Mergers and Acquisitions lead to pertinent legal complexities that the corporations’ stakeholders may not have experienced or foreseen in everyday business dealings.
Therefore, taking on this task without legal advice may cause delays, claims, and counterclaims or even jeopardize the whole deal. Numerous laws tend to regulate these transactions since in a running business going for merger or acquisition, the interests of many are at stake, including the shareholders and the public at large, not overlooking that governmental institutions also take it seriously.
The following is a compilation of reasons why you need an attorney on your side while undertaking an acquisition or merger.
What is a merger
O’kelley & Thompson defines a merger as:
A merger is a transaction in which two or more corporations are combined into one of the corporations, which is generally regarded as the surviving corporation.
The surviving corporation takes all the constituent corporation’s liabilities, balance, and assets.
All their previous stocks are cancelled, and only the surviving corporation legally exists while all others legally cease to exist.
Competition Laws and the Need for an Attorney
Considering Canada’s merger enforcement guidelines, your Merger may be subject to Lessening of Competition laws. Clause 2.1 of the said guidelines says:
“The Tribunal can make an order when it finds that a merger substantially prevents or lessens, or is likely to prevent or lessen, competition.”
An attorney will guide you on how to avoid antitrust issues. Antitrust laws concern the prevention of monopolies and upholding fair competition in the market. In this regard, you will need a lawyer to tell you when these laws can be significant.
For example, such laws may not come into action when you conduct a non-horizontal merger. A non-horizontal merger is one in which the entity acquiring the corporation as a merger is not associated with the one being merged in terms of the type of product, nature of business, provision and supply or any other ways which could make the surviving company command wider share in the same market, thus diminishing competition.
Deciding the Mode of Merger
A lawyer can advise the corporation’s stakeholders for amalgamation regarding the mode of sale or Merger they should adopt. For example, a professional lawyer may recommend a phased merger to you. Notably, in such a merger, the amalgamation does not take place at once. While some part of the transaction is complete, the amalgamating corporation continues to receive bids. If any higher bid comes forward in front of the company, its board of directors is bound to consider it. If the board of directors approves it, the invested buyer can only proceed with a merger if he submits a bid greater than he previously submitted.
In this way, while the presence of a lawyer may cost you some money, it can also save you far more.
The WARN Act and Need for a Lawyer
Unfortunately, layoffs sometimes accompany acquisitions and mergers. When a grand layoff or plant closure occurs, specific Federal and provincial laws come into action. For example, the Worker Adjustment and Retraining Notification Act or WARN Act oversees layoffs. Some provisions of this law may apply to you when undertaking an acquisition or merger. However, not all acquisitions or mergers are subject to this act. Therefore, you may want to consult with a lawyer to know when they apply to you.
Some Secondary Roles Attributed to Attorneys and Their Associates
- Confidentiality Procedures
It would help if you had a lawyer to guide you about confidentiality procedures. Which employers should know about the transaction of Merger or acquisition? Should you use code names or code words? Are there any specific numbers or emails to which you should send information related to the deal? In all, a lawyer will be your man in the deal process.
- Assistance with Convincing Presentations
The lawyers will be able to help you make more informed presentations and prepare memoranda intended for the management or board of directors of your client company. The issues you may address can either be legal issues specific to your company or general regulations that apply.
- Assist in the Preparation of Proxy Statements
A proxy statement is a document encapsulating information about the agenda of the meeting in which stakeholders are to vote on the issue of Merger. It may be a legal requirement or the advice of the senior lawyer that such information be provided to the voting member. In preparing such statements, a lawyer’s associate can help you include the legal information a voter needs.
- Creditor-Related Legal Issues
According to Canada’s Guide on Amalgamating Business Corporations, possible creditors’ claims are also a concern for a corporation that is taking on a merger or acquisition. Because the law requires you to protect creditors’ interests, you will need a lawyer to guide you in fulfilling the legal formalities to traverse the legal complexities of possible credit-related claims. Notably, any creditor can bring a claim against you on reasonable grounds, and it can jeopardize the acquisition or merger process. Following are some of the technical issues that you will have to address with the help of your lawyer:
- Firstly, both corporations, the amalgamating corporation and the amalgamated corporation, must be able to pay their respective liabilities.
- To ensure that the process does not prejudice any creditor.
- The Assets of the amalgamated corporation are more than its liabilities.
- The creditors have received reasonable notice.
- Some Other Roles Performed by Attorneys in Merger and Acquisition:
- Compliance with Regulations
- Doing the necessary document filing with relevant departments
- Closing the Deal
- Attention to meticulous details
- Drafting, Reconsidering, and Negotiating the Agreements
- Protecting the Intellectual Property Rights during the Transaction
- Resolving Labor Issues in the transaction
- Analyzing Tax Implications
- Reducing the cost of acquiring information
- Verifying information
Bottomline
One can infer from the above discussion that without a lawyer, your acquisition or merger transaction can be in murky waters. So, saving some money on attorney fees may appear lucrative in the short run, but it can turn out to be costly in the long run.
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