IRISH UPDATE – Recent Trends in Corporate Migrations
Over the past decade a global trend of optimising holding company structures has developed amongst publicly traded multinational corporations. The strategic relocation of a holding company is, more often than not, conducted in tandem with a merger or other significant M&A transaction.
Ireland, alongside other jurisdictions such as the United Kingdom and Switzerland, has emerged as an attractive location, particularly for corporations seeking to expand into Europe.
There are often complex corporate, commercial, regulatory, operational and tax structuring implications associated with the re-organisation of a global business to a new jurisdiction. The legal mechanisms employed in implementing such relocations will be driven by a range of diverse factors. In this note we explore some of the more interesting structures employed in recent transactions.
COURT SANCTIONED SCHEME OF ARRANGEMENT
The migration of public limited companies incorporated in a common law jurisdiction into Ireland in conjunction with a merger of other significant M&A transaction is often carried out by way of a court sanctioned scheme of arrangement (“Scheme”).
A Scheme is a statutory procedure whereby a company can (with court approval) make a compromise or arrangement with its shareholders (or a class of its shareholders). A Scheme has a wide scope for implementation, and lends itself to two separate methods for effecting a takeover of an existing (foreign) parent company by a new (Irish) parent company:
Cancellation Scheme: involves the shareholders of the existing (non-Irish) target agreeing to all of their shares in the target being cancelled in return for an agreed cash consideration per share being paid by the acquiring (Irish) company to such shareholders. The acquiring company agrees to pay the cash consideration on the basis that the target will use the reserve created by the cancellation of its existing shares to issue an identical number of new shares to the acquiring company.
Transfer Scheme: involves the shareholders of the target company agreeing to transfer all of their shares in the target to the acquiring company in return for an agreed cash purchase price per share being paid to such shareholders.
Structures involving a Scheme have been favoured by companies from the UK, Cayman, Bermudian and other common jurisdictions with legislation which caters for the use of a Scheme. This structure, however, is not available to entities who originate in a civil law jurisdiction, and, as a result, European companies have typically used a variety of other structures in connection with a migration to Ireland.
PaddyPower (Ireland) and Betfair (UK) ‘merged’ pursuant to a Scheme sanctioned by the High Court of England and Wales under UK company legislation, creating a new Irish holding company with headquarters in Ireland, having its main listing on the London Stock Exchange, with a secondary listing on the Irish Stock Exchange.
CROSS BORDER MERGERS
The EU Cross-Border Merger (“CBM”) regime facilitates mergers between Irish companies and EU incorporated companies (and companies incorporated in EEA States that have implemented the EU CBM Directive). The CBM regime permitted true “mergers” for the first time under Irish law, providing a new mechanism for Irish companies to receive a transfer of assets and liabilities from companies in other European/EEA jurisdictions.
European limited companies that are capable of merger under national law can merge into Irish registered companies as a CBM, with the merging company dissolved without going into liquidation on completion of the merger. Shareholder approval is required, followed by court applications by the merging companies in their respective jurisdictions. A CBM into Ireland takes effect pursuant to an order of the Irish High Court. In a CBM all of the assets and liabilities, together with the rights and obligations (including commercial contracts, employees, legal proceedings) of the merging company transfer to the Irish surviving company by operation of law.
A key advantage of a CBM is that it provides a harmonised, streamlined and often familiar procedure for European companies, eliminating the need for individual transfer documents typical under the traditional business sale and purchase model.
Flamel Technologies SA (France), completed CBM into its wholly-owned Irish subsidiary, Avadel Pharmaceuticals plc, with Avadel surviving the merger as the public holding company.
In the UK, the merger of Technip and FMC Technologies into UK incorporated TechnipFMC was achieved by CBM.
In 2017 the High Court of England and Wales authorised the first “reverse cross border merger” whereby a UK parent company, Formenta Limited, was absorbed by its Italian subsidiary.
MERGER INVOLVING NON-EU ENTITY
Only entities incorporated in EU/EEA member states can avail of the CBM regime (see above), however “mergers” by non-EU entities into Irish companies have been structured as a merger agreement pursuant to which the non-EU entity contractually agrees to merge into a newly incorporated Irish public limited company, which becomes the surviving entity post-merger. As such a merger is not governed by legislation, it is not subject to a court order, but approval of the merger agreement by the shareholders is required.
This structure has been used in connection with the merger of a Swiss public limited company into an Irish public limited company as the surviving entity. Following Brexit, this structure may prove useful in connection with the merger of UK companies into Ireland, as it is unlikely to be able to avail of the CBM regime.
Pentair Ltd. (Switzerland), a public limited company entered into a Merger Agreement with its Irish subsidiary Pentair plc., thereby changing its organisation jurisdiction from Switzerland to Ireland. The surviving entity Pentair-Ireland remained subject to U.S. Securities and Exchange Commission reporting requirements and the applicable corporate governance rules of the NYSE.
For public companies incorporated in the EU a corporate migration may be achieved by using a Societas Europaea. The Societas Europaea or “SE” is a European public limited company formed under EU legislation. The SE was initially developed as a new “pan-European” form of company with the objective of enabling companies to operate on a cross border basis under a unified framework, without the obstacles posed by disparities in domestic company law in each member state.
One of the key advantages of an SE is its ability to relocate by moving its registered office to another EU member state without requiring dissolution or the creation of a new legal entity.
It was hoped that SEs would provide a cost efficient mechanism facilitating the restructuring of European businesses by reducing the administrative burden and legal costs associated with establishing in a new jurisdiction. Despite the perceived advantages of this supra-national structure, outside of Germany (where the SE has been more widely availed of, including amongst groups such as Allianz, Porsche, BASF), uptake across Europe has generally been low. The reasons for this may be due to the complexities in creating an SE, which cannot be incorporated on a stand-alone basis, but must be formed from a pre-existing limited liability entity (by merger, as a holding company or subsidiary, or by the conversion from an existing public limited company). Establishing an SE involves an employee consultation process, which at best can take up to several months to complete.
The SE remains an option for European companies considering a relocation within the EU. However, it is likely to be more attractive to those entities which are already registered as an SE and would therefore only be required to undergo the process of transferring its registered office. Other forms of existing companies, would be obliged to follow a two stage process; first, registration as a “Societas Europaea,” followed by a relocation of its registration to Ireland.
James Hardie Industries migrated its parent holding company to Ireland using a Societas Europaea structure.
EXCHANGE (TENDER) OFFER
Another possible structure for effecting a cross border migration is through an exchange offer whereby an Irish public limited company offers to acquire all of the issued securities of the non-Irish target in exchange for issue of new securities in the Irish plc, resulting in the Irish plc becoming the new parent company of the group.
An exchange offer made to shareholders of the non-Irish target will be subject to the form, content and timing restrictions of any local law takeover regime (where applicable).
Exchange offers have to date proved less popular, perhaps due to the 90% acceptance level required to secure full implementation of the merger/ acquisition.
The exchange offer structure was used in the re-domiciliation of Strongbridge (formerly Cortendo AB) from Sweden to Ireland, whereby a newly incorporated Irish plc acquired all of the issued shares of the original Swedish parent company. A prospectus which set out the terms of the exchange offer (approved by the Central Bank of Ireland, the Irish competent authority) was made available to all eligible shareholders of Cortendo AB. The exchange offer was conditional on its acceptance by 90% shareholders in the Cotendo AB. Following completion of the transaction, the original Swedish parent company became a subsidiary of the new Irish ultimate parent company.