B: towards facilitating cross border mergers
It is well-established that the conduct of any international
merger is a matter of company Law. No one can deny the various attempts made to
harmonize between company Laws and by consequence render cross- border mergers
a feasible transaction between states of different legal systems.
The US experience has shown that on the statutory level US
corporate Law in matter of merger has become relatively uniform across most
states. Starting by the state of New Jersey,s front and followed by
the state of Delaware, all states permit the merger of domestic companies with
foreign corporations100. Although US states may set different
procedural requirements, such as the required percentage of shares necessary to
approve a merger101 , these variations among state Laws do not
present a serious barrier to cross-border business combinations.
The situation was different in Europe.
Until the last few years, US businesses faced significantly fewer
regulations abroad than they did at home. There has been no harmonized
legislative structure at the European level governing cross-border
mergers102. The national Laws of some EU member states have
prevented a merger between a company incorporated in that Member State and a
company incorporated outside.
100 Model Business Corp. Act 11.07 (1993) which allows such
mergers on essentially the same terms that apply to domestic corporations. It
is interesting to note that, in 1946, the freedom of foreign and domestic
corporations to merge was not so universal; at that time only twenty-four
states explicitly allowed such mergers
101 Del. Code Ann. tit. 8, S 216(2) (1991) (majority of
shares present required to approve merger); N.Y. Bus. Corp. Law S 903
(McKinney Supp. 1993) (two-thirds of all outstanding shares required to
approve merger)
102 Gowans, A., "The M & A Lawyer September, 2004 The EU
Cross-Border Merger Directive: A Move to Facilitate The "M" OF European
M&A?" , Glasser Legal Works, 2004
To effect these cross-border transactions, the constituent
entities are often required to create complex, costly and potentially
reversible transaction structures, typically involving the dissolution of the
target company. The merger of the German company "Daimler-Benz" and the
American company "Chrysler" was considered an innovative model of an "indirect
cross-border merger". It was unclear whether the legal possibility of
cross-border mergers exists under German Law. However the transaction was ruled
out by the parties with some adaptations to the requirement of German Company
Law. Instead of a direct cross-merger, the transaction was operated into two
stages: the first stage was entered with setting up the DaimlerChrysler AG in
Germany, incorporated and created to take on the businesses of the two American
and German partners, the corporate structure of which duplicates that of the
German company "Daimler-Benz AG". This corporation then acquired all the shares
of Daimler-Benz AG and Chrysler Corp. in exchange for its own shares. In other
words, the DaimlerChrysler AG submitted to the Daimler-Benz shareholders an
offer to exchange their shares for the issuance of new DaimlerChrysler shares
(capital increase by way of contribution in kind, "Daimler-Benz Capital
Increase"). Consequently, the Daimler-Benz AG became a subsidiary of
DaimlerChrysler AG. Concurrently, the entire interest in the Chrysler
Corporation was exchanged for the issuance of further new shares in the
DaimlerChrysler AG.
The Chrysler shares had before been acquired by a U.S. exchange
agent expressly appointed for this merger by way of a "triangular
mergerr/103 under Delaware Corporate Law. This form of business
combination when the target and the absorbing companies exist under the Laws of
different countries, namely "statutory or reorganization" type of
merger104 and called "triangular merger in which the target will
merge with a subsidiary of the absorbing company that is newly created for
the
103"...Triangular merger: A merger in which the
target corporation is absorbed into the acquiring corporation's subsidiary,
with the target shareholders receiving stock in the parent corporation..."
Black's Law dictionary 8th ed. 2004.op.cit. note 1 page 1
104 section 368(a) of the DGCL
purpose is considered an effective solution to circumventing the
jurisdictional limitations on cross-border mergers, a key advantage of avoiding
a "direct merger" , in which the liabilities of the absorbed company never
become the direct liabilities of the absorbing company.
In the second stage, the Daimler-Benz AG that had first been
turned into a subsidiary was merged into the DaimlerChrysler AG ("Daimler-Benz
merger"). This was the result: Daimler-Benz AG and Daimler/Chrysler AG merged.
Daimler-Benz AG disappeared into DaimlerChrysler AG with all shareholders of
Daimler-Benz now being shareholders of DaimlerChrysler AG. The Chrysler
Corporation was turned into a "wholly-owned subsidiary" of DaimlerChrysler AG
and changed its name to "DaimlerChrysler Corporation". Chrysler Corp. still
exists in the form of a 100 % subsidiary of Daimler/Chrysler AG.
Any form of merger (triangular) was uncommon in Europe, with the
great majority of mergers transactions being structured as some form of
acquisition". One of the reasons for this was that there is no EU equivalent to
the concept of Section 251 of the Delaware General Corporation Law, which
provides for the surviving corporation in a merger to succeed to the assets,
rights and obligations of the target company, and for the target company to
cease to exist105.
By contrast, in most European jurisdictions, this sort of
"succession" to assets, obligations and rights could only be achieved by
contractual transfer and a company could only cease to exist if "dissolution"
procedures are adopted. Following the adoption of the European Directive on
cross-border mergers, efforts has been made to address some of these barriers
to make cross-border mergers involving companies based in the EU a less
complicated option. It was stated in the preamble of the Directive that it was
necessary to lay down community provisions to facilitate the carrying out of
cross-border mergers between various types of limited liability Company
governed by the Laws of
105 Section 251 of the DGCL
different member states".106 Accordingly, the European
environment has observed shifts that should provide an opportunity for US
companies with existing EU operations to structure transactions as mergers
between an existing European subsidiary and a potential merger partner based in
Europe.
Some elements of US mergers style like the provisions of U.S.
state corporate Laws authorizing mergers with out-of-state (so-called
"foreign") entities107 and the "triangular" mergers"
concept(structure involving newly-created subsidiaries of the parties in
interest), should become possible in Europe, and U.S. companies looking for
European merger partners should find it easier to structure transactions as
"triangular mergers". It's claimed however that the scope of the EU directive
is narrower than might first appear. The directive would not apply to
transactions between EU member state companies and those organized under non-EU
jurisdictions (non EU countries like Tunisia).
Despite the relatively narrow scope of the proposed directive, It
may be a significant step towards harmonization (and, in some cases,
modernization) of EU Laws governing mergers. It still a necessary step because
it will create an appropriate community legal instrument which will enable all
types of companies with shares capital to carry out cross- border mergers under
the most favourable conditions. With regards to the situation in Tunisia a
significant step toward facilitating cross-border mergers remain to be seen.
Reforms within national level creating national rules monitoring the procedure
of the cross-border transaction under the most favourable conditions and
ratifying the necessary agreements to render it more into line with company
Laws in Europe and in the US will be crucial in this area.
106 Preamble of the European Directive on cross border
mergers 2005 see appendices 1
107 The Revised MBCA chapter 11.2 states: "One or more domestic
corporations may merge with a domestic or foreign corporation or other entity
pursuant to a plan of merger".
In the light of this state of affairs and of the fact that
mergers of domestic companies with companies organized under the Laws of other
jurisdictions, is on a way to become a less complicated operation , it will now
be much easier for Europe's and US companies to cooperate and restructure
themselves through merging together across borders. As a result mergers should
become at topical. The increase of the number of this transaction will
therefore increase the number of disputes. It is important to study the
fundamental requirements relating to the applicable Law when the deal involves
companies that are organized under differing company Laws.
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