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Mergers and Acquisitions in Luxembourg

Mergers and Acquisitions in Luxembourg

The process of mergers and acquisitions (or M&A) covers various aspects of the takeover of a legal entity by another legal entity in the areas of corporate finance, business strategy and financial operations management. The acquired business can maintain its integrity or be merged with the acquiring company. Mergers and acquisitions are usually used by legal entities in order to increase their business and their profit.

Types of mergers and acquisitions

There are various forms of mergers and acquisitions such as horizontal merger (acquisition of competitors in the same market) or vertical merger (acquisition of customers and / or suppliers) when the objectives are essentially strategic or productive and conglomerate which are groups of companies acquired but not necessarily from a productive point of view.

The main regulations regarding the mergers and acquisition in Luxembourg are provided by the Law of 19 May 2006 on the implementation of Directive 2004/25/EC of the European Parliament on takeover bids.

The provisions of this Directive are applicable the takeover bids for the securities of a company governed by the laws of a Member State of the European Union or those of the EEA where all or some of those securities are admitted to trading on a regulated market in one or more Member States but it’s not applicable to the takeover bids for securities issued by the central banks of the Member States.

Regulations for merges and acquisitions in Luxembourg

A number of general rules must be followed in the process of merger or acquisition of a Luxembourgish company, such as: 

 – all the holders from the offered company that have the same class of securities must be equally treated; 

– if a person acquires control of a company, the other holders of securities must be protected; 

– holders of securities of the targeted company must have sufficient time and information to be able to make a decision and make proper recommendations and observations regarding the changes that may interfere with the conditions of employment and places of business of the company after the M&A process; 

– the entity interested in offering securities shouldn’t create false information regarding the securities of the offered company, of the offering company or of any other company concerned by the bid in such a way that the increase or decrease of the securities price becomes artificial and the normal functioning market is distorted; 

– the entity interested in merger or acquisition must announce an offer only after ensuring that it can fulfil any cash contributions and after taking all reasonable steps to ensure the provision of any other type of counterparty; 

– the targeted company should not be obstructed beyond a reasonable time in its activities due to a bid for its securities, 

– the period dedicated to the process cannot, in any case, exceed six months from the day the decision to make an offer was made public by the bidder.

The Luxembourgish Financial Sector Supervisory Board is the competent authority for the control of any merger or acquisition. It performs its functions independently and impartially. The Supervisory Board is responsible for the control of an offer if the target company has the registered office in Luxembourg, and if that company’s securities are traded on a regulated market in Luxembourg.

The M&A process in Luxembourg 

The process of merger and acquisition begins when the decision is taken by the company members. The decision to make an offer must be made public by the target company immediately and the Supervisory Board must be informed of this offer before the decision is made public. Once the offer is public, the Board of Directors of the target company must notify the employees’ representatives of this decision; if there are no such representatives, the employees themselves must be notified. The company is required to draw up and publish in good time a document containing the information necessary for the holders of securities to make a decision. Before the document is made public, the buyer must submit, within ten working days after the day the offer was made public, the approval of the Supervisory Board. The latter must notify the buyer of its decision regarding the approval of the document within 30 working days of the presentation of the draft. The offer document must be written in Luxembourgish, French, German or English.

The offer document comprises the following information: 

  • the content of the offer; 
  • the identity of the targeted legal entity, it if it is a company, its type, name and registered office; 
  • the securities or, where appropriate, the classes of securities which are the subject of the offer; 
  • the consideration offered for each security or class of securities and, for mandatory bids, the method used to determine and pay the consideration; 
  • the percentage of the securities or the maximum and minimum amount of securities which the bidder undertakes to acquire; 
  • any conditions to which the offer its subject; 
  • the bidders intentions regarding the future business of the offered company and its intention to continue the employment of their staff and their leaders, including any material change in conditions of employment; 
  • the acceptance period of the offer; where the consideration offered by the bidder involves securities of any kind, information should be provided regarding these titles; 
  • information about the financing of the offer; 
  • the identity of persons acting in concert with the buyer or the offered company and, in the case of corporate bodies, their form, their name, their headquarters and their relationship with the buyer and, where possible with the offered company; 
  • the law that will govern contracts concluded between the buyer and the holders of securities of the target company and the competent courts which will handle any future disputes.

The offering company’s administrator should inform the representative of the employees, or the employees themselves if no representatives exist. The buyer should request their opinion especially regarding the impact of the purchase in the overall interests of the corporation and, more specifically, on employment.

The acceptance period of the offer cannot be less than two weeks or more than ten weeks from the publication date of the offer document.

Differences between mergers and acquisitions

Mergers and acquisitions are two different procedures that can occur at corporate level not only in Luxembourg, but in countries all over the world.

With that said, it is important to note that a merger occurs when one or more corporations are acquired or absorbed by another one, or when a new company is formed after the merger of the two entities.

One type of procedure for which formalities have been streamlined is the acquisition of one company by another holding 90% or more of the shares, units, and securities granting voting rights in the absorbed company.

A merger through incorporation of a new company is the process by which several companies dissolve themselves and then transfer all of their holdings with assets and liabilities to the new company they have formed, distributing shares or units in the new company to their owners.

If you need more information on Luxembourg M&A procedures, feel free to address our lawyers in Luxembourg.

Taxation of mergers and acquisitions in Luxembourg

There is generally no VAT rate applicable to mergers and acquisitions in Luxembourg because the transfer of assets is not considered a supply of goods or services to which the VAT rate can apply. There are also no stamp duties or duty land taxes applicable. A tax on the transfer of immovable property can apply, plus a transfer duty. 

The value of the acquired shares is not depreciated during the acquisition process. No stamp duty applies to the transfer of shares. Investors in Luxembourg can set up a holding company that will acquire shares in the targeted company and will control it.

Legislation on mergers and acquisitions in Luxembourg

The Takeover Law of May 19, 2006 and is amended versions which implements Directive 2004/25/EC on takeover bids (Takeover Directive), governs M&As in Luxembourg.

Additionally, the following laws, rules, and circulars either directly or indirectly provide for takeover offers:

  • the Law of 1 August 2019 (SRD II), implementing Directive (EU) 2017/828 amending Luxembourg Law of 24 May 2011 on the exercise of certain rights of shareholders in listed companies and Directive (EU) 2017/828 amending Directive 2007/36/EC on the encouragement of long-term shareholder engagement.
  • the Market Abuse Regulation, Regulation (EU) 596/2014;
  • the Market Abuse Law of May 30, 2018, which regulates financial instrument markets;
  • the Prospectus Law, enacted on July 16, 2019, relates to securities prospectuses.
  • the Transparency Law, a law enacted on January 11th, 2008, requiring issuers to be transparent.
  • the Law of 23 December 1998 establishing a financial sector supervisory commission, and which was amended by the Law of 21 July 2012.

The last law provides for the enablement of the Luxembourg Financial Supervisory Commission, CSSF.

Consequences of M&As in Luxembourg

When dealing with M&A in Luxembourg, both entities involved in the process will be subject to specific consequences. Among these are the dissolution of the absorbed business – in a merger through absorption acquisition, the firm being absorbed is disbanded and ceases to exist legally.

Both companies are dissolved in a merger by incorporation.

Transfer of ownership – the absorbing enterprise or the new business created as a result of the merger receives the holdings of the dissolved company, including its assets and liabilities. This transfer happens immediately; no formalities are required.

However, in order to be enforceable against third parties, the transfer of ownership of movable and immovable assets, industrial and intellectual property, and other real property other than securities must be done in accordance with the specific applicable legislation.

Our lawyers are also at your service if you want to immigrate to Luxembourg.

Support in M&A in Luxembourg

The procedures associated with mergers and acquisitions in Luxembourg are complex and lengthy, because they usually involve large companies. This is why, the legal aspects must be handled by specialist, such as Luxembourg lawyers who have dealt with such cases before.

If you need support in such cases, do not hesitate to request our services. Immigration to Luxembourg also enters the attention of our specialists.

For more detailed information about company mergers and acquisitions in Luxembourg as well as assistance for tax compliance, you may contact our lawyers Luxembourg.