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Last update 10-12-2020

Corporate mergers or acquisitions: registration and notarisation

Merger between companies

What is a merger?

A ‘merger’ is the legal transaction which takes place between two or more companies with a view to dissolving some or all of them and combining their shareholders and assets into a single company. This may be a new or a surviving company.

What are the main effects of a merger?

  • A merger transfers the entire assets and liabilities of one or more companies to the receiving company. This may be the acquiring (surviving) company or may be formed for this specific purpose (a ‘newco’).
  • Delivery of shares, participating interests or shareholding units of the transferee company, and sometimes a sum of money, to the shareholders of the companies which have transferred all their assets to it.
  • Dissolution of those companies after transfer of their assets.

What are the stages of a merger?

  1. Preparatory stage. This ends when the merger plan and ‘consolidated balance sheet’ have been drawn up. These documents have to be verified, and the findings recorded, in reports by the directors and independent experts. Then they must published, in accordance with set requirements, by filing at the commercial registry.

  2. Decision-making stage. The general meetings of the shareholders of the merging companies must decide whether to merge, by approving the relevant merger agreement.

  3. Execution stage. When the merger agreement has been finalised, it must be published to facilitate the exercise of the ‘creditors’ right of opposition.’ After a given period of time, the merger deed will be authorised and the transaction entered on the commercial register. The merger is then published, as required, in the Official Gazette of the Commercial Registry.

There is no requirement for merged companies to be of identical legal form. Not only companies with the legal form of sociedad anónima (public limited company – SA) can merge into an SA, but also any others: private limited companies (sociedad de responsabilidad limitada – SRL) and general or limited partnerships. There is also no requirement for merging companies to have an identical corporate object. Companies engaged in different types of business can merge.

Are there different categories of merger?

The procedures to bring about a merger are as follows:

  • Merger by forming a new company. This type of merger involves dissolving each of the individual merging companies and transferring their assets en bloc to the newco, which acquires their rights and liabilities by universal succession.
  • Acquisition merger. If the planned merger is the result of acquisition of one or more companies by a surviving company, that company will acquire the assets of the acquired companies by universal succession. Those companies will be dissolved and, where applicable, will increase the share capital of the acquiring company by the corresponding amount.

What is the stock swap ratio?

In merger operations, the swap ratio of the shares of the merging companies must be established according to the real values of their assets.

To adjust the stock swap ratio the shareholders may, if eligible, receive additional monetary compensation. This cannot exceed 10% of the par value of the shares or of the book value of the allocated units.

What does a merger plan involve?

The directors of each company involved in the merger must draw up and sign a merger plan. If any director’s signature is missing, this must be noted at the foot of the plan, with an explanation of the reason.

When the directors of the companies being merged sign the joint merger plan, it has a number of effects:

  • it marks the start of the time limit of validity of the plan (a merger plan can be valid no longer than 6 months);
  • it obliges the directors to carry out various acts reflecting the specific purpose of the merger;
  • it obliges the directors not to carry out any act, or enter into any contract, which might jeopardise approval of the merger plan or substantially alter the stock swap ratio of the merger;
  • it determines the date of reference for proving whether the last approved annual balance sheet is usable as the merger balance sheet, because it was closed no more than 6 months before the merger plan date (Article 36.1 of Law 3/2009, of 3 April 2009).

The merger plan will be void if not adopted by the general meetings of shareholders of all companies involved in the merger, within 6 months after the merger plan date.

The joint merger plan must at least contain the following information:

  1. The names, legal forms and places of business of the companies being merged, and of the company resulting from the merger, and the identifying particulars of each company, entered on the commercial register.

  2. The stock swap ratio, any additional monetary compensation arranged (never more than 10% of par value) and, where applicable, the swap procedure.

  3. The effect which the merger will have on the obligations of industrial shareholders to contribute to the company to be dissolved, or on ancillary payments, and the amounts of compensation to be awarded, as applicable, to the affected shareholders of the resulting company.

  4. The rights to be granted in the resulting company to holders of special rights or of securities other than those representing the share capital or the options offered to them.

  5. Any kind of advantage in the resulting company, to be awarded to the independent experts who have to intervene in the merger plan, as applicable, and to the directors of the merging companies, of the acquiring company or of the newco.

  6. The date from which the holders of the new shares, participating interests or units will be entitled to share in corporate profits and any perquisites relating to that entitlement.

  7. The date from which the merger will take effect in the accounts, in accordance with the provisions of the General Accounting Plan.

  8. The articles of association of the company resulting from the merger.

  9. Information on the valuations of each company's assets and liabilities for transfer to the resulting company.

  10. The date of each merging company’s accounts used to establish the conditions of the merger.

  11. The possible job implications of the merger; any impact on membership of the organs of the company; and any implications for corporate social responsibility.

As a better safeguard of the rights of shareholders and third parties, two categories of written report must be drawn up on the merger plan:

  • one by the directors of each company involved in the merger;
  • the other by one or more independent experts appointed by the keeper of the commercial register at the directors’ request.

Directors’ report on the merger plan

The directors of each of the companies involved in the merger must draw up a report explaining and justifying the legal and economic aspects of the joint merger plan in detail, with special reference to:

  • the stock swap rate to be applied, whether the valuation presented particular difficulties and, if so, how they were resolved;
  • the implications of the merger for shareholders, creditors and employees.

Finally, it must be emphasised that these reports are not necessary in cases of acquisition of a 100%-owned subsidiary or a company in which a 90% interest is held.

Experts’ report on the merger plan

The report of the independent experts appointed by the keeper of the commercial register is only mandatory when one or more of the companies involved in the merger is an SA or a partnership limited by shares. The aim of the report is to maximise the transparency of the process.

How must the consolidated balance sheet be drawn up?

In the event of a merger, a balance sheet must be drawn up for each company involved in the operation. As an information document, this balance sheet accompanies the joint merger plan.

The consolidated balance sheet must be adopted by the general meeting of shareholders and may be open to challenge. Such a challenge cannot, of itself, suspend implementation of the merger.

The final adopted balance sheet for the financial year can be treated as the consolidated balance sheet for the purpose of the merger, provided that it was closed during the 6 months prior to the merger plan date.

If the annual balance sheet does not meet this requirement, a balance sheet will have to be drawn up and closed after the first day of the third month before the merger plan date, using the same methods and criteria of presentation as the last annual balance sheet.

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Sales of businesses

The sale of a business is a completely different transaction from a merger between commercial companies.

What are the stages of the sale process?

The first question to answer is: why sell? Influencing factors to consider at the time of decision-making may be: family succession; dispute between shareholders; wish to divest; consolidation in the sector; and/or lack of financial capacity.

Secondly, information must be compiled about the business and its sector. This information is not just financial: its purpose is to clarify the distinctive features of the company and its business. Ultimately, it offers an understanding of the business, for presentation purposes.

The third step is to establish the objective value of the business, by universally accepted methods. The value will generally depend on past, present and future profitability figures.

The next step is for the sellers to draw up a list of any possible buyers. They should indicate their preference between industrial buyers (competitors, suppliers, etc.) or financial buyers (venture capital).

Later they will hold meetings with the interested investors to present the most relevant information about the business and resolve doubts which are critical to the investors’ decision-making. If interest persists, a letter of intent is drawn up, stating the value and main conditions to be fulfilled later. The seller allows a period of exclusivity to the buyer, to enable it to analyse the business in depth.

After the letter of intent, the buyer will carry out commercial and financial due diligence studies to find out more about the business being purchased.

Any adjustments and the drafting of contracts, finance agreements etc. are possible based on the due diligence.

Finally, the contracts are signed and publicly recorded before a notary. They are then entered on the property and commercial registers. From then on, the obligations governing the commencement of trading must be fulfilled.

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Authority responsible for the information

Ministry of Justice
Directorate-General for Legal Certainty and Certification
Association of Property and Commercial Registrars of Spain