Mergers & Acquisitions Comparative Guide 2022

• Published date: 31 October 2022
• Subject Matter: Corporate/Commercial Law, M&A/Private Equity, Corporate and Company Law, Shareholders
• Law Firm: Appleby
• Author: Mr Matthew Ebbs-Brewer and Katie Blundy

1 DEAL STRUCTURE

1.1 HOW ARE PRIVATE AND PUBLIC M&A TRANSACTIONS TYPICALLY STRUCTURED IN YOUR JURISDICTION?

At present, a substantial portion of the entities formed in Bermuda are companies limited by shares incorporated under the Companies Act 1981, as amended. As such, the discussion in this Q&A focuses primarily on M&A transactions involving Bermuda companies.

M&A transactions in Bermuda typically proceed by way of statutory merger, amalgamation or scheme of arrangement under the Companies Act. The Companies Act also provides for compulsory acquisitions ('squeeze-outs') of minority shareholders in connection with M&A transactions structured by way of direct tender offer to the target's shareholders.

If the target is a regulated entity – for example, under the Insurance Act 1978, as amended – the specific legislation applicable to such entities may also be relevant to the transaction and its structure.

The regulatory authority responsible for registering a merger or amalgamation pursuant to the Companies Act is the Bermuda Registrar of Companies (RoC). In addition, the Bermuda Monetary Authority (BMA) may:

• be required to give permission from an ultimate beneficial ownership and exchange control perspective in the event there is an issue or transfer of shares in connection with the M&A transaction, unless a general permission already exists and/or
• if such target or subsidiary (as applicable) is a BMA regulated entity, be required either to be notified of or to provide its approval for the change of control for the target or parent entity (as applicable).

1.2 WHAT ARE THE KEY DIFFERENCES AND POTENTIAL ADVANTAGES AND DISADVANTAGES OF THE VARIOUS STRUCTURES?

Statutory merger/amalgamation: The Companies Act provides for both mergers and amalgamations of Bermuda companies, in both cases with other Bermuda companies or foreign corporations. Pursuant to a merger, one or more companies are merged with and into a single company, which becomes the surviving entity. In the case of an amalgamation, one or more companies join together to create an entirely new company. The key features and advantages and disadvantages of a merger and amalgamation include the following:

• Flexibility: Amalgamations and mergers are flexible structures allowing for the parties to structure the transaction in a way that reflects the commercial deal while allowing the Bermuda portion of the transaction to align and harmonise with the requirements of other jurisdictions. 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 among 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.
• Approvals: Neither an amalgamation nor a merger requires the approval of the Bermuda courts (unlike a scheme of arrangement) or the approval of the Bermuda company's creditors. The Companies Act requires shareholder approval of the amalgamation or merger agreement and provides all classes of share with the ability to vote. While the Companies Act sets a default shareholder approval threshold of 75%, it does allow for a company's bylaws to set a lower approval threshold.
• Effectiveness: Once an amalgamation or merger has been approved by the requisite majority of shareholders, and subject to the satisfaction of any other conditions, the amalgamation or merger must be registered with the RoC in order to become effective. The effective date will be evidenced on the certificate of amalgamation or merger issued by the RoC. Where required by the parties – for example, in the context of a cross-border transaction with multiple steps that need to be effected – an effective time can be included in the certificate.
• Dissent rights: The Companies Act provides shareholders that do not vote in favour of the amalgamation or merger with the right within one month of the notice regarding the general meeting in respect of the amalgamation or merger, to apply to the Bermuda courts to appraise the fair value of their shares. In such cases the dissenting shareholders are entitled to be paid the fair value of their shares as appraised by the court, but cannot block the amalgamation or merger itself. Additionally, dissenting shareholders cannot bring class actions in respect of their appraisal rights and must proceed on an individual basis. All shares carry the right to vote in an amalgamation or merger (and exercise dissent rights) notwithstanding that they would otherwise not be entitled to do so.

Tender offer: Tender offers may be used in both friendly and hostile transactions. The Companies Act does not prescribe the requirements of a tender offer. It is open for a potential acquirer, subject to compliance with the 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 the target. The key features and advantages and disadvantages of a tender offer include the following:

• Offeror: A company (whether incorporated in Bermuda or not) can make an offer to the target's shareholders to acquire all of their shares in the target.
• 90% squeeze-out: In the event that the offer reaches 90% approval, the purchaser has certain rights and obligations under Section 102 of the Companies Act regarding the remaining minority shareholders. The key features are as follows:
• • Compulsory transfer: The purchaser may require the remaining 10% minority to sell their shares on the terms of the offer where:
  • • there is a scheme or contract for the transfer of shares or any class of shares in a Bermuda company to another company (typically by way of offer to all shareholders);
    • the offer is approved by not less than 90% in value of the shares subject to the offer (and so excludes shares held or contracted to be acquired prior to the date of the offer by the purchaser or its subsidiaries) within four months of the offer being made; and
    • one month's notice is given to dissenting shareholders (ie shareholders that refuse the offer) that the bidder wishes to acquire their shares and such dissenting shareholders have not applied to the Bermuda courts for an order against the acquisition.
  • Compulsory acquisition: If the purchaser acquires at least 90% in value of the target's shares (and has not previously implemented the compulsory transfer provisions described above) the purchaser must, within one month of such acquisition, provide the remaining 10% shareholders with notice of their 90% acquisition. The remaining 10% shareholders may then, within three months, require the purchaser to acquire their shares on the same terms as they acquired the 90%.
• 95% squeeze-out: Section 103 of the Companies Act provides that holders of 95% or more of the shares of a company may compulsorily acquire the remainder. The principal difference between Section 103 and Section 102 is that a dissentient in Section 103 can only apply to court to appraise the value of its shares. It cannot seek to vitiate the compulsory acquisition. The English case law on equivalent statutory provisions will be persuasive in the Bermuda courts. English case law is such that a minority shareholder will ?nd it very dif?cult to persuade the court that an offer accepted by a majority of 95% is not reasonable and fair.

Scheme of arrangement: 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 it 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-quarters 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. If it does so, the scheme becomes binding (subject to delivery of the requisite order of the court to the RoC) upon all of the company's members (or any class of them, as the case may be). The key features and advantages and disadvantages of a scheme of arrangement include the following:

• Flexibility: A scheme of arrangement need not fit into any of the existing business combination methods provided in the Companies Act (eg, merger or amalgamation), and can include any or all of such methods features, allowing for great flexibility for both target and purchaser to structure the commercial terms of the acquisition and their implementation.
• Approval threshold and binding nature: A scheme of arrangement requires a lower approval threshold of 75% of the value of the members or class of members, as applicable, versus the 90% or 95% required for a squeeze-out. Additionally, once sanctioned by the court and filed with the RoC, a scheme of arrangement is binding on all of the arranged company's members.
• No dissent rights: Unlike a merger or amalgamation, the Companies Act does not provide members with dissent rights in respect of a scheme of arrangement.
• Timing: Being a court-sanctioned process, schemes of arrangement often take longer than tender offers, mergers or amalgamations.

1.3 WHAT FACTORS COMMONLY INFLUENCE THE CHOICE OF SALE PROCESS/TRANSACTION STRUCTURE?

Transaction structures are typically driven by factors that influence the speed and approvals necessary to close the acquisition. The primary drivers of these matters are:

• the rules of the stock exchange on which the acquirer and/or target are listed, if any, and the applicable securities laws in such jurisdiction; and
• approval thresholds and other requirements contained in the Companies Act or the target's bylaws. For example, the Companies Act provides that the default...