There are essentially four ways of acquiring a publicly traded company; namely merger, amalgamation, scheme of arrangement or the making of an offer to the shareholders of a publicly traded company to acquire their shares.
It is open for a potential acquirer, subject to compliance with rules and regulations of any applicable stock exchange, to present an offer to the shareholders of a Bermuda company which may, or may not, be recommended by the board of that target company. A company (whether incorporated in Bermuda or not) can make an offer to the target company’s shareholders to acquire all of their shares in the target company. In the event that the offer reaches certain thresholds of acceptance, an acquirer can ﬁnd themselves with certain rights and obligations to obtain the remaining shares as discussed further at questions 25, 26 and 27.
A scheme of arrangement is a court sanctioned compromise between a company and its creditors (or any class of them) or its members (or any class of them). In the context of an acquisition, a Bermuda company or any member may apply to the Bermuda Court requesting that the Court order a meeting at which the members (or any class of them) are asked to consider the scheme. If the approval is obtained of a majority in number representing three-fourths in value of members or class of members, as the case may be, present and voting either in person or by proxy at the meeting, the Court may sanction the scheme and if so sanction, it becomes binding (subject to delivery of the requisite order of the Court to the RoC) upon the member (or any class of them, as the case may be).
Whilst any of these means would be open to a potential acquirer, we frequently see the acquisition of high proﬁle publicly traded companies in Bermuda acquired by way of merger or amalgamation. Whilst the processes to complete either and practical effect are similar, from a technical stand point, each produces different results.
A merger between two (or more) Bermuda companies is typically effected pursuant to section 104H of the Companies Act and, upon completion, the undertaking, property and liabilities of each merging company is vested in the surviving company whilst the remaining company or companies cease to exist.
Conversely, an amalgamation between two (or more) Bermuda companies is typically effected pursuant to section 104 of the Companies Act and, upon completion, each of the companies become and continue as a single amalgamated company and the undertaking, property and liabilities of each becomes the property of the amalgamated company.
The Companies Act does not legislate as to whether a transaction should be structured as a merger or an amalgamation. Commercially and optically, companies might proceed by way of an amalgamation if structuring the business combination as a “merger amongst equals”, given that neither company is deemed to be the survivor. However, where one party is the “purchaser”, a merger may be the preferred choice.
In order to effect a merger or an amalgamation, the merger or amalgamation (including its terms) must be approved by the shareholders of the company, whether or not they ordinarily have a right to vote. As such, holders of non-voting preference shares may also vote on a merger or amalgamation.
There are often two agreements in the context of an amalgamation or merger. The main transaction agreement (the “Agreement and Plan of Merger/Amalgamation” (in the case of US transactions) or “Implementation Agreement” (in the case of English law transactions)), which will be subject to the law of the parties’ onshore counsel or the jurisdiction in which the company is listed or where the company conducts the majority of business, which sets out the terms and means of effecting the transaction and which will include comprehensive warranties, indemnities, conditions precedent, deal protection mechanisms (if any). In addition, a statutory merger or amalgamation agreement will also be used, which sets out that which is required to be approved by the shareholders under section 105 of the Companies Act.