Corporate mergers and acquisitions play a significant role in many companies’ growth strategies. They are among the most effective tools utilised by forward thinking boards to scale and grow a business.
With the fast-paced society that we live in today and access to information being so readily available, businesses are scurrying to build shareholder value, taking advantage of potential complimentary industries and making the necessary corporate decisions to gain a bigger share of the markets they operate in.
Since the Companies Act, 71 of 2008 (as amended) (“the Companies Act“) came into effect on 1 May 2011, there has been a paradigm shift in the regulation of South African mergers and amalgamations.
The Companies Act introduced a new form of statutory merger which exists in addition to, and not in substitution of, the pre-existing methods used by companies wanting to effect business combinations, i.e. a sale of shares or a sale of business as a going concern.
The statutory merger is governed in terms of section 113 and section 116 of the Companies Act and the merger agreement is a mandatory requirement in terms of section 113(2).
In addition to each amalgamated or merged company passing the solvency and liquidity test in terms of section 113(1), section 113(2) provides further mandatory terms and conditions that must be addressed in the merger agreement, namely:
- the proposed Memorandum of Incorporation of any new company to be formed by the amalgamation or merger, must be included in the merger agreement;
- the name and identity number of each proposed director of any proposed amalgamated or merged company must be included;
- the manner in which the securities of each amalgamating or merging company are to be converted into securities of any proposed amalgamated or merged company, or exchanged for other property, needs to be detailed;
- if any securities of any of the amalgamating or merging companies are not to be converted into securities of any proposed amalgamated or merged company, the consideration that the holders of those securities are to receive in addition to or instead of securities of any proposed amalgamated or merged company;
- the manner of payment of any consideration instead of the issue of fractional securities of an amalgamated or merged company or of any other juristic person the securities of which are to be received in the amalgamation or merger;
- details of the proposed allocation of the assets and liabilities of the amalgamating or merging companies among the companies that will be formed or continue to exist when the merger agreement has been implemented;
- details of any arrangement or strategy necessary to complete the amalgamation or merger, and to provide for the subsequent management and operation of the proposed amalgamated or merged company or companies; and
- the estimated cost of the proposed amalgamation or merger.
Further to the above, a thorough regulatory investigation is required to ensure compliance with the relevant regulatory bodies and to ensure that the necessary consents and/or approvals are obtained (i.e. Takeover Regulation Panel approval or exemption, Competition Commission approval, etc.).
A compliant merger agreement, addressing all the requirements in terms of the Companies Act, is imperative for a successful merger. Should you need assistance perfecting a merger, don’t hesitate to give one of our lawyers a call.
Disclaimer. The articles on our website are provided for general information purposes only. We have taken care to ensure accuracy, however the content is not intended as legal advice. Always consult an attorney on your specific legal problems.