MERGERS
Definition The term “merger” is defined in section 2 of the Competition Act, 2010 (the Act) as “any acquisition of shares, business or other assets, whether inside or outside
of Kenya, resulting in the change of control of a business, part of a business or an asset of a business in Kenya.
Mergers are voluntary
Process
(s 934 - 947 CA)
Research & 1. S 937: directors to prepare, adopt and circulate to members a report/statement explaining the effects of the merger and stating any material interests of the directors in the proposed transactions.
Resolutions 2. Directors the convene a meeting of members to vote for the proposed transaction. Merger must be approved by members representing at least 75% value of each class of shares in each merging
company
Letter of A letter of intent (LOI) can be looked at as a document that sets [Date]
Intent/Term Sheet out the offer and acceptance of the parties to merge [Name of Recipient]
[Company Name]
LOI provides basics for final deal
- Purchase price [Address]
- Closing date
- Length of exclusivity etc. Subject: Letter of Intent to [purpose]
Dear [Name of Recipient],
The purpose of this letter is to outline the intent of [company name] and [company name] to [State the intent. For example: to merge,
make an acquisition, form a partnership, etc. The bulk of your letter will be written here as you state the specifics of your intention].
This letter of intent is subject to the following terms:
I. Due Diligence – Each party will have the right to review all financial and legal ramifications of the intended transaction before
entering into a final contract.
II. Final Agreement – If this letter of intent is acceptable, both parties will enter into a separate, final agreement that is inclusive
of the terms and specifics contained herein.
III. Legal Council – At any time, either party shall have the right to seek independent Legal Council regarding this letter and/or any
associated communication arising from this correspondence.
IV. Expenses and Liability - Any expenses arising from this letter of intent will be the responsibility of whichever party they are
incurred by. Neither party shall in any way be held liable for the other for any cause.
Prior to the execution of a formal agreement, neither party will make a public announcement regarding this transaction, nor offer any
comment as to the specifics of the transaction. Information may be communicated internally for the purposes of working on a final
agreement, but third parties may only be privy to this information if consent is given.
This letter of intent shall be considered to be non-binding. A binding contract shall be created at a later date if necessary.
Sincerely,
_________________________
[Name]
[Title]
[Contact information]
Confidentiality & Confidentiality is crucial
NDAs - It is important to secure NDA before negotiations
Exclusivity An exclusivity agreement prevents a target entity from Normal Contract format
Agreement negotiating a sale with other potential acquirers during an
agreed upon period of time. T Main clauses
1. The Company hereby agrees that, for a period of forty five (45) days from the date hereof (the “Applicable Period”), it shall
The agreement gives confidence to the acquirer that the target not,permit any other Takeover Proposal
is serious a 2. Termination
3. Termination fee
Sign out
See - https://www.sec.gov/Archives/edgar/data/318291/000119312506130514/dex991.htm
Due Diligence Diligence covers areas like Due Diligence Questionnaire
• Financial- balance sheets, financial reports, audit reports • A due diligence questionnaire (DDQ) is a list of frequently asked questions required by the merging companies to effectively undertake
• Legal- Intellectual Property, contractual obligations, legal the merging process and to mitigate risk. It can identify early risks and red flags, allowing the buyer to decide if it
encumbrances, legal suits would be advantageous to proceed.
• Commercial- Products and services offered, target market
Due Diligence Report
Due diligence process A due diligence report is then prepared and is subject to discussions by the executive team who are evaluating the transaction and is a
• Preparation of a checklist requirement for mergers
• Collection of necessary information- meetings, questionnaires,
searches Key areas to check
• Analysis of information collected •Owners/Directors/Shareholders
• Preparation and presentation of a due diligence report • Capital structure/value of company
• Financial Records
• Assets/Liabilities
• Credit agreements, loan agreements, and lease agreements.
• Security agreements, mortgages, and other liens,
• Guarantees by the Company of third-party obligations,
• Investments in other companies or entities/Acquisitions of companies or assets.
• All material contracts, agreements, and policies.
• Patents, copyrights. Trademarks, licenses or assignments
• Employees welfare/Integration
• Conflicts of Interest
• Other sector specific regulations e.g Banking, Insurance
• Sources of funding.
• Impact of merger on competition
Disclosure Letter A key document in any acquisition which is prepared by the Contents
seller in the transaction and includes general and specific 1. The buyer will usually agree that the seller will not be liable for liabilities disclosed in the disclosure letter.
disclosures regarding the seller's business that are important in 2. a) the general disclosures consisting of information which would be available to any buyer searching a publicly available
the due diligence process for the buyer register, and
3. (b) specific disclosures, linked directly to the company at hand.
The disclosure letter is an important part of the due diligence
process.
Later on the seller can be liable for material facts that should
have been disclosed if they later they are held to be of
importance to the acquisition
Draft Merger S 934 (1): Directors of merging companies to prepare and adopt a draft proposal of terms - include particulars in s 934 (2); failure = offence - s 935 (3)
contract Drafting of contracts covering
● Method of payment
● Guarantees
● Power sharing
● Rules that will govern the companies: Transmissions, governing bodies, decision making
● How to retain key people in the company
File with CAK Notice with CAK
● All undertakings to a merger are required to notify the Authority of their proposal in writing.
● Some of the documents required to accompany the merger notification form are
○ a signed copy of sale and purchase agreement;
○ audited financial statements for the last three years;
○ latest annual reports;
○ board resolutions and related documents regarding the merger decision; and
○ a breakdown of employees.
● The statutory timeline set for merger determination is 60 days after the Authority receives all information.
● CAK may request for further docs
CAK then approves or rejects merger.
Take over
Def The Companies Act, under s 584, defines Takeover as making an offer to acquire shares.
It can be voluntary and involuntary.
Law An offer is a takeover if - s 584 (1-3)
o Offer is made to acquire all the shares or all shares of a class; and 90%
o The terms of the offer are the same for all the shares/shares of a class
Provisions under the Capital Markets (Take-overs-and-mergers) Regulations-2002 4-8 For procedure
Defences to
Take overs 1. A competing bid from a strategic investor is often the most attractive form of anti- takeover defence.
2. Target companies may also make counter-offers to purchase the shares at a premium this includes a company buying a sizable portion of its own shares, which prevents the acquiring company
from purchasing the shares and becoming the majority owner.
3. A target entity may modify its capital structure and force a re-evaluation of the deal's attractiveness or seek white knight offers from other players in the relevant industry.
4. d. Further anti-takeover Defences may be prescribed in a listed company's articles of association.
5. Targets may persuade the existing shareholders to reject the offer based on the independent adviser's evaluation.
Rights of The Business Laws Amendment Act 2020 amended the Companies Act to reinstate the threshold for “squeeze-ins” and “sell-outs” to 90%. The previous threshold of 50% was impractical and not in line with
minorities the global practice.
Procedure
