Preparatory reports

We now have a merger proposal. The governing bodies have an agreement and have neatly filed their merger proposal at the Registry. Third parties have been warned but now they have to sell their story within their own company. To do this, the governing bodies of all the companies involved in the merger prepare a detailed written report. This is actually a document in which the governing bodies will justify to their own General Meeting why this merger is useful. This report contains the following elements, among others:

• the state of the assets and liabilities of the companies to be merged;
• the desirability of the merger from a legal and economic point of view;
• the conditions of the merger and the way in which it will take place;
• the consequences;
• the methods by which the share exchange ratio has been determined, the relative weight attached to each method and the valuation arrived at by each method;

•  any difficulties which have arisen; 
• and finally an explanation and justification of the proposed exchange ratio.

In addition, each of the companies involved in the merger must have an auditor or, failing that, an external accountant appointed by the administrative body to draw up a written report on the draft terms of merger. This report shall state in particular whether or not the exchange ratio is relevant and reasonable. Have the right methods been applied? Have they been applied correctly? Such report shall state at least:

• which methods have been used to determine the proposed exchange ratio; 
• whether these methods are appropriate in the case in question and what valuation each method used produces;
• the opinion of the statutory auditor on the relative weight given to this method in determining the value taken into consideration and the particular difficulties of this valuation

As in the case of the written report of the management bodies, this may also be deviated from in a similar manner. This is the case, for example, when the shareholders agree and rely on the value put forward by the administrative body. Then you do not have to incur this cost.