Difference between Mergers, Acquisitions, and Takeovers

In today’s dynamic corporate landscape, mergers, acquisitions, and takeovers represent critical strategic tools for organisational growth and prosperity. While businesses frequently use these mechanisms to facilitate expansion and create beneficial collaborations, each has distinct characteristics that merit careful consideration.

Understanding these three approaches is essential for business owners, shareholders, and investors contemplating corporate restructuring. This guide explains the key aspects of mergers, acquisitions, and takeovers, along with their processes and legal frameworks under UK law.

Mergers

A corporate merger occurs when two companies unite to function as a single, new legal entity. Typically, mergers involve organisations of similar size operating under mutually agreed terms. Such arrangements allow businesses to achieve scale, explore new opportunities, enhance revenue, reduce costs and benefit from harmony. Shareholders from both original companies receive shares in the newly formed organisation, reflecting the consensual nature of this approach.

 

UK Legal Framework for Mergers

• The Companies Act 2006 governs merger procedures, establishing requirements for shareholder majority approval.
• If the resulting entity controls more than 25% of the relevant market, the Competition and Markets Authority (CMA) conducts a review under the Competition Act 1998.
• TUPE regulations protect employees’ rights during transfers, including salaries, pension entitlements and contractual terms.

Implementation Process

1. Conduct thorough due diligence to assess financial, legal and operational risks.
2. Draft a detailed merger agreement covering terms, conditions, governance structure and organisational framework.
3. Shareholder voting is necessary for both companies in compliance with UK requirements.
4. Submit necessary documentation to the CMA for regulatory assessment.
5. Following approval, align operational teams, integrate systems and introduce a new corporate branding.

Acquisitions

An acquisition involves one company purchasing a majority or all shares of another organisation. The acquired entity may continue to operate independently under its established brand or become integrated into the acquiring company.

Acquisitions generally proceed through mutual agreement. It primarily aims to access new technologies, skilled personnel or geographical markets.

UK Legal Framework

• The Financial Services and Markets Act 2000 ensures transparency in listed companies’ transactions.
• The Takeover Code protects shareholder interests during public company acquisitions.
• Financial Conduct Authority oversight requires disclosure of material information to the market.

Acquisition Procedure

1. Present a formal bid to the target company’s board as an initial proposal.
2. Conduct thorough due diligence to examine potential liabilities, contracts and intellectual property.
3. Facilitate target shareholder voting on the proposed offer.
4. Prepare and submit necessary filings, notifying the CMA and FCA for approvals.
5. The formal transfer of assets or shares will lead to the completion of the acquisition process.

Takeovers

A takeover represents a form of acquisition that may involve a hostile approach. This scenario occurs when an acquiring entity bypasses the target company’s board, directly offering shareholders a premium for their holdings or securing control through shareholder votes.

Business owners, particularly those leading publicly listed companies, should implement measures to protect against such actions.

Takeover Framework in the UK

• The mandatory bid rule requires that acquiring 30% or more of voting rights necessitates an offer to all shareholders.
• The Put-Up-or-Shut-Up Rule requires bidders to formalise offers within 28 days of public speculation.
• The City Code on Takeovers and Mergers prohibits unethical tactics during takeover proceedings.

Defensive Strategies Against Hostile Takeovers

1. Understand UK legal constraints and maintain awareness of defensive mechanisms requiring shareholder approval.
2. Cultivate relationships with potential friendly acquirers who might present counter bids.
3. Build strong connections with shareholders, employees and investors to foster unity against hostile bidders.
4. Review the company’s articles of association for protective provisions such as supermajority voting requirements.
5. Seek expert advice from commercial lawyers to strengthen defences against hostile takeover risks.

Regulatory Authorities in the UK

Competition and Markets Authority (CMA)

The Competition and Markets Authority prevents anti-competitive mergers and addresses market competition concerns. The CMA conducts a multi-faceted assessment for each proposed merger to identify potential risks and ensure that mergers do not adversely affect market competition or consumer interests.

The Takeover Panel

The Takeover Panel ensures fairness and transparency throughout takeover and acquisition proceedings. This body addresses deadlines, timely disclosure, equitable treatment of shareholders, the protection of investor interests, and enhanced confidence in UK financial markets.

TUPE Regulations

The UK’s Transfer of Undertakings (Protection of Employment) regulations safeguard employee rights during business transfers. These provisions ensure the continuity of transferred employees’ terms of employment, pay, holiday entitlements and pension arrangements, balancing the interests of both workforce and employers during periods of significant organisational change.

Frequently Asked Questions

1. Can a merger be reversed in the UK?

Yes, though such occurrences are rare. The CMA holds the authority to unwind completed mergers if deemed detrimental to competition.

2. What taxation applies to acquisitions?

• Stamp Duty: 0.5% levied on share purchases, or at such rate as may be applicable in law from time to time.
• Capital Gains Tax: Applicable to asset sales.

3. What is the difference between acquisition and takeover?

A takeover is a type of acquisition that involves a hostile approach. Every takeover is an acquisition, but every acquisition is not a takeover. 

Mergers, acquisitions and takeovers require a good understanding of UK laws and careful planning. For help with these business changes, contact Blackmont Legal for expert advice tailored to your needs. Our team will guide you through the process while helping you meet your business goals.