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.
