Mergers and acquisitions (M&A) are important strategic tools for the development and growth of companies in the modern economy. These processes allow firms to strengthen their position in the market, expand their business and gain a competitive advantage.
However, mergers and acquisitions are also complex procedures that require attention to a variety of legal aspects. In this article, we will look at the legal regulation of transactions and focus on the main aspects that should be taken into account when carrying out such transactions.
Important legislative aspects
One of the main aspects of the legal regulation of the M&A is the antimonopoly legislation. The purpose of antimonopoly regulations is to prevent the emergence of monopolies or significant restrictions on competition in the industry. In many countries, there are bodies responsible for controlling mergers and acquisitions in terms of compliance with antitrust laws. Such authorities usually require prior notification of a merger or acquisition and conduct an analysis to determine whether such an operation creates an unacceptable restriction on competition. If such a restriction is detected, the authorities can take measures up to a ban on the operation. They may also demand to make public the terms of the transaction.
Antimonopoly legislation is one of the most important aspects of the legal regulation of mergers and acquisitions. It is aimed at protecting competition in the market and preventing monopolization of certain sectors of the economy. In most countries, there are laws that regulate the process of mergers and acquisitions of companies from the point of view of antimonopoly legislation. These laws define which types of mergers and acquisitions are unacceptable from the point of view of competition, and also establish procedures that companies must follow in order to obtain permission for a merger or acquisition.
Another important aspect of the legal regulation of the M&A is the protection of the rights of shareholders and other interested parties. When a company decides to make a decision on a merger or acquisition, it must provide information about such an operation to its shareholders and other interested parties.
Consumer protection laws are also an important aspect of the legislative regulation of the procedure. They are aimed at protecting the rights of consumers and ensuring that the merger of companies does not lead to a deterioration in the quality of products or services, and also does not lead to an increase in prices. In most countries, there are laws that require companies that merge to provide information about how the merger will affect the quality of products or services and prices. In addition, these laws may provide mechanisms to protect consumer rights, such as the ability to return products or receive compensation in case of dissatisfaction with quality or prices.
Corporate law also plays an important role in the process of mergers and acquisitions of companies. It regulates relations between companies and their shareholders, as well as establishes procedures for making decisions on mergers or acquisitions. One of the key aspects of corporate law is mandatory notification of shareholders about a planned merger or acquisition. This is important because shareholders have the right to express their opinion on such a decision and vote for or against it.
Types of mergers and acquisitions
Any regulatory framework in this area is based on the types of mergers and acquisitions. Based on the integrations of the two companies, the following types can be distinguished:
- Horizontal – associations of firms that work in the same industry, produce the same products, provide the same services or perform similar operations.
- Vertical – an association of firms that work in different sectors of the economy and their activities are not connected in any way.
- Generic – an association of companies that produce interrelated products.
- Conglomerate – an association of completely different companies from different industries. Leads to the formation of diversified holdings. There are the following conglomerate mergers: with the expansion of the assortment, with the acquisition of additional sales channels (expansion of the sales market), which do not imply any commonality.
It is important to keep in mind that transactions can be friendly and hostile. The first means that the shares are purchased openly and the shareholders have no objections to the transaction. In the second type, full control over the company or asset is established, without taking into account the opinion of management.
The Russian aspect of mergers and acquisitions
The legislation of the Russian Federation understands the reorganization of companies through mergers and acquisitions as the creation of a new company through the transfer to it of all rights and obligations of two or more companies with the termination of the latter.
In the west, a merger will be completed if two companies of approximately the same scale decide to continue operating as one new merged company, instead of operating independently. In Russia, there is no legislative definition of the takeover of equal companies. This means joining – the termination of the activities of one or more legal entities with the transfer of all their rights and obligations to the company to which they join.
This is close to the concept of absorption, but it does not replace it. In the West, a takeover is understood as the establishment of full control of one company over another. From a legal point of view, the absorbed firm does not exist as a separate legal entity.
Advantages of mergers and acquisitions
- Increasing the scale of production.
- Work efficiency and productivity.
- Optimization of the budget for joint purchases and employees.
- Expansion of the consumer market of goods and services.
- Geographical expansion and the opportunity to open new offices.
- Profit growth due to profitable investments and investments.
Disadvantages of mergers and acquisitions
Despite the obvious advantages of mergers and acquisitions, there are some disadvantages that do not fully relate to a certain legal status. The fact is that Russian legislation does not contain a clear definition of the concepts of “merger” and “takeover”, which may cause difficulties in resolving various disputes. The main element of the policy of settlement of mergers and acquisitions in Russia is the method of determining the impact of the transaction on the competitive environment of the relevant commodity markets, the results of which determine the need for FAS intervention.
Procedure for conducting mergers and acquisitions
It is important to understand that conducting such transactions is not a quick process. In general, it occurs in 3-12 depending on the complexity of the procedure. It is important to understand accounting and tax accounting and other aspects.
The stages of transactions are as follows:
- Making a merger decision.
- Making a decision on signing an agreement on the reorganization of the company. It is important that the parties adopt it independently of each other by signing a special protocol.
- Select the tax authority to register a new company.
- Send a notification to the selected inspection by a notification letter in the form C-09-04.
- Pay off debts and fulfill all obligations to counterparties, if any. Otherwise, counterparties may initiate bankruptcy proceedings.
- Conclude new agreements with employees or change existing ones.
- Draw up a transfer certificate.
Do I need to get permission for mergers and acquisitions?
Procedures for obtaining permission for a merger or acquisition are an integral part of the legal regulation of this process. In most countries, companies planning a merger or acquisition must obtain permission from the relevant authorities. These authorities may include antimonopoly authorities, industry regulators, ministries of economy and others. The procedures for obtaining a permit may include providing information about a planned merger or acquisition, conducting an analysis of the impact on competition and other aspects, as well as holding public hearings.
The legal regulation of mergers and acquisitions is a complex and multifaceted process that includes many legal aspects, such as antitrust laws, consumer protection laws, corporate law and others. Companies planning a merger or acquisition must follow all necessary procedures and obtain permission from the relevant authorities to ensure that the merger complies with the law and will not lead to violation of the rights of consumers, competition and other interested parties.
It can also be noted that mergers and acquisitions of companies are one of the most common ways to grow a business. However, before two companies can merge, they need to go through a number of legal procedures to make sure that the merger or acquisition complies with the law and will not lead to violation of the rights of consumers, competition and other interested parties.