Come Together

Until recently, the United Kingdom had no process by which companies could engage in a true merger, which is to say the absorption as opposed to the acquisition of one company by another by way of a typical M&A purchase-oriented friendly deal that typically did not engage the courts. Accordingly, pure mergers, even in the domestic context, have not historically taken place in the U.K.

The arrival of the Companies (Cross-Border Mergers) Regulations 2007 in December 2007, however, has made mergers possible in the cross-border context. The regulations implemented the European Cross-Border Mergers Directive of 2005, which allows companies incorporated in any European Economic Area (EEA) country to merge with a company or companies incorporated elsewhere in the EEA.

The U.K. procedure requires the U.K. company to present a merger report containing the draft terms of the merger; a directors' report citing the effect on shareholders, creditors and employees; and an independent expert's report confirming that the valuation methods and share exchange ratios are reasonable.

The expert's report, however, can be waived if the shareholders unanimously agree to do so and if the merger is an absorption of a wholly owned subsidiary or the transferee already holds at least 90 percent of the transferor's securities.

Reducing Regulation

The upshot of the equation is that the regulations may not be the most effective tool for typical M&A transactions. But they would seem particularly suited to situations where shareholder and third party consent are not live issues.


Julius Melnitzer

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