Mergers and Acquisitions Flashcards
What is the primary legislation regulating mergers and acquisitions in the UK?
The Companies Act 2006 (CA 2006), along with the City Code on Takeovers and Mergers, regulates mergers and acquisitions in the UK.
What is a horizontal merger?
A horizontal merger occurs between companies operating in the same industry or market, aiming to reduce competition and achieve economies of scale.
What is a vertical merger?
A vertical merger happens between companies at different stages of the production process, such as a manufacturer acquiring a supplier, to secure the supply chain.
What distinguishes a friendly takeover from a hostile takeover?
In a friendly takeover, the target company’s board supports the acquisition, while in a hostile takeover, the acquirer proceeds against the board’s wishes, often appealing directly to shareholders.
What mechanism under the CA 2006 facilitates mergers and acquisitions with court approval?
The Scheme of Arrangement under Part 26 of the CA 2006 allows companies to restructure, merge, or acquire with court and shareholder approval.
What does Section 979 of the CA 2006 provide in a takeover?
Section 979 allows an acquirer with 90% of a target’s shares to “squeeze out” minority shareholders, compelling them to sell their shares at a fair price.
What rights are provided under Section 983 of the CA 2006?
Section 983 gives minority shareholders “sell-out” rights, allowing them to require the acquirer to buy their shares if the acquirer holds 90% of the company.
What is the mandatory offer rule under the City Code on Takeovers and Mergers?
If an acquirer reaches 30% ownership of a company’s voting shares, they must make an offer to all remaining shareholders at the highest price paid in the past 12 months.
How does the City Code ensure equal treatment during a takeover?
The City Code mandates that all shareholders receive equal treatment and sufficient information to make an informed decision during a takeover.
What EU directive facilitates cross-border mergers within Member States?
The Tenth Company Law Directive (2005/56/EC), later consolidated under Directive 2017/1132, facilitates cross-border mergers within the EU.
What case established the principle of freedom of establishment in cross-border mergers?
Centros Ltd v Erhvervs-og Selskabsstyrelsen (1999) established that Member States must not restrict companies’ freedom of establishment.
What is the significance of the Sevic Systems AG case?
The court ruled that a German refusal to register a merger with a Luxembourg company breached EU freedom of establishment principles.
What method allows an acquirer to buy specific assets of a company without acquiring the entire company?
Asset purchase allows selective acquisition of a company’s assets, limiting liabilities associated with the rest of the business.
What is a scheme of arrangement?
A court-approved process under Part 26 of the CA 2006, used for friendly mergers and acquisitions, requiring shareholder and court approval.
What regulatory body enforces the City Code on Takeovers and Mergers?
The Panel on Takeovers and Mergers enforces the City Code, ensuring fair treatment of shareholders during takeovers.
What is a public tender offer?
A public tender offer is when an acquirer invites shareholders to sell their shares at a specified price, often used in hostile takeovers.
What protections exist for minority shareholders in a takeover?
Squeeze-out rights (Section 979) and sell-out rights (Section 983) ensure minority shareholders are treated fairly during takeovers.
What does the Market Abuse Regulation (MAR) require during M&A activities?
MAR mandates timely disclosure of price-sensitive information to prevent insider dealing and market manipulation.
How does the Criminal Justice Act 1993 address insider dealing in M&A?
The Act criminalizes insider dealing, with penalties including fines and imprisonment for those who trade on confidential, price-sensitive information.
What are the two main types of mergers based on business activity?
Horizontal mergers (same industry) and vertical mergers (different production stages).
What is the role of independent valuation in a squeeze-out process?
Independent valuation ensures that minority shareholders receive fair value for their shares during a squeeze-out.
What is a conglomerate merger?
A merger between companies in unrelated business areas, primarily aimed at diversification and risk spreading.
How does the CA 2006 protect against unfair share issuance during a takeover?
Disclosure and fairness requirements under the City Code ensure that new shares are not issued to manipulate control or dilute minority stakes.
What does Section 996 of the CA 2006 allow courts to do in M&A disputes?
Courts can order remedies such as share purchase orders, governance changes, or financial compensation to protect shareholder interests.
What does the EU Takeover Directive ensure for shareholders?
It ensures minority shareholder protection, equal treatment, and transparency during takeovers within the EU.
What is the significance of Re HR Harmer Ltd (1958) in shareholder disputes?
The case emphasized fairness in shareholder buyouts and minority protection during company ownership transitions.
What happens in a ‘hostile takeover’?
The acquirer pursues the target company against the board’s opposition, often by appealing directly to shareholders or bypassing management.
What is the significance of Inspire Art Ltd (2003) for cross-border mergers?
It reinforced the principle that Member States cannot impose additional constraints on companies incorporated elsewhere in the EU.
What method of acquisition transfers the most liabilities to the acquirer?
Share purchase transfers all liabilities of the target company to the acquirer, as they acquire the company as a whole.
What is the threshold for a mandatory offer under the City Code?
30% of voting shares triggers the requirement for a mandatory offer to all remaining shareholders.
What is the significance of O’Neill v Phillips (1999) in shareholder protection?
The case emphasized fair treatment of minority shareholders, clarifying that minority interests must be respected in mergers and acquisitions.
What does the City Code require regarding disclosure during a takeover?
Both target and acquiring companies must disclose substantial shareholdings and significant changes to ensure transparency and prevent insider trading.
What is the role of the ‘freedom of establishment’ principle in cross-border mergers?
It ensures that companies can merge across EU Member States without legal barriers, promoting corporate mobility and economic integration.
How does Section 217 of the CA 2006 protect shareholders in M&A?
It requires shareholder approval for certain payments, such as compensation for loss of office, ensuring accountability in financial decisions during takeovers.
What is an asset purchase, and how does it differ from a share purchase?
In an asset purchase, the acquirer selects specific assets to buy, avoiding liabilities, unlike a share purchase, where all liabilities transfer to the acquirer.
What safeguards does the CA 2006 provide for creditor protection in mergers?
The Scheme of Arrangement under Part 26 allows creditors to vote on the proposed merger or restructuring, ensuring their interests are considered.
What is a tender offer in the context of a takeover?
A tender offer is a public invitation for shareholders to sell their shares at a specified price, often used in hostile takeovers.
What is the primary purpose of the Panel on Takeovers and Mergers?
To ensure fair treatment of all shareholders during takeovers and prevent market manipulation or unequal treatment.
What is the purpose of the board neutrality rule in EU takeovers?
It prevents the target company’s board from taking defensive measures against a takeover without shareholder approval, ensuring shareholder interests are prioritized.
How does the CA 2006 facilitate post-merger integration?
It provides mechanisms like the Scheme of Arrangement to streamline restructuring and align governance and financial systems after a merger.
What protection does Section 993 of the CA 2006 offer during takeovers?
It addresses fraudulent trading practices during M&A, ensuring that parties do not mislead or defraud shareholders.
What is the significance of Re Sevic Systems AG (2005) for cross-border mergers?
The decision supported the harmonization of EU law, ensuring that cross-border mergers are recognized and facilitated under the freedom of establishment.
How does the UK Corporate Governance Code apply to listed companies during takeovers?
It ensures compliance with governance principles, such as transparency and accountability, to protect shareholders and maintain market confidence.
What mechanism allows dissenting shareholders to challenge a merger?
Shareholders can apply to the court under Section 994 of the CA 2006 if they believe the merger is unfairly prejudicial to their interests.
How does the Takeover Directive (2004/25/EC) ensure transparency?
By requiring detailed disclosure of the offer terms, bidder identity, and financing arrangements, ensuring all shareholders have adequate information.
What is the ‘squeeze-out’ process, and when does it apply?
It allows an acquirer holding 90% of shares to compel minority shareholders to sell, ensuring smooth transitions in ownership during takeovers.
What is the significance of the Inspire Art Ltd case for cross-border mergers?
It confirmed that Member States must not impose additional regulatory burdens on companies from other EU countries.
What is the difference between a vertical and a conglomerate merger?
A vertical merger integrates stages of production, while a conglomerate merger involves companies in unrelated industries to diversify risk.
What is the purpose of a ‘sell-out’ right under Section 983 of the CA 2006?
To allow minority shareholders to exit the company by requiring the acquirer to buy their shares at a fair value during a takeover.
How does the Scheme of Arrangement differ from a takeover bid?
A Scheme of Arrangement requires court and shareholder approval, while a takeover bid involves acquiring shares directly from shareholders.
What are pre-emption rights, and how do they apply in M&A?
Pre-emption rights ensure existing shareholders have the first option to purchase new shares before they are offered to others, protecting their proportionate ownership.
What role does independent valuation play in the squeeze-out process?
It ensures that minority shareholders receive fair value for their shares during compulsory acquisitions in takeovers.
What is the primary aim of the Market Abuse Regulation in M&A?
To prevent insider dealing and ensure all investors have equal access to price-sensitive information during mergers and acquisitions.
How does the FCA regulate public offers in the UK?
By requiring prospectus approval and ensuring that disclosures meet the standards of transparency and accuracy, protecting potential investors.
What is the function of the EU Tenth Company Law Directive in M&A?
To harmonize cross-border mergers, simplifying legal processes and ensuring mutual recognition across Member States.
What does the term ‘freedom of establishment’ mean in the context of EU company law?
It allows companies to merge or operate freely across EU Member States without unnecessary legal barriers.
How do the Takeover Directive and the City Code align in protecting shareholders?
Both enforce principles of equal treatment, transparency, and mandatory offers, ensuring fairness during mergers and acquisitions.
What legal recourse do shareholders have if a merger violates their rights?
They can challenge the merger under Section 994 (unfair prejudice) or seek judicial review for breaches of statutory or regulatory provisions.
Why are disclosure requirements critical during mergers and acquisitions?
They ensure transparency, prevent insider dealing, and allow shareholders to make informed decisions regarding offers and transactions.
What protections exist for creditors during a merger under the CA 2006?
Creditors are consulted and can vote on schemes of arrangement, ensuring their interests are considered in the restructuring process.
How does the CA 2006 address shareholder conflicts during takeovers?
Sections 979 and 983 provide mechanisms like squeeze-out and sell-out rights, ensuring fair treatment for both majority and minority shareholders.
What is the significance of Centros Ltd v Erhvervs-og Selskabsstyrelsen in cross-border M&A?
It established that Member States cannot restrict the freedom of companies to incorporate and operate across borders, promoting corporate mobility.
How does the FCA enforce the Market Abuse Regulation in takeovers?
By investigating and penalizing insider dealing, market manipulation, and breaches of disclosure requirements to maintain market integrity.
What is the purpose of the mandatory offer rule in the City Code?
To ensure that all shareholders are treated equally and have the opportunity to sell their shares at a fair price when a significant shareholding is acquired.
How does the Scheme of Arrangement streamline complex mergers?
By allowing court-approved restructuring that aligns the interests of shareholders and creditors, avoiding the need for direct shareholder offers.
What protections do minority shareholders have in hostile takeovers?
They can rely on the sell-out rights under Section 983 or challenge unfair treatment under Section 994 of the CA 2006.
Why are independent directors crucial during takeovers?
They ensure that the board acts in the best interests of all shareholders, providing unbiased assessments of the offer.
How does the Tenth Company Law Directive facilitate cross-border mergers?
By harmonizing legal processes and ensuring recognition across Member States, reducing administrative barriers.
What are the disclosure obligations under Section 96 of the FSMA during mergers?
Companies must disclose material information affecting share prices to ensure transparency and prevent market abuse.
What is the court’s role in approving a Scheme of Arrangement?
The court ensures the scheme is fair, reasonable, and in the best interests of stakeholders, providing an additional layer of scrutiny.
What is the impact of Re HR Harmer Ltd on shareholder buyouts?
It highlighted the importance of ensuring fair value for minority shareholders during transitions in company ownership.
What does the board neutrality rule prevent in takeovers?
It prevents boards from taking defensive actions against a takeover without shareholder approval, prioritizing shareholder decision-making.
How do public offers differ from private negotiations in M&A?
Public offers are open to all shareholders and require detailed disclosure, while private negotiations involve agreements directly with the target company.
What is the purpose of share purchase agreements in M&A?
To transfer ownership and control of a company by acquiring its shares, often subject to regulatory compliance like mandatory offer rules.
How does insider dealing undermine market confidence?
By giving unfair advantages to individuals with non-public information, distorting prices and reducing trust in the market.
What role does the UK Corporate Governance Code play in M&A?
It ensures listed companies maintain high standards of governance, transparency, and accountability during mergers and acquisitions.
How does the EU Takeover Directive ensure fairness in cross-border takeovers?
By mandating equal treatment of shareholders and requiring detailed disclosures, it harmonizes rules across Member States.
What is the effect of hostile takeovers on corporate governance?
They pressure management to maximize efficiency and shareholder value to avoid undervaluation that attracts hostile bids.
How does Section 217 of the CA 2006 ensure accountability for exit payments?
It requires shareholder approval for compensation payments to departing directors during mergers or takeovers.
What are the main risks of public share offerings during a takeover?
They include price volatility, insider dealing risks, and the need for detailed compliance with prospectus and disclosure regulations.
How does the City Code address unequal treatment in takeovers?
By requiring the same offer terms for all shareholders and prohibiting selective advantages or benefits.
What is a tender offer, and when is it used?
A tender offer invites shareholders to sell their shares at a specific price, commonly used in hostile takeovers to bypass the board.
Why is independent valuation crucial in squeeze-out transactions?
It ensures minority shareholders receive fair compensation for their shares, preventing undervaluation by the acquirer.
What is the impact of Re Sevic Systems AG on cross-border M&A?
It reinforced that Member States must facilitate mergers without imposing restrictive national laws, promoting market integration.
How does the FCA regulate financial disclosures during M&A?
By ensuring compliance with the Prospectus Rules and penalizing misleading or incomplete disclosures.
What is the significance of the Centros Ltd decision for EU corporate mobility?
It confirmed companies’ rights to establish in one Member State and operate freely across others, simplifying cross-border mergers.
How does the CA 2006 address minority shareholder dissent in takeovers?
By providing mechanisms like court challenges under Section 994 and sell-out rights under Section 983.
What protections exist for creditors during mergers under the CA 2006?
Creditors can challenge schemes of arrangement that fail to consider their interests or compromise their claims.
What are the penalties for non-compliance with the Market Abuse Regulation during M&A?
They include fines, trading suspensions, and criminal penalties for insider dealing or market manipulation.
How does a Scheme of Arrangement differ from a contractual takeover?
A Scheme of Arrangement requires court approval and shareholder votes, while a contractual takeover involves direct agreements with shareholders.
What is the ‘sell-out right’ under Section 983 of the CA 2006?
It allows minority shareholders to compel an acquirer holding 90% of shares to purchase their remaining shares at a fair value.
What is the role of the Panel on Takeovers and Mergers during a takeover?
The Panel enforces the City Code, ensuring fair treatment of shareholders, disclosure compliance, and preventing market manipulation during the process.
How does a vertical merger benefit companies?
By integrating different stages of production or supply chains, it secures resources, reduces costs, and enhances control over production processes.
What is the purpose of Section 979 of the CA 2006 regarding ‘squeeze-out rights’?
It enables majority shareholders who own 90% of shares to force minority shareholders to sell their shares, ensuring ownership consolidation.
How does the EU Takeover Directive promote shareholder rights?
By mandating equal treatment during offers, timely disclosures, and protections against coercive tactics, it ensures fairness in the takeover process.
What happens if a company breaches the mandatory offer rule in the City Code?
The acquirer may face penalties from the Panel, including being compelled to make a compliant offer to all shareholders at the highest price previously paid.
What is the significance of O’Neill v Phillips (1999) in M&A law?
It highlighted the importance of ensuring fair treatment for minority shareholders, emphasizing the role of legitimate expectations in shareholder relationships.
What does the term ‘friendly takeover’ mean?
A friendly takeover occurs when the target company’s board supports and agrees to the terms of acquisition, facilitating a smoother transaction.
Why is transparency critical in cross-border mergers under EU law?
Transparency ensures that stakeholders across Member States have access to consistent information, fostering trust and compliance with EU regulations.
How does insider dealing affect the M&A process?
It undermines market integrity by giving unfair advantages to those with privileged information, leading to distorted share prices and reduced investor confidence.
