Very important that that the resulting company should satisfy the Act’s solvency and liquidity requirements-View table 4.1 on page 91 of textbook to see requirementsElements of a business combination-3 stages that should be followed when combining businesses:1.)Parties should enter into a merger agreement 2.)Shareholders of the participating companies should vote on the approval of the transaction 3.)Parties should implement the transactionStage 1: Entering into a merger agreementProvides shareholders of prospective companies with most important info for proposed transactionWritten agreement should included information about:othe proposed structure of the combined entity (A+B=C, A+B=A , A+B=B)othe way in which the shares in the combine entity will be distributed or exchangedothe manner in which the deal will be financed (more detail in chapter 6)othe way in which the participating companies’ assets and liabilities will be distributedothe strategy that will be followed to ensure that the combined entity will be managed successfullyif the participating companies agree that the amalgamated company will meet the solvency and liquidity requirements they can submit the agreement to be discussed at the shareholders meetingeach shareholder should receive a copy of the merger agreementthe shareholders should receive independent advice and have all the info to make a good decisionStage 2: Shareholders of the participating companies should vote on the approval of the transactionthe shareholders must vote on the approval of the transaction a special resolutionshould be passed:othere should be a quorum of at least 25%of ordinary shareholders at the meeting(Preference shares don’t have a vote)oof these votes, approval by 75%of the participating vote is requiredoif the acquirer is also a subsidiary – the parent must also approve the transactionIf shareholders who own 15% or more in any of the participating companies vote againstthe proposal, any opposing shareholder could require the company first obtain court approvalbefore the deal can go through.The board of directors of the relevant party then decide what to do (usually agree with court)If 90% or more of the shareholders are in favour then the minorities can be “squeezed out”– this is where they are forced to accept the dealThe minority will receive the same offer and terms as the other 90%2 | P a g e
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M&A Minority ProtectionThe Companies Act also introduced a range of measures to protect the minority shareholders in three fundamental transactions:The disposalof all or the greater part of the assets or the undertaking of a company (typically the sale of the company’s business or the majority of its assets)The conclusion by a company of a transaction of amalgamation or merger; being a statutory form of the transfer of assets and liabilities of the company introduced into the Act and which, in itself, constitutes a new innovation as to the manner in which merger & acquisition transactions may enter intoA scheme of arrangement
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