Tag Archives: Merger control

Green paper on mergers

Green paper on mergers

Outline of the Community (European Union) legislation about Green paper on mergers

Topics

These categories group together and put in context the legislative and non-legislative initiatives which deal with the same topic.

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Green paper on mergers

1) Objective

To launch a widespread debate on the reform of merger control arrangements.

2) Document or Iniciative

Green Paper on the review of Council Regulation (EEC) No 4064/89 of 11 December 2001 [(COM(2001) 745 final – Not published in the Official Journal].

3) Summary

Background

More than ten years after the entry into force of the Merger Regulation, the Commission is launching a wide-ranging discussion on reforming merger control. New economic, political and legal developments such as the introduction of the euro, the enlargement of the Union and the increasing pace of globalisation of companies and markets have prompted the Commission to undertake a review of Regulation (EEC) No 4064/89 on mergers.

Whenever extensive reforms are undertaken, Green Papers are issued as discussion instruments through which the Commission puts forward specific proposals and invites the parties concerned to comment. In the case of the Green Paper on merger control, the reform is intended to deal with substantive, jurisdictional and procedural issues.

Substantive issues: the dominant position criterion

Whilst the EC Treaty does not prohibit the existence of a dominant position but only the abuse of it, the Merger Regulation acknowledges that, under certain conditions, a merger may lead to abuse of a dominant position. This dominance criterion, which the Commission applies and Member States recognise, differs from the “substantial lessening of competition” criterion applied in other jurisdictions such as the United States, Canada and Australia. That concept involves the authorities checking whether a merger causes a substantial reduction in competition. The Green Paper acknowledges the value and effectiveness of the dominant position concept, but it invites discussion of the advantages that alignment on an approach involving merger assessment could provide at international level.

Jurisdictional issues: the concept of “Community dimension”

The Green Paper puts jurisdictional issues first, especially the question of “Community dimension”. The main purpose of the proposals on jurisdictional matters is to increase flexibility, efficiency and speed in processing cases between the Commission and the courts of the Member States.

At present, the Commission has sole power over mergers with a Community dimension. This “one-stop shop” system meets the need for effectiveness since it makes it possible to examine a transaction having cross-border effects, which might otherwise avoid individual scrutiny by the national courts.

The existing Regulation considers that a merger has a Community dimension (Article 1) where the combined aggregate worldwide turnover of all the firms concerned is more than 2.5 billion. If, however, that threshold is not reached, a merger may be regarded as having a Community dimension if a lower threshold is reached in at least three Member States.

That last provision requires the firms concerned to notify a transaction in at least three Member States. However, the number of multiple notifications is growing and will probably only accelerate with the enlargement of the European Union. In order to simplify the procedure and retain the advantages of the “one-stop shop”, the Commission proposes automatic Community powers over transactions that must now be the subject of multiple filings in at least three Member States.

There may, however, be cases where the Commission decides to refer a transaction back to the national authorities if the effects do not actually go beyond the national frontiers. If mergers are to be processed as close to the interests concerned as possible, there must be maximum flexibility in the arrangements governing referral to Member States. To guarantee and enhance the flexibility of the system, the Green Paper simplifies the wording of the referral application (Article 9) sent to Member States’ authorities so that it no longer contains the requirement to provide evidence that the transaction is liable to create or strengthen a dominant position. The Green Paper also endeavours to find a simpler geographic criterion to define the dimensions and extent of the market concerned than that of a “substantial” part of the relevant market. In addition, the three-week period might be cut to two weeks. And the Commission is also considering altering the procedure for referral by the national authorities to the Commission (Article 22).

The Green Paper also recognises the difficulties of defining the concept of “merger” with sufficient legal certainty in the different specific instances described (Article 3) and opens the debate on the concept of mergers. A review is planned in particular of the provisions concerning minority shareholdings, strategic alliances and multiple transactions. The Green Paper also seeks comments on the applicability of the Merger Regulation to certain types of venture capital transactions and the harmonisation of the concepts of groups and controls.

Procedural issues: a more flexible system

The key to reform of the procedure is the time needed to initiate proceedings in respect of the first (notification) phase and the second (investigation procedure) phase. The most innovative proposal in this respect is the introduction of a suspensory provision, enabling proceedings to be suspended for 20 to 30 days in order to give the parties more time to arrange their defence. This amendment is designed to make the procedure more flexible and improve due process. The Commission also invites the parties to comment on whether notifications could be submitted direct by the notifying parties to the competent national authorities, whether they could be submitted electronically and on the necessary criteria for finding that a notification is incomplete.

4) Implementing Measures

5) Follow-Up Work

It is not designed to interpret or replace the reference document, which remains the only binding legal text.

Mergers of public limited liability companies

Mergers of public limited liability companies

Outline of the Community (European Union) legislation about Mergers of public limited liability companies

Topics

These categories group together and put in context the legislative and non-legislative initiatives which deal with the same topic.

Internal market > Businesses in the internal market > Company law

Mergers of public limited liability companies

Document or Iniciative

Directive 2011/35/EU of the European Parliament and of the Council of 5 April 2011 concerning mergers of public limited liability companies (Text with EEA relevance).

Summary

This Directive aims at coordinating the legislation of Member States on mergers of public limited liability companies to protect the interests of members and third parties.

Member States need not apply this Directive:

  • to cooperatives;
  • to companies which are being acquired or will cease to exist and are the subject of bankruptcy proceedings, proceedings relating to the winding-up of insolvent companies, judicial arrangements, compositions and analogous proceedings.

Mergers by acquisition and merger by the formation of a new company

Mergers by acquisition * or mergers by the formation of a new company *may be effected where one or more of the companies which are ceasing to exist is in liquidation, provided that the companies have not yet begun to distribute their assets to their shareholders.

Where the administrative or management bodies of companies decide to carry out a merger, they must draw up draft terms of merger in writing which include, in particular:

  • the type, name and registered office of the companies;
  • the share exchange ratio;
  • terms relating to the allotment of shares;
  • the rights conferred by the acquiring company.

The administrative or management bodies of the companies must make the draft terms of merger public at least one month before the date fixed for the general meeting, pursuant to the conditions laid down in the Directive on protecting the interests of members and third parties. They shall be exempt from this requirement if the draft terms are made available on the company website for that period. In order to be valid, the merger must be approved by the general meeting of each of the merging companies.

All mergers require the approval of the general meeting of each of the merging companies. However, Member States need not make the merger subject to approval by the general meeting if:

  • publication of the merger takes place at least one month before the date fixed for the general meeting;
  • all shareholders of the acquiring company are entitled to inspect certain documents (draft terms of merger, annual accounts, for example) at least one month before the date fixed for the general meeting;
  • one or more shareholders of the acquiring company holding a minimum percentage of the subscribed capital (no more than 5 %) is/are entitled to require that a general meeting be called to decide whether to approve the merger.

One month before the date fixed for the general meeting, shareholders may inspect documents (unless they have already been published on the website) such as:

  • the draft terms of merger;
  • the annual accounts;
  • the reports of the administrative bodies.

The merging companies shall protect employees’ rights pursuant to the provisions of the Directive on safeguarding employees’ rights in the event of transfers of undertakings. They must also provide creditors with safeguards as regards their financial situation.

After a merger, the following situations may occur:

  • all assets and liabilities have been transferred;
  • the shareholders of the company being acquired become shareholders of the acquiring company;
  • the company being acquired ceases to exist.

The laws of the Member States may lay down nullity rules for mergers, in particular if:

  • nullity is to be ordered in a court judgment;
  • a defect liable to render a merger void can be remedied;
  • the judgment declaring a merger void does not affect the validity of obligations.

Acquisition of one company by another which holds 90 % or more of its shares

One or more companies may be wound up without going into liquidation and transfer all of their assets and liabilities to another company which is the holder of all their shares, in accordance with the provisions described earlier. Nevertheless, Member States may choose not to impose certain requirements.

This Directive repeals Directive 78/855/EEC.

Key terms of the Act
  • Merger by acquisition: the operation whereby one or more companies are wound up without going into liquidation and transfer to another all their assets and liabilities in exchange for the issue to the shareholders of the company or companies being acquired of shares in the acquiring company and a cash payment, if any, not exceeding 10 % of the nominal value of the shares so issued or, where they have no nominal value, of their accounting par value.
  • Merger by formation of a new company: the operation whereby several companies are wound up without going into liquidation and transfer all their assets and liabilities to a company that they form, in exchange for the issue to their shareholders of shares in the new company and a cash payment, if any, not exceeding 10 % of the nominal value of the shares so issued or, where they have no nominal value, of their accounting par value.

Reference

Act Entry into force Deadline for transposition in the Member States Official Journal

Directive 2011/35/EU

1.7.2011

OJ L 110, 29.4.2011