5.11 Shares as a Means of Payment 269Its shareholders may lose indirectly, if: the company pays too much in other
ways (too much cash for one share in the target); the company does not benefit
sufficiently from the ownership of the target (dilution of profits); or the company
does not benefit sufficiently from its changed ownership structure.
In the target company, shareholders may be worse off, if: they are forced to sell
their shares; they do not get sufficient compensation for their shares; or (if they
keep their shares) there will not be any market left for their shares or the market
will be less efficient.
Company and securities markets laws can help to address such concerns. There
may be mechanisms that help to ensure that the transaction is perceived as fair,
that the price is fair, and that the target’s shareholders do not end up owning
shares for which there is no market. Depending on the circumstances, common
methods adopted by the legislator include: disclosure; the vesting of the power to
decide on the transaction in shareholders; the use of external information interme-
diaries that analyse the fair value of the shares; and various kinds of duties to buy
or sell-out rights. In Europe, the legal capital regime has an important role to play.
There are differences between formal mergers and share exchange offers on
one hand, and the protection of the interests of shareholders in different participat-
ing companies on the other.
Mergers. In formal mergers, both shareholders in the surviving entity and
shareholders in the entity that will cease to exist will be affected. Shareholders in
both companies are protected by the provisions of EU company law. The rules that
govern internal decision-making in the context of mergers have partly been har-
monised. In addition, shareholders in the surviving company are protected by the
legal capital regime according to which many questions relating to shares and le-
gal capital must be decided on by shareholders (section 5.4).