The High Court has confirmed that the court does have jurisdiction to make a conditional order approving the completion of a cross-border merger under the Companies (Cross-Border Mergers) Regulations 2007 (the Regulations). In Re International Game Technology Plc (IGT Plc) and GTECH SpA (GTECH)  EWHC 717 (Ch), the court held that it could make an order that stated that the merger would take effect at a specified time on a specified date, subject to:
- it being agreed that all conditions in the merger agreement had been satisfied or waived; and
- the merger agreement not having been terminated.
The cross-border merger was part of a larger transaction that involved the merger of two separate businesses being GTECH, an Italian company whose shares were listed on the Borsa Italiana, and International Game Technology Inc (IGT Inc), a United States company incorporated in Nevada, whose shares were listed on the New York Stock Exchange. The transaction involved several steps including the cross-border merger between IGT Plc, an English company, and GTECH and a merger between IGT Inc and a subsidiary of IGT Plc under Nevada law. The end result of the transaction was that IGT Plc would be the holding company of a group of companies comprising the businesses of GTECH and IGT Inc.
The judge had to decide whether the court had jurisdiction to approve a conditional order, meaning that if the conditions were not satisfied by the date specified in the order, the order (and the cross-border merger) would not come into effect. The judge found that the court does have jurisdiction to make a conditional order. This was on the basis that there was nothing in the Regulations or the underlying Directive which appeared to restrict the ability of the court to make such an order, rather the underlying Directive appeared to support the view that a conditional order could be made. The purpose of the Directive is to “facilitate cross-border mergers and remove obstacles to their implementation” and it appears to anticipate that companies will be free to agree other terms beyond the common draft terms of merger.
The judge then went on to look at how the court should exercise its jurisdiction to make an order subject to conditions. One of the issues was whether a court should refuse to approve a conditional order pursuant to the principle that the court will do nothing in vain i.e. if the conditions are not satisfied, the order made by the court will have been pointless. Referring to relevant case law, the judge found that “the correct principle is that unless the Court is satisfied that its order would be futile, conditionality is merely one of the factors which the Court takes into account in exercising its discretion”.
The factors that influenced the exercise of the court’s discretion in this case included the following:
- the merger agreement contained an obligation on all parties to use their reasonable endeavours to complete the merger so neither party could freely walk away;
- given the nature of the conditions (including conditions relating to competition and regulatory clearances, no injunctions restraining the transaction, no breach of warranties and representations and delisting of the GTECH shares in Italy), this was not a situation where a third party had the right to decide whether or when the merger should come into operation nor a case in which the conditional order allowed the terms of the merger to be varied in some material respect;
- the judge had a “high degree of confidence” that the court was not acting in vain due to: statements made by the directors of IGT Plc and GTECH; the fact that relevant funds had already been made available under an escrow arrangement; and the fact that a confirmation letter indicating that some of the conditions had been satisfied or waived had been signed by both parties and a draft letter (expected to be signed a week before the merger was due to take effect), which was intended to confirm that all the then outstanding conditions had been satisfied or waived, had also been produced; and
- one of the termination rights entitled IGT Inc to terminate in the event that the conditions were satisfied but GTECH failed to effect completion at the contracted time and this right endured after the merger took effect, thus leaving a theoretical possibility that the overall process could break down half way through. However, the judge found that the chances of the termination right being exercised in the “very short” period between completion of the two transactions was “vanishingly small” due to the fact that IGT Inc’s termination right was only exercisable in highly limited circumstances.
Impact – the case confirms that the court does have jurisdiction to make an order under the Regulations approving the completion of a cross-border merger that is subject to conditions, provided that the court considers that it is appropriate to do so in the exercise of its discretion. The judge noted that in exercising its discretion, the considerations set out in the recent Re Lombard Medical Technologies Plc  EWHC 2457 (Ch) case on conditional schemes of arrangement (click here for more information) were equally relevant to conditional cross-border mergers.
Background – The Regulations provide a framework whereby UK companies can engage in cross-border mergers with companies from other EEA states. A cross-border merger either involves one existing company absorbing one or more other existing companies (a merger by absorption) or two or more companies merging to form a new company (a merger by formation of a new company). The Regulations implement the Directive on Cross-Border Mergers of Limited Liability Companies (2005/56/EC) (the Directive). It was noted that the case was the first time that the English courts had considered a cross-border merger in a proper mergers and acquisitions context rather than as part of an intra-group reorganisation.