Mergers and acquisitions play a major role in the efficient functioning of an economy, enabling firms to achieve efficiency such as economies of scale and synergies.
If your business is currently experiencing or planning a merger and acquisition (M&A), our team of Sydney business lawyers can assist you.
Mergers and acquisitions defined
When two separate companies of the same stature decide to operate as one entity (forming a new company in the process), they are referred to as merged companies. The shareholders of the two companies combine and become the shareholders of the newly merged company. With this merging of companies, the stocks of the two companies are surrendered and new stocks are issued.
Acquisition occurs when one company offers to purchase another company in lieu of cash payment, share offer or both, and thereby acquires a shareholding or the assets of another company. The target company in this scenario loses its existence.
Successful M&A transactions are the result of a well-conceived corporate strategy.
Mergers and acquisitions include:
- Mergers between two entities;
- The takeover or acquisition of one entity by another;
- The divestment of major assets or part of a corporate group;
- A demerger that results in separate entities; and
- Internal restructuring that precedes one or more of these activities.
Types of mechanisms of business mergers and acquisitions
The two main mechanisms of business mergers and acquisitions are:
In this case, a potential acquirer makes an offer to all shareholders of the target company, to acquire their shares. Chapter 6 of the Corporations Act 2001 (the Corporations Act), regulates the acquisition of interests in Australian companies with more than 50 members and prohibits acquisition of interest which results in increasing the voting power of any person in a ‘Widely Held Entity’ to 20%.
Scheme of Arrangement
In a scheme of arrangement, the shareholders of a company vote to merge with another company. A Scheme of Arrangement may be approved by the Federal Court, the Supreme Court of a state or territory, the Family Court of Australia or by a Court to which section 41 of the Family Law Act 1975 applies because of a proclamation made under subsection 41(2) of that Act.
Other mechanisms that can be used to effect M&A deals include:
- On-market takeovers;
- Capital reductions;
- Share buy-backs; and
- Contract for sale.
Types of business mergers
Business mergers may be classified into:
- Horizontal: This involves actual or potential suppliers of substitutable goods or services;
- Vertical: This form of merger involves firms operating or potentially operating at different functional levels of the same vertical supply chain; and
- Conglomerate: Firms that interact or potentially interact across several separate markets and supply goods or services that are in some way related to each other fall under this class.
Regulatory bodies and their jurisdiction
A broad range of regulators are involved in approving acquisition and merger transactions; or in working out the way in which an approved transaction can be implemented. In case of cross-border transactions, overseas revenue authorities and other regulators may also get involved.
Australian Securities and Investment Commission (ASIC)
The main regulator with respect to acquisitions in Australia is the ASIC. ASIC is responsible for the administration of the Corporations Act along with market supervision. It has powers to modify the provisions of Chapter 6 dealing with “Takeovers” and grant exemptions from strict compliance in certain circumstances which can be important for the success of a bid.
The Takeovers Panel is the main forum, regulating corporate control transactions by providing efficient and speedy resolution to takeover disputes. The panel also decides on appeals relating to ASIC’s decision of modifying and exempting with respect to takeovers.
Australian Competition and Consumer Commission (ACCC)
The role of ACCC is to focus on any anti-competitive results with respect to mergers or takeovers. Provisions relating to mergers under the Competition and Consumer Act 2010 (the Competition and Consumer Act) are administered and enforced by ACCC. According to section 50 of the Competition and Consumer Act, a Corporation must not directly or indirectly acquire shares in the capital of a body corporate or corporation or acquire any asset of a corporation or a person, if such acquisition is likely to substantially lessen competition in a market. Section 50 of the Competition and Consumer Act applies to the following types of acquisitions: Acquisitions of shares or assets within Australia including but not limited to shares in Australian companies, domestic businesses, intellectual property and plant and equipment; or Acquisitions of shares or assets wherever situated, if the acquirer is an Australian citizen, incorporated in and carries on a business in Australia.
Australian Securities Exchange (ASX)
ASX is responsible for ensuring companies listed on ASX comply with the ASX Listing Rules. This includes, but is not limited to:
- monitoring compliance of listing rules by listed entities, particularly continuous and periodic disclosure requirements
- reviewing proposals of re-organisations and restructuring
- monitoring compliance and investigating breach of market rules
- clearing and settlement rules by market participants.
Foreign Investment Review Board (FIRB)
FIRB examines proposals by foreign persons interested in investing in Australia. They also make recommendations to the Government in regards to the suitability of the proposals. It also monitors and ensures compliance with foreign investment policy.
Owen Hodge Lawyers are here to assist you
Contact us as early as possible in regard to mergers or acquisition negotiations so that we can help you with the formation of the contract. We realise the urgency involved in mergers and acquisitions, and will work with you to try to resolve issues that may arise and will help you to meet your time frames.
Owen Hodge Lawyers are accredited specialists and are experienced in successfully directing merger and acquisition transactions, joint ventures and strategic business combinations of all types. We can also guide you on merger rules, proper due diligence, shareholder disputes, business succession planning and more.
There are numerous important issues for the vendor or purchaser, including warranties, finance, leasing, goodwill, employees, business assets, GST, non-competition, intellectual property and business names on which we can give you the detailed advice you need.
Whether you are a merging company or an acquiring company, Owen Hodge Lawyers are the experts who will protect you and help you achieve your goals. Our lawyers have represented clients in transactions ranging in size from small market deals to multi-million dollar transactions. Regardless of the size, mergers and acquisition transactions are extremely time sensitive, calling for flexible, fast support.
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