces different results.
A merger between two (or more) Bermuda companies is typically effected pursuant to section 104H of the Companies Act and, upon completion, the undertaking, property and liabilities of each merging company is vested in the surviving company whilst the remaining company or companies cease to exist.
Conversely, an amalgamation between two (or more) Bermuda companies is typically effected pursuant to section 104 of the Companies Act and, upon completion, each of the companies become and continue as a single amalgamated company and the undertaking, property and liabilities of each becomes the property of the amalgamated company.
The Companies Act does not legislate as to whether a transaction should be structured as a merger or an amalgamation. Commercially and optically, companies might proceed by way of an amalgamation if structuring the business combination as a “merger amongst equals”, given that neither company is deemed to be the survivor. However, where one party is the “purchaser”, a merger may be the preferred choice.
In order to effect a merger or an amalgamation, the merger or amalgamation (including its terms) must be approved by the shareholders of the company, whether or not they ordinarily have a right to vote. As such, holders of non-voting preference shares may also vote on a merger or amalgamation.
There are often two agreements in the context of an amalgamation or merger. The main transaction agreement (the “Agreement and Plan of Merger/Amalgamation” (in the case of US transactions) or “Implementation Agreement” (in the case of English law transactions)), which will be subject to the law of the parties’ onshore counsel or the jurisdiction in which the company is listed or where the company conducts the majority of business, which sets out the terms and means of effecting the transaction and which will include comprehensive warranties, indemnities, conditions precedent, deal protection mechanisms (if any). In addition, a statutory merger or amalgamation agreement will also be used, which sets out that which is required to be approved by the shareholders under section 105 of the Companies Act.
From a technical and literal perspectives there are very few actual mergers (or amalgamations - defined as the merger of two companies to create a new one) in Brazil. Tax issues usually prevent this from happening, as the tax loss carry forwards of both companies involved may be lost, which is a relevant impact. Companies usually combine their activities by merging another company or being merged into another company. This is valid both for listed and non-listed companies. In very particular cases, however, amalgamations have occurred. Such amalgamations were driven by capital market issues, and targeted at neutralizing poison pills, shark repellents, etc. In a nutshell, amalgamations may neutralize certain takeover defences, such as poison pills, because the CVM understood in some cases in the past that poison pills may not apply as a result of amalgamations because there is a new company arising from such type of corporate restructuring (and hence the old bylaws which contain the poison pills do not apply). Finally, it is extremely important to consider the provisions of CVM’s opinion No. 35 (parecer de orientação CVM No. 35) when considering a merger between related parties. Special rules apply in this case, such as the formation of special committees of the board to review and resolve on the appraisal of the companies being merged. A merger between related parties in Brazil can get very complicated and is usually avoided.
British Virgin Islands
The term “merger” is defined in the Act as the merging of two or more constituent companies into one constituent company. It should not be confused with a “consolidation” which differs slightly from a merger and occurs when two or more constituent companies are united to form one entirely new company. The procedure for “mergers” and “consolidations” is essentially the same under the Act.
The provisions for effecting a merger are flexible. As part of the process, they allow shares to be cancelled, reclassified or converted into money or other assets, or into shares, debt obligations or other securities in the surviving company. Also, shares of the same class can be treated differently, e.g. some shareholders can be given shares in the surviving company, while others of the same class can be bought out, that is, have their shares converted into cash or other assets.
The procedure to effect a merger between two or more constituent BVI companies involves the following main stages:
- approval of a written plan of merger (Plan of Merger) by the directors of each constituent company;
- following approval by the directors, approval of the Plan of Merger by a resolution of the members of each constituent company;
- execution of articles of merger (Articles of Merger) by each constituent company; and
- filing of the executed Articles of Merger with the BVI Registrar of Corporate Affairs (the Registrar).
Merger of a Parent Company with a Subsidiary
The Act sets out an alternative procedure for a merger of a parent company with one or more subsidiary companies, in which members’ approval is not required. Only the directors of the parent company are required to approve the Plan of Merger.
Some or all shares of the same class of shares in each constituent company may be converted into assets of a particular or mixed kind and other shares of the class, or all shares of other classes of shares, may be converted into other assets, but, if the parent company is not the surviving company, shares of each class of shares in the parent company may only be converted into similar shares of the surviving company.
A copy of the Plan of Merger or an outline thereof is to be given to every member of each subsidiary company to be merged unless waived by that member.
Articles of Merger need only be executed by the parent company. Where the parent company does not own all the shares in the subsidiary company or companies to be merged, the Articles of Merger must also include the date on which a copy of the Plan of Merger (or an outline thereof) was either made available to, or delivery thereof was waived by, the members of each subsidiary company to be merged.
Mergers Involving Foreign Companies
Mergers between BVI companies and foreign companies are only permitted under the Act if permitted by the law of the foreign jurisdiction in which one or more of the constituent companies is incorporated. The BVI constituent companies must comply with the provisions of the Act with regard to mergers, whilst any foreign company must comply with the laws of its jurisdiction. If the foreign company will be the surviving company in the merger, the Act requires that the foreign company (a) file an agreement that service of process may be effected on it in the BVI in respect of proceedings for the enforcement of any claim, debt, liability or obligation of a constituent company registered under the Act and (b) irrevocably appoint its registered agent to accept service of such proceedings. The Act also requires the surviving foreign company to enter into an agreement that it will promptly pay dissenting members of a constituent company that is a BVI company the amount, if any, to which such members are entitled under the Act’s dissenting members’ rights. Such appointment and agreement must be filed with the Articles of Merger with the Registrar. A foreign surviving company must also file with the Registrar its Certificate of Merger from its jurisdiction of incorporation, or, if no such certificate is issued by the foreign authority, such evidence of the merger as the Registrar considers acceptable.
The effect of a merger with a foreign company is the same as in the case of a merger between two BVI companies as set out below, but if the surviving company is a foreign company, the effect of the merger is the same as under the Act except in so far as the laws of the other jurisdiction otherwise provide.
Effect of a Merger under BVI Law
A merger takes effect on the date the Articles of Merger are registered by the Registrar (or on such later date as is specified in the Articles of Merger, which date must not be more than 30 days later). Where the surviving company is a company incorporated in a jurisdiction outside the BVI, the merger is effective as provided by the laws of that jurisdiction.
The Act specifies that as soon as the merger takes effect: (a) the surviving company in so far as is consistent with its memorandum and articles, as amended or established by the Articles of Merger, has all rights, privileges, immunities, powers, objects and purposes of each of the constituent companies; (b) the memorandum and articles of the surviving company are automatically amended to the extent, if any, that changes in its memorandum and articles are contained in the Articles of Merger; (c) assets of every description, including choses in action and the business of each of the constituent companies, immediately vest in the surviving company; and (d) the surviving company is liable for all claims, debts, liabilities and obligations of each of the constituent companies.
The Act further provides that where a merger occurs (a) no conviction, judgment, ruling, order, claim, debt, liability or obligation due or to become due, and no cause existing against a constituent company (or against any member, director, officer or agent thereof) is released or impaired by the merger; and (b) no proceedings (whether civil or criminal) by or against a constituent company (or against any member, director, officer or agent thereof) pending at the time of the merger are abated or discontinued by the merger, however (i) such proceedings may be enforced, prosecuted, settled or compromised by or against the surviving company or against the member, director, officer or agent thereof, as the case may be, or (ii) the surviving company may be substituted in the proceedings for a constituent company.
Since the introduction of the regime in the Cayman Islands in 2010, mergers have become by far the most common acquisition structure. However, there are certain circumstances in which the merger regime may not be suitable and the traditional options remain (such as contractual equity acquisitions).
The threshold for a merger (subject to the relevant constitutional documents of the company) requires only a special resolution passed in accordance with the articles of association or the LLC agreement - typically, a two-thirds majority of those shareholders attending and voting at the relevant meeting. Dissenters in a merger usually have the right to be paid the fair value of their shares in cash and may compel the company to institute court proceedings to determine that fair value. This can be a factor where the offer involves a share-for-share swap (as opposed to an all cash offer) or where the bidder anticipates issues with minority shareholders.
Schemes of Arrangement
Schemes of arrangement under section 86 or 87 of the Companies Law or section 42 or 43 of the LLC Law may be appropriate in certain circumstances. A scheme of arrangement will involve the production of a circular. Typically, this is a detailed disclosure document which must provide stakeholders with all information required to make an informed decision on the merits of the proposed scheme. The principal benefit of a scheme is that, if all the necessary majorities are obtained and hurdles are cleared and the court approves the scheme, the terms of the scheme become binding on all members of the relevant class(es) of shareholders or creditors, whether or not they: (i) received notice of the scheme; (ii) voted at the meeting; (iii) voted for or against the scheme; or (iv) changed their minds subsequent to the vote.
Tender Offer/Contractual Acquisition
In a tender offer, contractual acquisition or public takeover, where the removal of a minority is required, the statutory squeeze-out remains available where the relevant statutory thresholds are met. Where a bidder has acquired 90% or more of the shares in a company, it can compel the acquisition of the shares of the remaining minority shareholders and thus become the sole shareholder. Such a squeeze-out requires the acceptance of the offer by holders of not less than 90% in value of the shares to which the offer relates, excluding shares held or contracted to be acquired prior to the date of the offer. Shares held by the bidder or its affiliates are typically not counted for purposes of the 90% threshold. Dissenters have limited rights to object to the acquisition and, in the case of a tender offer which is not on an all cash-basis, dissenters have no right to compel a cash alternative.
ZL: M&A in its nature is a commercial activity. The key factor for concluding an M&A transaction is whether the parties’ interests in the transaction can be satisfied in this game. Under the situation where the parties’ interests in the transaction are fully satisfied, the key factors effecting a merger are reasonable transaction structure and unhindered regulatory approval.
A transaction can be effected in a number of ways in Finland. Most private M&A transactions are structured as simple share acquisitions where the consideration is paid in cash or as a combination of the acquirer’s shares and cash. It is also possible to structure a transaction as a business acquisition, in which case the seller transfers and the acquirer assumes the related assets, liabilities, and employees pertaining to the business. In such case, it is possible to agree on the specific transferring assets and liabilities in more detail, but the applicable employment legislation provides that the employees belonging to the transferring business will transfer to the new owners of the business with their existing benefits and terms of employment.
In addition to the above, a transaction can also be effected by means of a corporate merger where the receiving entity gives either own shares or cash as merger consideration. A corporate merger is, however, often effected only after a share transaction has taken place, and it is also sometimes used in public merger and tender offer structures instead of private M&A transactions.
In Germany a statutory merger of most German entities can be executed according to the German Law Regulating Transformation of Companies (Umwandlungsgesetz). With respect to public companies the shares of which are listed at a stock exchange a merger can be performed according to the rules of the Takeover Act and as the case may be a combined merger agreement / business cooperation agreement which is agreed upon in the context of a takeover.
A statutory merger has to fulfil in principal the following legal minimum requirements: (i) notarisation of the merger agreement, (ii) minimum content of the merger agreement (e.g. parties, direction of merger), (iii) merger report, (iv) legal merger audit and (v) the approval of the merger agreement by the shareholders’ meetings of both companies. Moreover, there are further special requirements which depend on the legal form of the involved companies. The merger becomes effective with its registration in the commercial register. In principle opposing shareholders have the right to file an action to set aside the shareholders’ resolution (Anfechtungsklage). Such action postpones the effectiveness of the merger unless with respect to stock corporations the court decides upon the registration of the merger in an accelerated procedure (Freigabeverfahren). Apart from this, shareholders have the right to file an action in court regarding the valuation of the company in a special proceeding (Spruchverfahren). Such special proceeding does not postpone the effectiveness of the merger and usually takes more than two years considering that also an appeal is possible.
The term M&A transactions is perceived as referring broadly to a large number of transactions ranging from typical mergers of companies or transformations of different types of companies to acquisitions of target companies through asset or share deals. Notably, a merger or transformation may be effected through means of change of a company’s form, while its legal personality remains the same; no transfer of property takes place and the company’s external relations with third parties are not influenced. Alternatively, and in the more strict sense of the definition of effecting a merger, one company ceases to exist and its assets and obligations are transferred via universal succession to at least one, existing or newly formed, company. On the other hand, in asset and share deals the target company’s significant assets, enterprise or sectors –along with all relevant assets and liabilities- are transferred to a third party or a change of control at shareholders’ level is effected through the transfer of a significant shareholding.
Hence, the means of effecting M&A transactions depend on the type of the transaction. They comprise corporate law actions regarding the approval, registration and implementation of mergers, such as board and general assembly resolution, registrations with and approvals by competent supervisory authorities, signing of notarial merger deed and publications in companies’ registries. With respect to share and asset deals the process and relevant steps are simpler requiring, besides the negotiated transaction documents and subject to any applicable regulatory / sector specific approvals, registrations in the target company’s shareholder ledger or potentially the conclusion of notary deeds for the transfer of business or certain types of assets (e.g. real estate property).
The key means of effecting a merger in Guernsey are:
- an amalgamation of two or more bodies corporate to become one body corporate (being one of the original bodies corporate or an entirely new body corporate) pursuant to Part VI of the Guernsey Companies Law – this process does not require a court order; consent of the GFSC is required in certain cases and the amalgamation proposal must be approved by special resolution of the members of each amalgamating body corporate;
- a scheme of arrangement pursuant to Part VIII of the Guernsey Companies Law whereby the target puts a proposal to its shareholders for approval and once approved by a majority in number representing 75% in value of the shareholders present and voting, the arrangement may be sanctioned by the Royal Court of Guernsey; or
- establishment of a Topco to own the merging businesses, with the owners of the merging businesses being given shares in in the Topco under a share for share exchange arrangement.
Isle of Man
A merger may be effected for both 1931 Act and 2006 Act companies by way of a scheme of arrangement between the target and its shareholders. A scheme of arrangement must be sanctioned by the Manx High Court (Court) and results in the bidder acquiring the target’s shares.
Under the 2006 Act a merger may also be effected by way of a statutory merger. A statutory merger has the advantage of not requiring the sanction of the Court, which can make it a more time and cost efficient method of effecting a merger.
There are also statutory provisions specifically for the transfer of business of deposit takers which have recently been used for the first time.
A statutory merger, the shareholders of the surrendering company have to be compensation by way of shares in the acquiring company, or alternatively by a combination of cash and shares, provided the amount of cash does not exceed 20% of the aggregate compensation. If the acquiring company is part of a group, and if one or more of the group companies hold more than 90% of the shares and votes of the acquiring company, the compensation to the shareholders of the surrendering company may consist of shares in the parent company or in another member of the acquiring company’s group. It is also possible to effect a merger by combining two or more companies into a new company established for the purpose of such merger.
The board of directors of the companies merging are responsible for executing a joint merger plan in accordance with specific provisions set out in the companies law. The decision to merge with another company requires a resolution from the company's shareholders at a general meeting, and the decision is made by approving the merger plan. The resolution must be passed by at least two thirds of the aggregate vote cast, as well as two thirds of the aggregate share capital represented, at the general meeting.
In the acquiring company, the merger may be approved by the board of directors, provided that they have been given a power of attorney to increase the share capital of the company by way of merger. Such power of attorney also requires the qualified majority vote as mentioned above. As such, a merger is always subject to approval from a qualified majority of the shareholders of both the acquiring and acquired company.
Following the execution of the merger plan, the board of directors in each merging company are obliged to execute a written report in which the effects and reasoning of the merger is described, including any effect on any employees in the company. Such report may however be exempted if approved by all shareholders in the company, save for effects on employees, which must always be explained. In addition to the report, the board of directors of each company shall execute a statement on the merger, at least providing a specific description of the contribution to the shareholders of the acquired company. In private companies, these documents as well as the merger plan must be sent to the shareholders at least two weeks prior to the general meeting, while in public companies, the merger related documents must be made available at the companies' business offices or web pages no shorter than one month prior to the general meeting.
Following the approval of the merger plan, and within one month at the latest, the decision to merge shall be notified to the Norwegian Register of Business Enterprises (the "NRBE"). If the one month deadline is not met, the decision lapses. The NRBE then announces the merger, and a creditor deadline of six weeks starts in which the companies' creditors must raise any objections to the merger. As a point of basis, objections made within the deadline will delay the merger until the claim pertaining to the objecting creditor is paid, however the courts may decide otherwise given certain circumstances.
When the creditor deadline is expired for all companies participating in the merger, and there are no outstanding and/or unsolved creditor claims, the merger is effectuated by notification by the acquiring company.
The Norwegian Companies Acts also allows and provides the legal procedure for a Norwegian company, both private and public, to merge with a company resident outside Norway. However, such cross-border mergers is limited to companies resident within the EEA. The cross-border rules implemented in connection with EU's tenth directive on cross-border mergers of limited liability companies (2005/56/EC). In order for an EEA-company to merge with a Norwegian company, the foreign company involved in the merger must have a company structure that, according to its state's legislation, corresponds to a Norwegian private or public limited company. From 2012, cross-border mergers/demergers between Norwegian companies and companies domiciled within the EU or EEA can now also be carried out on a tax-free basis subject to certain conditions.
The main and most widespread structure of an M&A transaction involves transacting with shares (participation interests) in a target company in a privately negotiated deal. Public acquisitions (through tender offers or otherwise) are practically absent – few Russian companies are listed, and those that are listed float the number of shares that is not sufficient to gain control of the company.
Asset deal are rather rare, as they are usually associated with considerable formalities, including transfer of real estate, assignment of operational agreements, obtaining of required operational permits, certificates and authorisations and transfer of personnel. These formalities may be rather complex and time consuming.
Effecting corporate reorganisations (mergers and amalgamations) requires passing through a lengthy and formalistic process and registration formalities as well. Such reorganisations may or may not follow M&A deals in Russia but are very rarely an M&A vehicle.
The NCL allows for two companies to merge, following which either: (1) the first entity loses its legal personality and is absorbed by the second; or (2) each entity loses its legal personality, and an entirely new entity with a separate legal personality is created. The NCL requires that both the assets of the target and the acquiring company must be valued in order for a merger to become valid, and that any resolution to merge two entities must come into force 30 days from the date of its publication.
However, although mergers in the Kingdom are theoretically possible, they are uncommon in practice. Ordinarily, more traditional acquisitions or formations of special purpose vehicles and the use of share swaps are adopted as means of acquiring companies.
Public mergers are expected to be conducted in accordance with the M&A Regulations. Bidders must publicly announce an offer to a public target's shareholders to acquire their shareholdings. Before an offer document is sent by the bidder to all target shareholders, the CMA is required to review and approve its contents. CMA consent will usually be provided within 30 days of receipt of all relevant information.
There are two main types of merger in Japan: (i) consolidation-type merger, where all the assets, rights and obligations of the companies being merged are acquired by a newly incorporated acquisition company (the pre-existing companies being dissolved); and (ii) absorption-type merger, where the surviving company acquires all assets, rights and obligations of the company absorbed by the merger. Consolidation-type mergers are rare because the procedures tend to be burdensome when compared to those for absorption-type mergers, not least of which are obtaining new government licenses and approvals and, if the merged companies in a consolidation-type merger are both listed, listing of the newly incorporated acquisition company. Even with an absorption-type merger, the parties must follow statutory procedures, including obtaining approval at shareholders’ meetings, executing a merger agreement and giving public notices.
The most common method of effecting a merger, in the broadest sense, is the acquisition of shares in the target company. In the case of a foreign acquirer this generally means a direct investment from outside Thailand, except where foreign ownership restrictions necessitate the establishment of a holding vehicle in Thailand. Such a vehicle will be structured to have the majority of its shares owned by Thai nationals to meet the requirements of the FBA but the foreigner will have control though the use of different classes of shares with weighted voting rights (and possibly also different economic rights).
Asset or business transfers of assets (e.g. through asset acquisitions, entire business transfers and partial business transfers) are also common but are cumbersome. In certain cases, the transfer can be carried out on a tax-free basis (e.g. entire business transfer), provided that certain conditions are satisfied. Asset acquisitions directly by foreigners are not common and in most cases a foreigner will form a company in Thailand to acquire the assets.
A procedure for mergers in the strict sense does exist for private companies under the CCC and public companies under the PLC Act, involving a new company being created from at least two existing companies which are automatically dissolved on the merger (amalgamation) becoming effective (A+B = C). However, this is not much used as it is time consuming and objecting creditors have the right to be paid out or have their debts secured.
An amalgamation can take place either by means of a merger by acquisition or a merger by formation of a new company.
Merger by acquisition is the operation whereby the acquiring company acquires all the assets and liabilities of one or more other companies in exchange for the issue, to the shareholders of the companies being acquired, of shares in the acquiring company and a cash payment not exceeding ten percent of the nominal value of the shares so issued. A merger by the formation of a new company involves the delivery, by two or more merging companies, to a company which they set up, of all their assets and liabilities in exchange for the issue to the shareholders of the merging companies of shares in the new company and a cash payment not exceeding ten percent of the nominal value of the shares so issued.
For public companies, there are two primary transaction structures — a single-step merger and a two-step transaction consisting of a tender offer followed by a merger.
One-step mergers are effected under state law, and the consideration in a merger can be cash, securities (including stock of the buyer) or a combination of both. Once the parties reach an agreement which is approved by the boards of directors of both companies, the target company submits the deal to its shareholders for approval. A vote of the shareholders of the acquirer may also be required in a transaction involving stock consideration depending on the amount of acquirer stock to be issued and will be required if the acquirer is itself merging (such as in a “merger of equals” transaction). In acquisitions, if shareholders approve the merger, the target company typically merges with a wholly owned subsidiary of the buyer, with the target company as the surviving corporation. The result is that the target company becomes a wholly owned subsidiary of the buyer. Merger transactions may use a similar structure or may involve each party merging with a merger subsidiary of a newly formed holding company with the shareholders of each merger party receiving shares of the holding company. Single-step mergers are most common in deals in which the consideration includes stock or there is expected to be a lengthy regulatory delay.
In a two-step transaction, the buyer makes a tender offer to acquire not less than a majority of the target company’s stock directly from its shareholders followed by a “back-end” merger through which the buyer acquires any remaining outstanding shares. A shareholder vote on the back-end merger may be required (depending on applicable state law), but the buyer will be able to ensure that it passes since it will own a majority of the outstanding stock as a result of the tender offer. Two-step transactions are most common in all-cash acquisitions.
In addition, acquisitions of private companies can also be effected through stock purchases and asset purchases.
Vietnamese law expressly recognises the concept of “...merger...” and “...consolidation...” transactions, which are directly analogous to the corresponding concepts in more developed jurisdictions.
In relation to acquisition transactions, Vietnam law expressly recognises the rights of investors (both domestic and foreign) to purchase from existing:
- shareholders of JSCs, fully paid-up shares; or
- members of LLCs, fully contributed charter capital.
Control of a Mauritius company can be acquired by:
- a takeover offer made by the offeror to the target company’s shareholders;
- a scheme of arrangement duly approved by the Supreme Court of Mauritius;
- a legal merger which involves two or more companies being merged by an order of the Supreme Court of Mauritius (but in practice this approach is rarely used);
- an amalgamation of two companies to become one company (being one of the original companies or an entirely new company); or
- a share purchase arrangement where the target company is not listed.
- Takeover offer – an offer made by a bidder to a target’s shareholders. The bidder may compulsorily acquire the remaining shares if it acquires at least 90% of the share to which the offer relates.
- Scheme of arrangement –a statutory procedure pursuant to Part 18A of Article 125 of the Companies (Jersey) Law 1991 whereby a company may make a compromise or arrangement with its members or creditors (or any class of them). Where an arrangement or compromise is proposed by the company with its members (or creditors), the court may sanction that compromise or arrangement with the effect that it becomes binding on all the members (or creditors). There are also separate statutory transfer schemes for insurance and banking business.
- Legal merger – Part 18B of the Companies (Jersey) Law 1991 makes provision for mergers between Jersey companies and foundations and companies and other bodies incorporated both in and outside Jersey (provided that the foreign incorporated body is not prohibited under its relevant foreign law to merge).
- Sale and purchase agreements (shares or asset) – a private contract between buyer and seller.
A merger may be performed either by:
- absorption of a target company by the absorbent company followed by a transfer of patrimony to the latter, or
- amalgamation of several companies followed by the transfer of their patrimonies to a new incorporated target company and issuance and distribution of shares in the target company to the shareholders (and possibly a cash payment of up to 10% of the nominal value of the distributed shares).
Broadly, a merger is a two-step procedure performed before the competent Trade Registry and completed by a court resolution approving the merger. Depending on the parties to the merger and their scope of activity, the entire procedure takes generally about 6 months, involving multiple formalities and documents such as a merger project, multiple corporate approvals and statements, reports, certificates, permits, etc.
The key means of effecting a merger are:
- an amalgamation – under the provisions of the Companies Act, but this method is not available if one of the merging companies is a “code company”;
- a scheme of arrangement under the Companies Act; or
- a takeover under the Takeovers Code.
The two principle mechanisms for implementing a merger of private companies in the UK are through either an acquisition of shares or the acquisition of a business and/or related assets. These are both implemented by way of private contract between the buyer and seller with the usual English laws of contract applying.
Public mergers in the UK are implemented differently, either through a public offer for the shares of a target company under the Code, or by way of a scheme of arrangement under the Companies Act and the Code.
A public offer is a form of general contract between the bidder and each of the shareholders in the target company who chooses to accept the offer. The making of public offers is governed by the Code, which prescribes in detail how such offers must be made, the information that must be provided to target shareholders and the manner in which it must be provided, together with a timeline to which such offers must be executed. The Code also prescribes the conditions which may be attached to such an offer and lays out a detailed framework for dealing with competing bids where more than one party is interested in acquiring the target.
A scheme of arrangement is a court approved, statutory process, by which a company and its shareholders reach an agreement as to a particular course of action (in this case, the sale or transfer of their shares in the target to the bidder). The statutory framework for schemes of arrangement is set out in the Companies Act (as supplemented by the Code). While these processes were not originally specifically designed for the purposes of facilitating public mergers, they have become a very common feature of the UK public M&A market.
As the target produces the relevant documentation and is responsible for implementing a scheme of arrangement, these processes are only appropriate for use in the context of a recommended bid.
It is generally considered that while a public offer may provide a framework through which de facto control over a target (i.e. an acquisition of more than 50% of the vote in that company) can be achieved relatively quickly, a scheme of arrangement, which is a more formal process, has the benefit of delivering complete control over a target upon receipt of shareholder approval, thus avoiding the need to go through additional procedures to squeeze out minority or irresponsive shareholders, as can often be the case following a successful public offer.
In addition to the above, companies incorporated in the UK can merge with other companies in EU member states under The Companies (Cross-Border Mergers) Regulations 2007 (the "EU Mergers Regulation"). In contrast to the processes described above, which are generally concerned with the sale, transfer or issuance of shares in a target company, mergers under the EU Mergers Regulation can be effected by absorption or by formation of a completely new entity. The mechanisms set out in the EU Mergers Regulation are not used with great frequency in the UK M&A market and a question remains as to how these mechanisms will continue to operate following the completion of any exit of the UK from the European Union.
The main effect is that, by operation of law, provided that the process, terms and conditions stated under the Act of Structural Changes of Legal Companies (Ley de Modificaciones Estructurales de las Sociedades Mercantiles) are followed, the absorbing company (which results of the merger) automatically inherits the rights and obligations (including employees and labour and social security obligations) of the absorbed company/companies through a so called “universal succession”, without the need of claiming for specific consents or authorisations for the transfer. The absorbed company is consequently extinguished without liquidation.
Pursuant to the Turkish Commercial Code, companies can be merged through:
- takeover of a company by another, i.e. merger in form of a takeover; or
- incorporation of a new company where existing companies will merge into, i.e. merger in form of a new incorporation.
As a result of the merger, the transferred company will be dissolved without liquidation and its assets will be wholly acquired by the receiving company.
Basically, the merger process requires (i) the preparation of a merger agreement, (ii) the preparation of a merger report (which can be avoided in small and medium sized enterprises), (iii) the publication of an announcement in the Trade Registry Gazette of Turkey informing the interested persons about their right to audit the merger agreement, the merger report and the financial statements (which can be avoided in small and medium sized enterprises), (iv) the preparation of a certified public accountant report attesting that the merger is performed in compliance with the minimum equity ratios, (v) an increase of the share capital of the acquiring company (as the case may be), and (vi) the approval of the merger agreement by the general assemblies of the companies participating in the merger.
In case the acquiring company owns the entirety of the shares (granting voting rights) of the transferred company or a same person holds the entirety of the shares (granting voting rights) of companies participating to a merger transaction, a simplified merger procedure may apply: the merging companies can avoid (i) the preparation of a merger report, (ii) the right of audit of interested persons and (iii) the approval of the merger agreement by the general assemblies. Instead, the management bodies (e.g. board of directors) will be entitled to approve the merger agreement.
The merger will take effect upon its registration with the competent Trade Registry Office.
As for merger transactions involving listed companies, the Communiqué on Merger and Spin-off (II-23.2) issued by the Capital Markets Board also sets forth further provisions regarding the merger process, e.g. preparation of an announcement text to be approved by the Capital Markets Board, specificities of the financial statements to be used, obtaining of an expert opinion regarding the assets' value and the exchange ratio, public disclosure, mandatory content of the merger agreement / report, protection of shareholders, etc.