Take-overs’ or mergers’ laws in the United States and United Kingdom
Take overs and mergers are business activities undertaken to combine business entities for various reasons inclusive of attaining economies of scale. The take overs and mergers are basically purchasing of companies by other companies and make them turn into one or affiliated companies. In the United States and United Kingdom, there are laws that differ on guiding the take overs and mergers in their economic set ups. Mergers are usually activities to consolidate companies into a joint operating company while a takeover is the buying out of the shareholders and combining the companies into one large entity. In a takeover, the new owners face out the old management board and replaces with new people while in mergers the company expands to accommodate the new scope of operation and management.
In the United States, the statues guiding mergers and takeovers are majorly three. Section 7 of the Clayton Act, the Hart-Scott-Rodino Antitrust Improvements Act of 1976 and the Exon-Florio Amendment to the Defence Production Act of 1950 (Mullin). In the United States, the three guiding statutes are often referred to when legalizing a take-over or a merger. The Hart Act of 1976 ensures that companies observe the time frame necessary for observation and the pre-acquisition time lines. This means that companies can effectively be evaluated on their abilities to purchase the target companies. This is where the size of test and size of transaction tests are conducted. The size of person test is the size of the owning entity that controls more than or just fifty percent of the company’s control. This is can be achieved by the person owning more than fifty percent of the company’s votes. This test of person can also be achieved by the identity of the controlling party of the companies looking to merge. The company looking to take over another company must be worth thirteen million dollars and the other party have assets or transactions worth 130 million dollars according to the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (Mullin). The size of transaction value must be over 65.2 million dollars in value. The fifty or more percent share control of a capital does not out rightly mean that the fifty or more percent must belong to one person or party, a company can be controlled by two major share-holders.
In the United Kingdom, the guiding principles of take overs are found in the 2006 Companies Act (Slaughter and May). Under this act, a shareholder who has already managed to acquire at least ninety percent of the company can buy out the rest of the shareholders by force and become the sole owner of the company under section 979 of the Act. It is therefore, possible for a business entity to force another company out of market if they manage to buy up to ninety percent of the target company. At the same time under the same Act, the minority shareholders can force the majority shareholder to buy them out. Under the takeover regulations, the guiding principle popularly used is the City Code which is also known as the Takeover Code. The United Kingdom laws on takeovers and mergers have been adjusted to match the requirements by the United Kingdom (Slaughter and May). There are many other factors surrounding the take overs and mergers in the United Kingdom. For instance, the bidding has to be announced to the public if insinuations of the bid are reducing the share value of the target company. At the same time any shares sold as the offer period is still open at a price that is more than the offer price, then the offer price is automatically raised to match the price transacted during that period. It is important for an economy to ensure that these takeover and merger laws are well elaborated to prevent people exploiting and being exploited when transacting the mergers and take overs.
When comparing the two countries, the United States and the United Kingdom differ in the sense that in the United Kingdom allows for hostile takeovers in the Companies Act of 2006. The United States does not out rightly have provisions for hostile take overs but in the Williams Act there are provisions for the federal government to regulate the take-over laws (Jackson, Johnson and Kang). Unlike in the United Kingdom where the laws are direct in providing the shareholders with the ability to forcibly buy out the minority shareholders as long as they have at least ninety percent ownership of the company. The Williams Act is basically about the disclosure of tenders and the timing of the same. This is not clearly captured in the United Kingdom provision laws of the take overs. The federal government has to ensure that the transaction is adheres to the tender offer and applicability guidelines. These are different from the provisions in the United Kingdom where the laws are less complicated on takeovers of companies.
The United Kingdom and United States have different procedures of conducting the take overs and the mergers. The United Kingdom takeovers is led by the Panel on takeovers and mergers, the United States on the other hand utilizes the services of the which applies the City Code to the takeover procedures of the companies’ takeovers (Slaughter and May). There are government bodies that are that also are involved in the take overs of companies. The European Commission and other regulatory bodies also take part in the take overs and mergers because these activities are sensitive to the investments of people’s money. The governments have to ensure that companies are operating within the law in handling takeovers of companies and mergers as well. The United States Mergers and Takeovers are led by state laws and federal laws. The mergers are separated into two, the single-step mergers and the tendering transaction types. The two countries have very different economic set ups, which make it difficult to compare the two side by side but the concept of the mergers and take overs in both countries are easy to understand.
To conclude, a business in the United States is more secure by law from a hostile take-over but not entirely immune because investors can study the federal regulations and find loopholes that will enable them to conduct a hostile takeovers. The law of the state of incorporation can also provide the party working to take over a loophole through which to execute their takeover. In the United Kingdom on the other hand, there are regulations that open up the companies to takeovers by giving the owners the freedom to transact as they see fit to a point where they can be bought out of their companies. The United States and the United Kingdom differ in that the United States is more protective towards the companies and their owners in comparison to the United Kingdom where mergers and take overs are concerned. The United Kingdom economy size can facilitate the takeovers and mergers with less complications because the country is more conservative, therefore, complicated business models are rare. On the other hand, the United States is a broad and diverse economy with many different market models. The diversity in the economy makes it very important for the United States government to have laws that can be applied to all the different company models of operations. Take overs and mergers in the United States are therefore more complicated to conduct when compared to the United Kingdom.
Jackson, Megan K, Keith L Johnson and Woomin Kang. An Investor Overview of Hostile Takeovers in the United States. 07 November 2014. <http://www.reinhartlaw.com/knowledge/an-investor-overview-of-hostile-takeovers-in-the-united-states/>.
Mullin, Sheppard. Key United States Laws Regarding Mergers and Acquistions. 14 December 2009. <http://www.latinolawblog.com/2009/12/articles/commerce/key-united-states-laws-regarding-mergers-and-acquisitions/>.
Slaughter and May. A Guide to Takeovers in the United Kingdom. Slaughter and May, 2016.
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