Do All Mergers and Acquisitions Require Shareholder Approval?

There are two different types of mergers and acquisitions (M&A), private and public.

In a private M&A, the companies involved are not trading their shares on a public stock exchange, as individuals or other companies own these shares privately.

In public M&A, the companies involved trade their shares on public stock exchanges, resulting in them having numerous shareholders.

This fundamental difference has implications for how companies approach M&A’s, and the impact of they can have on shareholders.

Private M&A

In private M&A typical process here is that one company buys all of another’s share capital, resulting in a buyer acquiring  all of the seller’s assets without involving third parties.

Private equity firms can also acquire companies in this way too.

Essentially, in private M&A’s, there is very little regulation, which dictates to what degree shareholders’ opinions carry weight.

However, where a private company has been publicly listed within the last 10 years before the transaction, the “Code” will apply to it.

The Code on Takeovers and Mergers (the “Code”) has been developed since 1968 and reflects the collective opinion of those professionally involved in the field of takeovers to dictate appropriate business standards, provide fairness to shareholders and outline how orderly public takeovers can be achieved.

Public M&A

Mergers and acquisitions involving companies that trade shares on public stock exchanges are subject to more regulations than private M&A.

The London Stock Exchange operates two markets for these types of transaction:

• The main market, which consists of premium and standard listings, and
• The alternative investment market AIM, which is made up of smaller and growing enterprises.

The main regulation that governs M&A in these public markets is the Takeover Code.

This sets out key principles as standards and statements of commercial behaviour, and its aims are to ensure that in M&A transactions, shareholders receive fair and equal treatment.

The Code regulates various aspects of M&A, including timings, documentation, public statements and disclosures.

Is Shareholder Approval Required for Public M&A?

Under the Code there must be equality of treatment, which applies to all holders of security in a target company.

This inequality of treatment includes the following requirements:

• All information must be made equally available to all shareholders
• Each class of equity share capital must receive comparable offers
• There can be no special offers made to any particular target shareholders.

In addition an acquiring company will need to buy the minimum number of shares in the target company required to take it over.

There are two ways of this happening:

• A contractual offer to target shareholders, which each shareholder can decide to accept or reject
• A court-approved scheme, which binds all target shareholders, if a majority approves it, representing at least 75% in value of shares.

With contractual offers, there will be a minimum acceptance condition set by the bidder, of between 50% and 70%. The bidder can demand remaining minority shareholders to a compulsory buy-out if they reach a 90% threshold.

These types of schemes normally require target company co-operation, and are the most efficient and rapid means of one company acquiring control of another.

Though, in both types of share buy-outs, the benefits of mergers and acquisitions to shareholders will be a major consideration.

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