394 11 Takeovers: Introduction
- When the acquirer purchases particular assets of a company rather than its sha-
res, the acquirer typically cannot benefit from the unlocking of conglomerate
discount.
Shareholder voting. The need to obtain shareholder approval will make the trans-
action more time-consuming. Such transactions also tend to be legally more com-
plicated.
- A merger requires approval by both companies’ boards and by both companies’
general meetings. A merger does not require the consent of each individual sha-
reholder. A (qualified) majority vote will suffice, and a merger is possible even
where a minority of shareholders vote against it. - An asset sale is typically decided on by both companies’ boards. The acquirer’s
shareholders generally do not vote on the transaction in a share sale or an asset
sale. However, where at least part of the consideration consists of new shares
issued by the acquirer, the acquirer’s general meeting decides on the issuing of
shares and the waiving of existing shareholders’ pre-emption rights, unless the
general meeting has authorised the board to decide thereon. Furthermore, de-
pending on the jurisdiction, the company’s articles of association, and the ap-
plicable securities markets rules, large asset transactions may require the con-
sent of the general meeting. - Each of the target’s shareholders will decide whether to sell or hold on to his
shares in a share purchase. The same applies to a share exchange.
Appraisal rights and other rights of dissenting shareholders. A transaction that
requires the consent of shareholders in general meeting is more likely to be con-
strained by mandatory provisions on the rights of dissenting shareholders. The
availability of dissenting shareholders’ remedies can make the transaction more
time-consuming and increase legal risk.
Mergers and divisions are constrained by appraisal rights. Appraisal rights can
make the acquisition more expensive.
Fair value provisions. In addition to appraisal rights, the valuation of shares
and assets can be constained by other requirements as to fair value. Such require-
ments will typically apply in two situations.
- Share exchanges, the issuing of shares as a consideration for other assets, mer-
gers, and divisions are constrained by mandatory provisions of law protecting
shareholders of the issuing company (the company that acquires the other com-
pany). In mergers and divisions, they also protect shareholders of the target
company. - The target company’s shareholders are also protected by sell-out rights and the
regulation of squeeze-out rights. In companies whose shares have been admit-
ted to trading on a regulated market, the target’s shareholders are protected by
provisions on mandatory bids.