Merger – A Process

Steps in a merger
transaction
• Steps in a Merger Process

• What a Merger is
• Mergers are one of the main ways of concentrating businesses.
• There are two possible types of merger. The first is through the
formation of a new company (NewCo) and at the same time the
dissolution of the previous legal entities. The second is through
the merger of one or more companies into another company,
with the result that the participating companies retain their
identities.
• The purpose of a merger is of an economic/industrial nature. The
merger of two or more organizations allows for the generation of
cost synergies (administration, production, and listing costs), as
well as greater geographical coverage (with a positive impact on
revenues and the possibility of further growth).
 
• Steps in a Merger
• There are three major steps in a merger transaction: planning,
resolution, implementation.
• 1. Planning, which is the most complex part of the merger
process, entails the analysis, the action plan, and the
negotiations between the parties involved. The planning stage
may last any length of time, but once it is complete, the
merger process is well on the way.
• More in detail, the planning stage also includes:
• signing of the letter of intent which starts off the negotiations;
• the appointing of advisors who play the role of consultants,
examining the strengths, weaknesses, opportunities, and
threats of the merger;
• detailing the timetable (deadline), conditions (share exchange
ratio), and type of transaction (merger by integration or
through the formation of a new company);
• expert report on the consistency of the share exchange ratio,
for all of the companies involved.
• 2. The resolution is simply management's approval
first, then by the shareholders involved in the
merger plan.
• The resolution stage also includes:
• the Board of Directors calling an extraordinary
shareholders’ meeting whose item on the agenda is
the merger proposal;
• the extraordinary shareholders’ meeting being
called to pass a resolution on the item on the
agenda;
• any opposition to the merger by creditors and
bondholders within 60 days of the resolution;
• 3. Implementation is the final stage of the merger process,
including enrolment of the merger deed in the Company Register.
• Normally medium-sized/big mergers require one year from the
start-up of negotiations to the closing of the transaction. This is
because, in addition to the time needed technically, there are
problems relating to the share exchange ratio between the
merging companies which is rarely accepted by the parties
without drawn-out negotiations.
• During the merger process, share prices will adjust to the share
exchange ratio. On the effective date of the merger, financial
intermediaries will enter the new shares with the new quantities
in the dossiers. The shareholders may trade without constraint
the new shares and benefit from all rights (dividends, voting
rights).