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Mergers

Updated 07/2011

Acquisition

One way for companies to boost their competitiveness and expand their activities at home or abroad is by acquiring another company. An acquisition can be achieved in several ways:

  • by making a takeover bid for a company quoted on the stock exchange;
  • by acquiring the majority or a controlling percentage of shares in a company quoted on the stock exchange;
  • by buying the shares in a company following an agreement with its shareholders;
  • by merging with another company - when two or more companies join together under the same ownership (through absorption of one company by another or through the creation of a new company which acquires the two or more merging ones).

Merging is the less expensive way to expand a company, since the procedure does not require cash payment for the assets transferred from the absorbed company to the absorbing one.

The EU has set out rules regarding both national and cross-border mergers of limited liability companies as well as takeover bids. There are also rules on national divisions of companies which lead to a transfer of the assets of the split company to two acquiring companies.

Acquisitions and mergers can also be achieved using European business structures such as the European Company, which is limited by shares, the European Economic Interest Grouping and the European Cooperative Society.

Buying an enterprise, with an already established structure, can prove advantageous for expanding a business.

Controlling mergers

Mergers can hinder or distort competition by creating or strengthening market power. This in turn can drive up prices for consumers, reduce choice and hamper innovation.

If the merging companies' annual turnover exceeds certain thresholds (as a percentage of total global and European sales), the European Commission must be notified so that it can review the impact of the merger on competition. Mergers involving smaller annual turnovers are dealt with by the national competition authorities.

The merger rules apply to all companies doing business in the EU - whether they are based inside or outside the EU.

Check also the legislation on this topic in:

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Further help

The Enterprise Europe Network provides information and advice to businesses on how to merge.