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European Merger Law

are many countries within the EU and every country has its own company law provision with respect to merger, however these countries need to adhere to the competition regulation- Council Regulation (EC) No. 139/2004 as modified from time to time.

The EU Commission welcomes corporate reorganization so long as these are:
in line with the requirements of dynamic competition and capable of increasing the competitiveness of European industry, improving the conditions of growth and raising the standards of living in the community.

Hence any reorganization which may significantly impede effective competition in the common market or in a substantial part of it will be regulated. In this regard a concentration is deemed to arise where

A change of control on a lasting basis results from:
  • The merger of two or more previously independent undertakings or part of undertakings, or
  • The acquisition, by one or more persons already controlling at least one undertakings, or by one or more undertakings, whether by purchase of securities or assets, by contract or by any other means, of direct or indirect control of the whole or parts of one or more other undertakings.

For this purpose control shall be constituted by rights, contracts or any other means which, either separately or in combination and having regard to the considerations of fact or law involved, confer the possibility of exercising decisive influence on as undertaking, in particular by:
  • Ownership or the rights to use all or part of the assets of an undertaking;
  • Rights or contracts which confer decisive influence on the composition, voting or decisions of the organs of an undertaking.

Companies Act 2006 (UK)

Part 26 Companies Act 2006 deals with arrangements and reconstructions including amalgamation, while part 27 deals with mergers and division of public companies. The provisions of section 895 are very similar to section 390 of CA 1956 in that the definition of the term arrangement is verbatim the same as in section 390(b) of CA and that of a ' company' in case of amalgamation as a company within the meaning of this act, which is very similar to the definition of the term 'transferee' under 394(4)(b). In other words the transferee company under the Companies Act, 2006 must be a company under the said Act only.


Section 899 Court Sanction For Compromise or Arrangement:

  1. If a majority in number representing 75% in value of the creditors or class of creditors or members or class of members, present and voting either in person or by proxy at the meeting summoned under section 896, agree a compromise or arrangement , the court may, on an application under this section, sanction the compromise or arrangement.
  2. An application under this section may be made by:
    1. the company,
    2. any creditor or member of the company, or
    3. if the company is being wound up or an administration order is in force in relation it, the liquidator or administrator.
  3. A compromise or agreement sanctioned by the court is binding on:
    1. all creditors or the class of creditors or on the members or class of members (as the case may be), and
    2. the company or, in the case of a company in the course of being wound up, the liquidator and contributories of the company.
  4. The court's order has no effect until a copy of it has been delivered to the registrar.

Reconstructions and amalgamations

Section 900 Powers of court to facilitate reconstruction or amalgamation

  1. This section applies where application is made to the court under section 899 to sanction a compromise or arrangement and it is shown that:
    1. the compromise or arrangement is proposed for the purposes of, or in connection with, a scheme for the reconstruction of any company or companies, or the amalgamation of any two or more companies, and
    2. under the scheme the whole or any part of the undertaking or th e property of any company concerned in the scheme (a transferor company) is to be transferred to another company (the transferee company).
  2. The court may, either by the order sanctioning the compromise or arrangement or by a subsequent order, make provision for all or any of the following matters:
    1. the transfer to the transferee company of the whole or any part of the undertaking and of the property or liabilities of any transferor company;
    2. the allotting or appropriation by the transferee company of any shares, debentures, policies or other like interests in that company which under the compromise or arrangement are to be allotted or appropriated by that company to or for any person;
    3. the continuation by or against the transferee company of any legal proceedings pending by or against any transferor company;
    4. the dissolution, without winding up, of any transferor company;
    5. the provision to be made for any persons who, within such time and in such manner as the court directs, dissent from the compromise or arrangement;
    6. such incidental, consequential and supplemental matters as are necessary to secure that the reconstruction or amalgamation is fully and effectively carried out.
  3. If an order under this section provides for the transfer of property or liabilities:
    1. the property is by virtue of the order transferred to, and vests in, the transferee company, and
    2. the liabilities are, by virtue of the order, transferred to and become liabilities of that company.
  4. The property (if the order so directs) vests freed from any charge that is by virtue of the compromise or arrangement to cease to have effect.
  5. In this sectionó property includes property, rights and powers of every description; and liabilities includes duties.
  6. Every company in relation to which an order is made under this section must cause a copy of the order to be delivered to the registrar within seven days after its making.
  7. If default is made in complying with subsection (6) an offence is committed by:
    1. the company, and
    2. every officer of the company who is in default.
  8. A person guilty of an offence under subsection (7) is liable on summary conviction to a fine not exceeding level 3 on the standard scale and, for continued contravention, a daily default fine not exceeding one-tenth of level 3 on the standard scale.

Section 905 Draft terms of scheme (merger)

  1. A draft of the proposed terms of the scheme must be drawn up and adopted by the directors of the merging companies.
  2. The draft terms must give particulars of at least the following matters:
    1. in respect of each transferor company and the transferee company:
      1. its name,
      2. the address of its registered office, and
      3. whether it is a company limited by shares or a company limited by guarantee and having a share capital;
    2. the number of shares in the transferee company to be allotted to members of a transferor company for a given number of their shares (the share exchange ratio) and the amount of any cash payment;
    3. the terms relating to the allotment of shares in the transferee company;
    4. the date from which the holding of shares in the transferee company will entitle the holders to participate in profits, and any special conditions affecting that entitlement;
    5. the date from which the transactions of a transferor company are to be treated for accounting purposes as being those of the transferee company;
    6. any rights or restrictions attaching to shares or other securities in the transferee company to be allotted under the scheme to the holders of shares or other securities in a transferor company to which any special rights or restrictions attach, or the measures proposed concerning them;
    7. any amount of benefit paid or given or intended to be paid or given:
      1. to any of the experts referred to in section 909 (expert's report), or
      2. to any director of a merging company, and the consideration for the payment of benefit.
  3. The requirements in subsection (2)(b), (c) and (d) are subject to section 915 (circumstances in which certain particulars not required).

Section 906 Publication of draft terms (merger)

  1. The directors of each of the merging companies must deliver a copy of the draft terms to the registrar.
  2. The registrar must publish in the Gazette notice of receipt by him from that company of a copy of the draft terms.
  3. That notice must be published at least one month before the date of any meeting of that company summoned for the purpose of approving the scheme.

Section 907 Approval of members of merging companies

  1. The scheme must be approved by a majority in number, representing 75% in value, of each class of members of each of the merging companies, present and voting either in person or by proxy at a meeting.
  2. This requirement is subject to sections 916, 917 and 918 (circumstances in which meetings of members not required).

Section 908 Directors' explanatory report (merger)

  1. The directors of each of the merging companies must draw up and adopt a report.
  2. The report must consist of:
    1. the statement required by section 897 (statement explaining effect of compromise or arrangement), and
    2. in so far as that statement does not deal with the following matters, a further statement:
      1. setting out the legal and economic grounds for the draft terms, and in particular for the share exchange ratio, and
      2. specifying any special valuation difficulties.
  3. The requirement in this section is subject to section 915 (circumstances in which reports not required).

Section 909 Expert's report (merger)

  1. An expert's report must be drawn up on behalf of each of the merging companies.
  2. The report required is a written report on the draft terms to the members of the company.
  3. The court may on the joint application of all the merging companies approve the appointment of a joint expert to draw up a single report on behalf of all those companies.

    If no such appointment is made, must be a separate expert's report to the members of each merging company drawn up by a separate expert appointed on behalf of that company.
  4. The expert must be a person who:
    1. is eligible for appointment as a statutory auditor (see section 1212), and
    2. meets the independence requirement in section 936.
  5. The expert's report must:
    1. indicate the method or methods used to arrive at the share exchange ratio;
    2. give an opinion as to whether the method or methods used are reasonable in all the circumstances of the case, indicate the values arrived at using each such method and (if is more than one method) give an opinion on the relative importance attributed to such methods in arriving at the value decided on;
    3. describe any special valuation difficulties that have arisen;
    4. state whether in the expert's opinion the share exchange ratio is reasonable; and
    5. in the case of a valuation made by a person other than himself (see section 935), state that it appeared to him reasonable to arrange for it to be so made or to accept a valuation so made.
  6. The expert (or each of them) has:
    1. the right of access to all such documents of all the merging companies, and
    2. the right to require from the companies' officers all such information, as he thinks necessary for the purposes of making his report.
  7. The requirement in this section is subject to section 915 (circumstances in which reports not required).
In addition to the above . one needs to know the takeover code.

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