Brussels, 18th November 2003
Commission proposal for a Directive on cross-border mergers - frequently asked questions
(see also IP/03/1564)
Why is it important for the EU economy that cross-border mergers should be made easier?
There is an increasing need today in the EU of fifteen Member States for co-operation between companies from different Member States. Indeed, such co-operation is an essential part of making Europe more competitive. There will be an even greater need in the future enlarged Union.
The need for EU company law provisions facilitating cross-frontier restructuring figured as a high priority in the November 2002 report of the High Level Group of company law experts chaired by Jaap Winter (see IP/02/1600), which was based on extensive consultation.
Has there been any economic analysis quantifying the likely benefits?
EU companies have been calling for many years for such a measure to be adopted, so clearly they believe it will benefit them even if it would be very difficult to quantify these benefits. Indeed, the first proposal for a Cross-border Mergers Directive dates from 1984. The present proposal is a revised version taking into account the reasons why that proposal was never adopted mainly that it was blocked in the European Parliament over the issue of worker participation - and the changed circumstances today.
Can you give some examples of national legal barriers which prevent such mergers at present?
Cross-border mergers are quite simply not legal in the Netherlands, Sweden, Ireland, Greece, Germany, Finland, Denmark and Austria.
What have companies done to get round this situation?
There is no official information available. However, mergers often in effect take place via the winding-up of the companies concerned and the creation of a new company, which is time consuming and very expensive.
What rights would the proposed Directive give to shareholders - majority and minority - of the companies proposing mergers?
Each company taking part in a cross-border merger would be governed, as far as the merger formalities are concerned, by the provisions of national law to which it would be subject if it were merging with a company from the same Member State. Those provisions would include those regarding the decision-making process relating to the merger and the protection of creditors, debenture holders and the holders of securities other than shares to which special rights are attached.
The only exceptions to this principle that national law would apply to all merging companies are those provided in the Directive for reasons to do with the cross-border nature of the operation. For example, the name and registered office proposed for the new company - an important piece of information as far as all interested parties, including creditors, are concerned - are points that have to be included in the draft terms of cross-border merger.
Does the proposed Directive contain rules on information to the financial markets?
No, the Directive does not need to contain rules on information to the financial markets as each company taking part will be governed by its national law in that respect.
Why would companies wish to enter into a cross-border merger without creating a European Company? What is the practical difference for them?
The European Company Statute is aimed at companies which need to reorganise their business on a Europe-wide scale. Other companies, for the most part small and medium-sized enterprises, may wish to enter into a cross-border merger without creating a European Company, if for example, they did not want to operate in many Member States. The Directive would allow them to do so.
What are the main changes between this proposal and the earlier one?
The current proposal differs from the original proposal of 1984 mainly in scope and in the way it deals with the participation of employees in the decision-making bodies of the acquiring company or of the new company created by the cross-border merger. It takes account in that respect of the principles and solutions incorporated in the European Company Statute Regulation and the accompanying Directive on worker involvement.
The original proposal covered only public limited liability companies. The new one extends that scope to include all companies with share capital which, in the unanimous view of the Member States, may be defined as companies having a legal personality and separate assets which alone serve to cover their debts. It is aimed primarily at companies which are not interested in forming a European Company, for the most part small and medium-sized enterprises.
Why does the Commission think this proposal can succeed whereas its predecessor failed?
Employee participation issues led to deadlock over both the original proposals for a Regulation establishing a European Company Statute and the earlier proposal for Directive on Cross-border Mergers. In so far as the European Company Statute was concerned, those issues were resolved in negotiations and the Statute was duly adopted in 2001. The work on preparing a new proposal on cross-border mergers accordingly resumed. Given the parallels between the two proposals, the Commission believes employee participation issues can be resolved on a similar basis.
Would the proposed Directive not lead to a situation where companies would be reluctant to merge with those from other Member States where high levels of worker participation are required, as the merged company would probably have to apply those rules?
First, worker participation can contribute to the success of a company: it should not be assumed it is a barrier. Many of the world's most successful companies have highly developed models for worker participation. And even if some companies are wary over this issue, the Directive would give them the opportunity to merge with companies from other Member States where previously they could not do so without great difficulty. That is a big step forward and there is no reason for companies to be discouraged simply because of different rules and cultures regarding employee participation. Finally, the proposed Directive would allow companies and workers representatives to negotiate new arrangements for worker participation different from those existing in either company. Only if no agreement could be reached would the "default" arrangements those existing in the Member State with the most stringent rules apply.