Traditionally, legal mergers between companies from different EU member states have not been possible, even though this has not prevented the use of the word "merger" in various contexts related to cross-border acquisitions. One exception has been the formation of a Societas Europaea (SE) under the European Company Statute where a legal merger across borders within the European Economic Area (EEA) has been achievable. However, this option has, unsurprisingly, been of very limited use in practice. Some member states may also have allowed cross-border mergers under their national law.
The above situation is about to change as the 10th Company Law Directive (2005/56/EU) is being implemented throughout Europe. The Directive facilitates cross-border mergers of national companies, without the need to set up an SE. The scope of the Directive covers various kinds of limited liability companies, including co-operatives. The Directive should be implemented by 15 December 2007.
In fact the change has been under way for some time as the SEVIC judgment (C-411/03) rendered by the EU Court of Justice in late 2005 confirmed that the member states are not entitled to deny the possibility to merge cross-border just because there is no legislation that would cover that type of merger. Indeed, based on the SEVIC case there are several cross-border mergers already taking place and some even completed in various member states, including Finland. However, the implementation of the 10th Company Law Directive shall make the process less risky and thereby presumably much more appealing to businesses.
The Finnish Ministry of Justice has published a Government Bill containing the necessary legislation for implementing the Directive. What is interesting is that the Bill contains in addition to rules on mergers, inter alia, rules on demergers of limited liability companies and co-operatives. It should be noted that the proposed legislation is not exhaustive in the sense that other types of mergers and demergers might be feasible and even mandated by EU law on the basis of the SEVIC judgment.
A relevant question is, where and when are cross-border mergers useful? The most obvious answer is in the banking and insurance sector where mergers can achieve larger balance sheets and optimize the use of capital. We have also noticed that in practice a cross-border merger may be used to structure cross-border acquisitions. There may also be a practical need to rationalize group structures by merging companies from different member states and in some cases one could release excess capital from these group structures. Perhaps the most politically sensitive use of the new instrument is to move a company’s headquarters from one country to another. Cross-border mergers may put further pressure on national legislators to keep national legislation competitive.
The first practical experiences on cross-border mergers would suggest that it is a technically realistic option in various situations. Tax-related difficulties appear to be limited and in some cases there are even tax-advantages in cross-border mergers, but the employee representation rules attached to the Directive might cause problems in larger companies. In any event, it appears that cross-border legal mergers will be a useful and utilized tool for company lawyers across Europe.
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