1. Overview of Cross-Border Merger and Acquisition
2. When Is a Merger a Cross-Border Merger?

A cross border merger definition involves at least one company based in the United Kingdom and one company that is registered elsewhere within the European Union (EU)/European Economic Area (EEA).

Overview of Cross-Border Merger and Acquisition

There are generally three methods in regard to mergers and acquisitions. In a corporate business, there are only two options a company has for raising money:

  • Loans
  • Equity

The fastest way for a corporation to raise money is by selling shares on the public stock market. Mergers and acquisitions, or "M&As" for short, were born from this concept. In terms of corporate strategy, mergers and acquisitions are essentially the acts of integrating two companies with the ultimate goal of maximizing the resulting company's capitalization in its respective market.

The main goals a company usually has in mind when it chooses to implement mergers and acquisitions include:

  • Obtaining financial assistance
  • Obtaining non-financial assistance
  • Leveraging the company's capital in its respective industry

The main benefit associated with mergers and acquisitions is that it combines two existing companies to create a new, larger and more capable company without having to start from scratch, as well as the increased opportunities for the resulting company in its respective market.

In theory, there are three main methods of implementing mergers and acquisitions:

When Is a Merger a Cross-Border Merger?

In a recent case, the High Court had to decide whether a merger among several UK-based companies and a Dutch corporation into a single company based in the United Kingdom was in the scope of what is known as the Companies Regulations of 2007, also known as the Cross-Border Mergers Regulations. The Companies Regulations of 2007 are enforced in the United Kingdom by the EU Cross-Border Mergers Directive and allow cross-border mergers to take place among UK-based companies and companies that are based in other member states of the EU and EEA.

These Regulations define cross-border mergers as follows:

  • Mergers that are a result of absorption
  • Mergers that are a result of absorption of a wholly-owned subsidiary of the absorbing company
  • Mergers that are a result of the formation of a completely new company

In the context of cross-border mergers, it is relevant to note that a merger by absorption requires there to be:

  • At least one transferor company
  • A transferee company
  • At least one of the companies involved needs to be a UK-based company
  • At least one of the companies involved needs to be an EU- or EEA-based company

There are no rules in place that require any of the involved companies to be traded, currently or in the past. Cross-border mergers have to be approved by the appropriate authorities in the country where the resulting company intends to be registered. In the case of a business that will be based in the United Kingdom, mergers must be approved by the High Court.

The transaction discussed here involved merging a number of companies into one large corporation called Easynet Global Services Ltd. All of the involved companies were based in the United Kingdom, except for one. The one company that was not a UK, EU, or EEA company was based in the Netherlands. The Dutch company in question wasn't currently active and had never been publicly traded. Furthermore, the only asset the company had was an inter-group receivable.

It is interesting to note that this company was not set up with the merger in mind. However, the only purpose it served in the merger was to qualify the merger as a cross-border merger according to the regulations. Ultimately, the High Court determined that the Netherlands-based company was being used as a "device" whose sole purpose was to bring the merger within the scope of the regulations. As a result, the decision was made that the merger in question should not qualify as a cross-border merger.

Cross-border mergers are meant to facilitate mergers that move a resulting company across relevant borders. The merger in this case, however, wasn't actually a cross-border merger and, according to the High Court, did not fall within the regulations. The High Court further commented that, based on the available information pertaining to this merger, it couldn't see any reason to sanction it, even if it had fallen within the scope of the regulations.

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