Theoretical and Practical Aspects of Mergers & Divisions of Companies în România

Abstract:

The merger and division activities are more an more present now after a period of decline after the economic crisis, and now, due to the high number of investment funds and companies in need of development the transaction started to multiply by the year so in this paper I will present the main procedures in such a transaction and detailed on the concepts as follow. The first chapter will define the terms and classify them by the type of the transaction. In the second chapter is presented the merger as a way of restructuring any business and also an alternative way of taking over a company. The third chapter presents the legal frameworks and procedures of mergers and divisions procedures. In the fourth chapter is presented tj merger and its effects towards entities involved and general asspects. The fifth and finan project is presenting the nullity of a merger or division proces

1. M&D - DEFINITIONS

1.1. Forms

A merger is the operation through which:

a) one or more entities are dissolved without going through the liquidation process and transfers it’s entire patrimony to another society in exchange of the allotment of shares in the newly created company to the shareholders of the absorbed entity and maybe even cash payments up to 10% of the nominal value of the distributed shares (fusion by absorbtion).

b) more societies are dissolved without going through the liquidation process and transfers the entire patrimony to a new company they create, in exchange of the allotment of shares in the new entity to the shareholders and maybe even cash payments up to 10% of the nominal value of the distributed shares (merger by fusion).

The division is the operation through which:

a) An entity, after being dissolved without going into liquidation, transfers to several companies it’s entire patrimony, in exchange of the allotment of shares in the beneficiary entities to the shareholders in the divided society and, if applicable, a cash payment of up to 10% of the nominal value of the shares.

b) An entity, after being dissolved without going into liquidation, transfers it’s entire patrimony to several newly created companies in exchange of the allotment of shares in the beneficiary entities to the shareholders in the divided society and, if applicable, a cash payment of up to 10% of the nominal value of the shares.

1.2. Classification

As it can be seen in the legal doctrine, the legal regulation consists of two forms of merger merger by absorbtion and merger by fusion.

The division can take place also through the simultaneous transfer of the divised society’s patrimony to one or more existing entities and one or more newly created entities. The merger and division cand also be made between societies of different forms.

As it can be seen the merger and division procedure take place in the dissolution place but the law allows those procedures even if the companies are in the liquidation process with the only condition that he allotment between shareholders did not began at that moment. Art 238, alin. 4.

2.MERGER - A REORGANIZATION WAY FOR JURIDIC ENTITIES

2.1. Merger integration in the reorganization process

From a juridical point of view, the merger and division operations are regulated by law 31/1990 about commercial entities, the law was republished and added futher completions articles 233 to 245.

The reorganization through merger of companies was initially a judicial creation that proved to be usefull and therefore republished in the Civil code and the law 31/1990. The merger is a common method of company reorganization based on various reasons and motivations: strategic, economi, organizational.

The fusion is ussualy considers in strategic moments that have the power to influence de development of a company or a group of companies. One thing that has to be kept in mind is the breadth of the process and therefore the advantages have to outpower the disadvantages.

The main economic advantages of the merger are represented by the cumulation of the power of multiple companies in one in order to become a major player in that industry, this reason is behind the decisions in situation when on the market there is one company that has the majority of the market share and multiple smaller companies that cand grow because of the lack of negotiating power. One other reason behind such a procedure may be behind the strategy of entering a new market where the absorbing company doesn’t conduct any business so it is a lot simpler for them to buy an already established company on that market and get all it’s facilities, customers and credibility, so, as the process ends, the company is already conducting it’s activity.

2.2.Other ways of taking heritage

Another way of taking over heritage is the LBO or Leaveragen Buy-Out, this tipe of acquisition is in fact a technique of taking over a company. This procedure can be used even in the case of a merger because I consists in taking over through the assignment of equity or by multiple persons through one or more holding companies by financing the takeover with a loan that will pe further paid back with money coming from the target company, mainly through dividend but not allways. As a result of this acquisition, the holding company will supervise the acquired entity so that it makes it as profitable as it can and will sell it’s share of the company for a price higher than the one for which it was bought