A successful merger depends on careful planning
In my last article, I briefly discussed the notification that companies contemplating a merger need to give the antimonopoly authorities. As you may rightly suspect, this is only one of many actions that may need to be taken if companies are considering consolidating their activities. As mergers are becoming increasingly popular in Poland, sooner or later you may find yourself involved in one, whether as a shareholder or employee of one of the merging companies. A merger requires the coordination of numerous actions. Before you find yourself caught up in a merger, you should understand the various steps involved.
The most typical form of merger in Poland is the transfer of one company's (the target company) entire assets to another company (the surviving company) in exchange for shares issued by the surviving company to the target company's shareholders.
Once the shareholders or the management boards of the merging companies decide that they may be interested in merging, it is advisable to take a few preliminary steps that, although not legally required, can help to get everyone on the same page from the beginning. As a first step, the management boards of the merging entities may want to establish some ground rules in a form of a preliminary merger agreement. Again, while this type of agreement is not legally required, it can prove to be useful in divvying up work, setting schedules and coordinating the merger.
To prepare all the necessary merger documentation both companies usually need to become more familiar with each other. The other typical preliminary step is a due-diligence review of the financial, economic and legal situation of both companies. Having access to the results of the due diligence, the respective management boards should be in a position to evaluate whether the merger would be beneficial to the company and its shareholders.
If the companies are still interested in going forward with the merger, the most important issue to determine at this stage is a proposed share-exchange ratio for the merging companies. The share-exchange ratio should be fair to the shareholders of the merging companies, but the law does not provide a basis for this calculation. In determining the share-exchange ratio, the management boards usually seek the assistance of financial advisers. In the largest mergers if minority shareholders are involved, it is common for reputable investment banks to issue so-called "fairness opinions" on the share-exchange ratio to the companies' shareholders.
Subsequently, the management boards of the companies involved in the merger must prepare a joint merger proposal. This proposal is known as a merger plan and must contain some very specific information. Pursuant to the Commercial Companies Code (CCC), a merger plan should provide for, among other things: the share-exchange ratio, principles of allotment of the shares in the surviving company to the shareholders of the target company; draft resolutions on the merger to be adopted by the shareholders of the merging companies; draft amendments to the charter of the surviving company; valuation of the target company's property; and accounting information on the target company.
After the merger plan is completed, the management boards submit it to the court. The court appoints an expert to examine the plan and the proposed share-exchange ratio.
The companies must also announce the merger plan, the dates and agendas of the shareholders meetings that will consider the merger, the financial documents of the merging companies and the expert's report from examination of the merger plan within the deadlines set out in the CCC before the shareholders meetings of the merging companies are held.
Once all of this is done, the shareholders of the merging companies may meet to consider and vote on the merger and the merger plan. Resolutions in favor must be adopted by at least a three-fourths majority (in the case of companies listed on the Warsaw Stock Exchange (WSE), by at least a two-thirds majority).
The adoption of the merger resolutions does not end the merger process, which is not final until court registration. Before filing the registration application, in many cases the companies participating in the merger or their shareholders will need to obtain regulatory approvals. For example, depending on the market position of the merging companies, approval of the antimonopoly office may be required. If the target company owns real estate in Poland or holds shares in companies owning real estate in Poland, usually the approval of the interior minister will be necessary. Various approvals may also be required if the merging companies or their subsidiaries engage in a supervised area of business activity in Poland, such as telecommunications, broadcasting or banking. The surviving company may also have to apply to Polish regulatory authorities for licenses required to continue the business of the target company. Taking into account the length of time some regulators need to issue an approval or a license, it is advisable to apply for them as soon as possible.
If the surviving company in the merger is a company listed on the WSE, a prospectus should be prepared and filed with the Securities and Exchange Commission to introduce the new shares to public trading and to trading on the bourse. The prospectus plays only a formal role in the merger as it is made public after the shareholders of the merging companies adopt the merger resolutions.
The merger becomes effective upon its registration by the court. At that point, the target company ceases to exist, and all assets and debts of the target company become assets and debts of the surviving one. Furthermore, all shareholders of the target company become shareholders of the surviving one, even those who voted against the merger. To exit the company, dissenting shareholders may only sell their shares. The merged company assumes the surviving company's name, unless it is changed prior to or at the time of the merger.
After the merger is registered, new shares in the surviving company are distributed to the target company's shareholders. In the case of companies listed on the WSE, the surviving company would have to go through procedures before the WSE and the National Depository for Securities before the shares issued pursuant to the merger are credited to the target company's shareholders' securities accounts and finally listed on the WSE.
This article was prepared by Lejb Fogelman, the managing partner of Hunton & Williams Poland, with the assistance of Lukasz Pawlak, an associate attorney.
