Transactions Blog

Since 25 January 2010, it is possible to carry out all types of mergers without the intervention of an independent expert (i.e. the company’s statutory auditor, or an auditor/external accountant if no statutory auditor has been appointed).

Articles 695 and 708 of the Belgian Companies Code (“BCC”), modified following implementation of the European Directive 2007/63/EC, now provide that no independent expert’s report on the merger proposal is required, if all shareholders (and holders of other securities conferring the right to vote) of each of the companies involved in the merger, have so agreed.

Prior to such modification of the BCC, it was only possible to carry out a so-called “parent-subsidiary merger” without the intervention of an independent expert (i.e. a merger whereby the acquiring company already held all shares of the acquired company).

The report of the management bodies of the companies involved in the merger is however still required (articles 694 and 707). The new European Directive 2009/109/EC provides for the possibility to also abolish the requirement to draw up such report. For the time being however, this Directive has not yet been implemented in the BCC, and it is not yet clear whether the Belgian legislator will seize the opportunity to further reduce the burden of formalities for mergers.

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2008 and 2009 are challenging times for the M&A market due to the lack of available funding. Many investors and international groups are looking for cost-cutting opportunities and cash optimisation.

During the 5th session of our M&A Academy, we tried to evaluate how reshaping your conventional business model towards a more flexible structure can help you in for example the improvement of your business model or the optimisation of your tax credits and/or cash position.

Since business restructurings trigger multiple tax issues, not only transfer pricing aspects, this module also focused on the following aspects:

• the arm’s length risk allocation to restructured group entities;
• the potential ‘exit charges’ and indemnifications upon restructuring;
• the recognition, by tax authorities, of restructuring transactions.

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The PwC China M&A press release revealed that domestic and inbound M&A deal volumes in China (including Hong Kong and Macau) in the second half of 2009 are returning to robust 2008 levels, indicating that the impact of the global economic downturn on China M&A seems to have been short lived.

More than 1,800 domestic transactions (deals being intra-China or from HK to the mainland and vice versa) are likely to be recorded in the second half of 2009, for a total of about 3,200 mergers and acquisitions for the full year, compared to nearly 3,800 in 2008. Looking to 2010, domestic deal activity is expected to grow by more than 20% compared to 2009.

A continued decline however was noted for deals made by foreign strategic buyers (focussed on sorting out problems in their home markets) and also foreign financial players finding new deals harder to come by as gaps in pricing expectations between sellers and buyers continued. There are indications though that those foreign strategic buyers will re-emerge in greater volume and deal size soon, reflecting a pent-up appetite for China targets.

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Lead advisors are often placed in the role of ‘bad cop’ when pushing the deal through for the seller and getting the highest price possible for the business. But what is the best way to work with a lead advisor and in what ways can they add the most value in a transaction process?

Planning before the sales process even starts is essential to allow the setting of strategic and financial objectives as well as getting an idea as to the internal resources available for the transaction process. One of the key messages from Kris Geysels, CFO of Aviapartner, in his presentation at the M&A Academy was that lead advisors will not take any of the preparation work away from the internal team.

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Your company acquired several businesses over the last year and you know that not all of your synergy targets and potential have been achieved? In that case, we strongly recommend completing the unfinished business.

The precedent 3 to 5 years were marked by an unparalleled frenetic M&A activity illustrated by many large corporations who acquired each several companies in that time period or even within a year.  Thereby, a certain level of integration has been clearly achieved for those acquisitions, but we observe that in most cases, these have not been completed, as management already looked out to the next acquisition. 

This is no longer acceptable in today’s economic circumstances. In the rush of cost savings to face the dramatic economic crisis, companies have their last chance to complete their unfinished business. Typical unfinished integration areas are:

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A new Tax Act Implementing the EU Tax Merger Directive into Belgian law was published in the Belgian Official Gazette on the 12th January and came into force immediately.

The act introduces a tax-free regime for cross-border reorganisations. In addition, it also brings the existing tax provisions applicable to internal reorganizations in line with the EU Merger Directive.  Most provisions are applicable as of the date of publication.

The EU Merger Directive of July 23, 1990 (as amended by the EU Directive of February 17, 2005) provides for a tax-neutral regime for cross-border reorganizations such as mergers, demergers, partial demergers, share-for-share transactions, contributions of assets and transfers of registered offices. Tax neutrality is provided both at the level of the companies involved in the reorganisation as well as in the hand of their shareholders.

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Cross-border mergers are now regulated in Belgium further to the adoption by the Chamber of the Miscellaneous Provisions Act (the “Act”), which is aimed inter alia at implementing Directive 2005/56/EC on cross-border mergers of limited liability companies (the “Cross-border Directive”) into Belgian law. The Act entered into force on 26 June 2008.

Old Rules

Before the Act came into force, cross-border mergers were not organised under Belgian law. Legal writers were divided on the feasibility of cross-border mergers notwithstanding adoption of the Belgian Private International Law Code in 2004, which stipulates that mergers of legal entities are governed, for each of them, by the law of the State to which they belong before the merger. In a 13 December 2005 judgment known as the “Sevic judgment”, the European Court of Justice had also confirmed the principle of the freedom of movement and establishment of companies, allowing cross-border mergers[1], but the effects of such a merger remained uncertain under Belgian law.

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