What a merger plan should contain, and then some
When it comes to mergers and acquisitions, good solid planning and a little luck are crucial. In an earlier "Legal Side" (May 7-13), I outlined the steps for a merger. One of the items I mentioned in passing, the preparation of a joint merger proposal (the "merger plan"), is something over which the merging companies have almost total control, but failure to plan wisely could make the merger process considerably more costly, both in terms of time and money.
The first recipe for disaster is to underestimate the time and effort necessary for the preparation of the merger plan. This document, which is prepared at an early stage of the merger, often serves as the main source of information for the outside world.
The law requires the merger plan to address a number of issues, including: a presentation of merging companies, the share exchange ratio, principle of allotment of the shares in the surviving company to the shareholders of the target company, the date on which the shares allotted to the shareholders of the target company start participating in dividends, the specific rights assigned to the shareholders of the target company in the surviving company, and the specific privileges granted to the members of the governing authorities of the merging companies. The merger plan should also contain attachments that set forth draft shareholders resolutions on the merger, draft amendments to the charter of the surviving company, valuation of the target company's property, and accounting information on the target company.
But nothing says that a merger plan may not contain additional information. As the merger plan is likely to be the main source of information for the investment community, you may wish to include more general information, such as background information on the merging companies, fairness opinions, a description of the future shareholding structure of the surviving company, an economic justification for the merger, a description of the methods used for the valuation, and a description of the approvals required for the merger. Depending on the specific circumstances of the merger, some post-merger actions may already be in the plans. Typical examples include the restructuring of the merged companies' subsidiaries or additional financing, such as through the issuance of global depositary receipts. By including this additional information, you may go a long way toward convincing shareholders, the court-appointed expert and also government authorities that the respective management boards of the merging companies have carefully considered all business and regulatory implications of the merger.
The second trap is trying to do too much with the merger plan. While considering its contents, you should not forget who is responsible for its preparation and what the legal character of the merger plan is. Pursuant to the Commercial Companies Code, the management boards of the merging companies must adopt the merger plan in the form of a written understanding. This understanding is not the same as a resolution of the management board and does not constitute an agreement. The merger plan is merely an understanding between the two (or more) management boards of merging companies. It may not even imply a final decision of the companies on the merger because ultimately the shareholders of the merging entities must approve the move. More importantly, structuring the plan in the form of an agreement could potentially lead to unthinkable consequences, such as a compensation claim based on breach of a contractual obligation (resulting from the lack of the shareholders' approval of the merger). The moral of this story is simple. When preparing your plan, you should take out any wording that suggests that you are signing a merger agreement, and not just a merger plan.
The third potential hazard lies in preparing the announcement. After the preparation and signing of the merger plan, you must submit it to the court to have it announced. Before sending someone to the courthouse, however, you should take a moment to consider what you want to submit and announce. The Code only requires the submission and announcement of the merger plan itself. Hence, none of the attachments (including the draft shareholders resolutions) need to be submitted to the court or mentioned in the announcement, unless the respective companies' management boards decide otherwise. This issue is especially important when you consider the timing of the submission and the announcement. Both take place at a very early stage of the merger. It is possible that changes will need to be made. While nothing in the Code would prohibit you from amending your plan or its attachments, you may need to resubmit and reannounce the plan's amendments and attachments. Conversely, current practice suggests that any attachments that have not been formally submitted to the court and announced may be amended without negative consequences until fairly late in the merger process.
Finally, you should coordinate the timing of the merger plan in light of the overall merger. The plan should be published in the Monitor Sadowy i Gospodarczy (Court Journal) at the latest six weeks prior to the adoption of the shareholders' resolutions on the merger. Moreover, the management boards of merging companies must notify their shareholders about the planned merger in two separate announcements, the first of which must also be published at the latest six weeks prior to the adoption of the shareholders' resolutions on the merger. Therefore, by thinking ahead, the management boards of the merging entities can save time and effort by subscribing for a joint announcement of the merger plan and the first notification to shareholders. This solution is especially desirable when you consider the costs related to announcements in the Court Journal.
This article was prepared by Lejb Fogelman, the managing partner of Hunton & Williams' Warsaw office, with the assistance of Joanna Fonfara, an associate attorney.
