International Business Combinations

Steps

Solutions

Selection of jurisdiction

In the event of a possible cross-border merger, already early in the process a review will be performed of the alternative jurisdictions of incorporation for the new holding company (“TopCo”).

Typically a comparison will be made of the key advantages and disadvantages of the jurisdictions considered.

Key considerations are:

  • Neutrality & Political acceptability:  The perception of a neutral & unbiased jurisdiction and mutual trust in the jurisdiction are key
  • Governance Governance:  system must accommodate the desired balance of power and governance for the TopCo
  • Maturity:  Reliable judicial system and experienced services industry
  • Flexibility:  flexible legal system and cooperative regulators
  • Tax : Jurisdiction should provide for a beneficial tax environment

For some background reading, see this Economist article of February 2014.

Solutions

Phase I: Initial negotiations and preparations

The analysis and review of the alternative jurisdictions of incorporation for the TopCo is finalised during this phase.

Time:

  • 1 – 2 months

Activities:

  • Review of the alternative jurisdictions of incorporation for TopCo
  • Determine transaction structure and jurisdiction of incorporation of TopCo.
  • Work with legal & tax counsel in relevant jurisdictions to determine legal requirements and detailed steps for the transaction
  • Determine tax domicile of TopCo
  • Determine listing requirements / exchanges for listing
  • Initiate due diligence by merging companies

Output:

  • Agreed jurisdiction and tax domicile for TopCo
  • Agreed transaction structure
  • Listing requirements for TopCo and agreed share exchange(s) on which TopCo will be listed

Solutions

Phase II: Negotiation Merger Agreement

The merger agreement will set out the key aspects of the transaction and will form the basis for all further documentation throughout the transaction.

 Time:

  • 4 to 6 weeks

Activities:

  • Negotiate merger agreement (including share exchange ratio and key governance items)
  • Negotiate and prepare key governance documentation (including articles of association and board rules)
  • Fairness Opinions for boards merging companies
  • Night before initial announcement: Board resolutions & signing Merger Agreement
  • Morning after signing Merger Agreement: Press release initial public announcement transaction

Output:

  • Merger Agreement
  • Agreed governance of TopCo
  • Exchange ratio

Solutions

Phase III: Initial filings

The preparation for the initial filings (especially anti-trust) will already start during the first two phases to allow for submission of such filings shortly after announcement of the transaction. Simultaneously with these filings the legal documentation for the transaction can be further prepared.

 Time:

  • 4-6 months

Activities:

  • Anti-trust filings in applicable jurisdictions
  • Preparation and filing of first draft prospectus
  • Discussions with financial regulator(s) on prospectus
  • Preparation of legal documentation for mergers (including merger plan and board reports)
  • Filing of merger documentation
  • Further preparation of governance documentation and share incentive plans
  • Tax planning – discussions with tax authorities

Output:

  • Final draft prospectus
  • Legal documentation for mergers
  • Agreed tax position

 

Solutions

Phase IV: First filing-Closing

In the last period before the Closing the required shareholder meetings are held and the documentation for the listing(s) and mergers is finalised.

Time:

  • 2-3 months

Activities:

  • Finalisation of prospectus
  • Convene EGMs of merging companies to approve mergers (to extent required)
  • Finalise formal merger procedures (including creditor opposition periods)
  • Obtain shareholder approval at EGMs
  • Listing applications at relevant exchanges
  • Tax planning – possibly sign agreement with tax authorities
  • Prepare investor presentations
  • Determination of individual board positions

Output:

  • Shareholder approval
  • Approval prospectus by competent regulators
  • Closing documentation ready / closing agenda
  • Final draft press release and investor materials

Solutions

Phase V: Closing

The closing of this type of merger transaction typically takes place over a weekend, so the trading in TopCo securities can take place as from the Monday following the effectuation of the mergers.

Time:

  • 1-2 days

Activities:

  • Board resolutions regarding implementation mergers
  • Final TopCo shareholder resolutions to implement post-Closing governance
  • Execute merger documentation

Output:

  • Mergers take effect: shareholders of merging entities receive shares in TopCo
  • Agreed governance takes effect
  • Board members appointed

Solutions

Phase VI: Closing and beyond

Following the Closing, several formal filings will need to be made and the TopCo will need to comply (ongoing) with the relevant listing rules and other applicable regulations.

Time:

  • Continuing as from Closing

Activities:

  • Submit final listing documentation for TopCo shares
  • Closing filings and notifications (immediate)
  • Compliance as listed company
  • Comply with required post-closing merger procedures

Output:

  • Listing of TopCo shares (one day after Closing)
  • Compliance and IR departments up-and-running
  • Compliance manuals

 

The recent trend of using Dutch top holding companies in mergers of international listed companies underlines the position of the Netherlands as a neutral country with a sophisticated and flexible legal and governance system.

A key decision in an international merger is the location of the new holding company of the combined entity. This is especially true for a ‘merger of equals’ between two companies that are listed in various countries. The general process for such merger transaction and the establishment of a Dutch holding company are described in this solution.

Recently several e large cross-border merger transactions were announced, such as Fiat SpA – Chrysler (Italy/USA) and Applied Materials – Tokyo Electron (US/Japan). These transactions mark a trend of merging companies establishing their new global holding company in the Netherlands. Earlier in 2013, the merger between Fiat Industrial and CNH Global (Italy/the Netherlands) followed the same route.

Other companies that have already used Dutch holding structures include STMicroelectronics, Lyondell-Basell and EADS, the parent company of Airbus.