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by Julius Melnitzer
Until recently, the United Kingdom had no process by which companies could engage in a true merger, which is to say the absorption as opposed to the acquisition of one company by another. The arrival of the Companies (Cross-Border Mergers) Regulations 2007 in December 2007, however, has made mergers possible in the cross-border context.
The Regulations implemented the European Directive on Cross-Border Mergers of 2005, which allows companies incorporated in any European Economic Area (EEA) country to be merged with a company or companies incorporated elsewhere in the EEA. The Directive applies to three types of merger: merger by absorption, in which one or more companies in EEA states are absorbed by companies in another EEA state; merger by absorption of a wholly owned subsidiary, in which an EEA company absorbs subsidiaries in another EEA state; and merger by formation of a new company, in which a new company absorbs two or more companies in different EEA states.
But the uptake has been slow, with nary a single transaction utilizing the new procedure for more than a year after it came into force. And while companies did start to use the Regulations early in 2009, there have been only about a dozen cases to date.
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