I OVERVIEW OF RECENT M&A ACTIVITY
Following an extremely challenging year in 2009, with historically low levels of M&A activity, Ireland in 2010 showed a marked recovery despite issues remaining with financing and severe fiscal retrenchment. According to corporate deal activity reports and surveys, there were 197 deals involving Irish companies in 2010 with a total value of €10.3 billion. This compares with 134 deals and a total value of only €3.4 billion in 2009. Despite reduced certainty surrounding the stability of the banking sector and the anticipated outcome of stress tests, the market's response in the first quarter of 2011 was positive with 57 deals and €921.6 million aggregate value. This represented a rise in M&A activity in the first quarter for the first time in six years when compared to the first quarter of the previous year.1
Buyers were predominantly trade players who took advantage of the scarcity of financial buyers and the low valuations of competitors to acquire strategic bolt-ons and consolidate their respective marketplaces.
The four largest deals of 2010 accounted for €7.1 billion – close to 70 per cent of total deal value. The largest of these transactions was AIB's disposal of its 70 per cent stake in Bank Zachodni WBK SA for €3.1 billion. Ardagh Glass Group plc acquired Impress Holdings for €1.7 billion, ESB acquired Northern Ireland's electicity networks from Viridian for €1.41 billion while Aryzta secured the acquisition of two US companies, Fresh Start Bakeries and Great Kitchens, for a combined €902 million.
Excluding these large deals, the underlying quarterly deal values in 2010 were €505 million, €787 million, €1,067 million and €1,167 million respectively. This shows a consistent level of improvement considering the €993 million and €988 million of deal value in quarters three and four of 2009, following the record low of €271 million recorded in quarter two of that year. In terms of volume, 2010 averaged 50 deals per quarter in contrast with 36 per quarter in 2009. The first quarter of 2011 accounted for a deal value of €921.6 million. This showed a fall from a somewhat inflated €2.58 billion (by ESB's €1.41 billion acquisition of NIE) in the last quarter of 2010 but represents a significant jump in quarter one deal value when compared to the previous year.
II GENERAL INTRODUCTION TO THE LEGAL FRAMEWORK FOR M&A
The main statutory framework in relation to mergers and acquisitions in Ireland is comprised of the Companies Acts 1963 to 2009 ('the Companies Acts'), the Irish Takeover Panel Act 1997 ('Takeover Act') and takeover rules introduced pursuant to the Takeover Act ('the Takeover Rules'), which together with relevant provisions of contract law, form the primary legal basis for the sale and purchase of corporate entities. The Takeover Rules provide for regulation of takeovers of Irish public companies by the Irish Takeover Panel, which has been designated as the competent authority for the purposes of Directive 2004/25/EC on takeover bids.
The merger control rules of the Republic of Ireland are contained in the Competition Act 2002, as amended. The rules do not generally apply to mergers in relation to which the European Commission has exclusive jurisdiction under the EU Merger Regulation.
III DEVELOPMENTS IN CORPORATE AND TAKEOVER LAW AND THEIR IMPACT
The National Assets Management Agency Act 2009 was enacted as part of a strategy to stabilise and strengthen the Irish banking system. The Act established the National Assets Management Agency ('NAMA') , the purpose of which is to acquire, manage and realise performing and non-performing land and development loans (and associated loans) on the balance sheets of the five participating credit institutions. NAMA will purchase loans with a book value of €77 billion for approximately €54 billion. NAMA has extensive and far-reaching powers to acquire, manage and realise eligible bank assets and the underlying property and property-related assets upon which such loan assets are secured. Participating institutions are in the process of transferring loan assets to NAMA and the realisation of these assets should translate to an increase in deal volumes. However, this has not happened to any material extent as yet.
One of the purposes of NAMA is to free up credit for the banks and encourage lending. However, the memorandum of understanding entered into between the EU/ IMF and the Irish government in December 2010 has bound the Irish government to deleverage the balance sheets of the banks by addressing their loans-to-deposits ratio and downsize the banking sector. As a result, the banks remain reluctant to provide credit. Pillar A of the new Companies Bill was published in May 2011. As well as consolidating existing law in the area, the Bill will make important changes which will make it easier and cheaper to start and run a company. The legislation published on 30 May 2011 contains all provisions relevant to the private company limited by shares ('CLS'), which accounts for over 90 per cent of companies in Ireland. This company type will now be put at the centre of Irish company law, and important reforms will be made to the way this company type operates:
a a CLS will be allowed to have only one director;
b a CLS will only be required to have one document in its company constitution, and the Act provides for a default document to apply in all cases except where the company changes this;
c a CLS will have the same legal capacity as a natural person, reducing the necessity to prepare long company constitutions, and reducing legal disputes caused by the ultra vires doctrine; and
d a CLS will no longer be required to have a 'physical' AGM every year – it will be possible to do this by correspondence.
Other changes include an exhaustive listing of the duties of directors, previously contained in case law, and of all criminal offences under company law.
New Rules of the Superior Courts, which were effective from 9 June 2010, provide new procedures in respect of proceedings under the European Communities (Cross Border Mergers) Regulations 2008, the European Communities (Mergers and Divisions of Companies) Regulations 1987 and the European...