Italy: Mergers & Acquisitions in Italy

Last Updated: 15 October 1998

Despite numerous problems such as political instability, a weak lira and the ever-increasing budget deficit, Italy's economy is giving off positive signs. This is partly due to the general worldwide economic recovery, but the weak lira allows Italian products to be sold abroad at extremely competitive prices. In the light of the country's current political instability, one would have expected to see a reduction in the level of foreign investment. However, despite the predictions of many international analysts, this has not proved to be the case. On the contrary, foreign investors continue to invest in Italy, they have also increased the level of such investment. If anything, a change can be detected in the type of target chosen for such investment. The majority of recent investment by non-residents is being made in small to medium sized companies, the attraction of which seems to lie in their technology, know-how and their position in the market.

Legal structures
Although a number of differing legal structures are available for carrying out business in Italy, the most common practice is to use one of two types of limited liability company. The most frequently used of the two is the Societa per Azioni (SpA), as opposed to the Societa a Responsabilita Limitata (SRL). Financially speaking, the SPA can be said to be the more significant of the two forms. It requires a greater minimum corporate capital (L200m) than the SRL (L20m), its shares are more marketable (unlike an SRL, its shares can be traded on the stock market) and it may issue bonds. Whilst the SpA issues shares, the SRL is treated as a single unit, with individual investments being represented by quotas, being the equivalent of the fraction of the capital value of the company that the investment constitutes.

The procedure for disposal differs for shares and quotas. A transfer of shares may be effected by the transferor endorsing the name of the purchaser and the date of the transfer on the share certificate. Italian law also requires verification of the transferor's signature before a Notary Public, an officer of a SIM (investment services company) or a bank. Although this completes the transaction between the parties, the transfer will not become binding on the company until the transfer has been duly registered in the shareholders' register. In contrast, under Italian law a transfer of quotas is carried out by way of a contractual document executed before a Notary Public. Again the transaction is completed on registration of the contract in the quotaholders' register.
In the case of both a disposal of shares and quotas, the question of capital gains tax must be dealt with at the time of the disposal. The vendor (whether an individual or a corporation) being under the obligation either to make immediate payment of the tax due on the gain realised from the sale, or to undertake to declare such gain on submission of the tax return for the appropriate year.
For corporate acquisitions, it has become increasingly common in Italy to adopt the standard type of share purchase agreement used in Anglo-Saxon countries containing the appropriate representations and warranties on the part of the vendor. The use of this form has become widespread in Italy because under Italian law, only a guarantee as to good title to the shares is implied. Further legal regulations apply to acquisitions of companies listed on the Italian Stock Exchange. Although not covered in detail here, a purchaser acquiring, directly or indirectly, more than 2% of the equity of such a company is required to inform the company and the National Commission for Companies and the Stock Exchange (CONSOB). Further notice must also be given where there are variations in shareholdings of more than 1%. For companies listed on the stock exchange or on the over-the-counter market, Law No. 149 of 18 February 1992 imposes an obligation on parties intending to acquire control of such companies to proceed by way of a public take-over bid.

Law Decree No. 22/1991, which implemented EC Directives 78/855 and 82/891, amended the provisions of the Italian civil code relating to mergers and introduced a compulsory procedure (dealt with in articles 2501 to 2504 of the civil code). In Italy, merger transactions can be carried out in one of two ways. Either one company absorbs one or more other companies, which then cease to exist (merger by absorption), or two or more companies merge to form a single new company (merger by consolidation). The former is the method most commonly adopted, although the procedure is the same in both cases.
A merger starts with the preparation of a number of documents by the board of directors as follows:

(i) A description of the merger plan which indicates the main aspects of the proposed merger, details of the companies involved, the anticipated consequences of the merger and the proposed exchange ratio between new and old shares.
(ii) A statement of assets and liabilities of the companies participating in the merger as at a date within the preceding four months.
(iii) A report of the directors on the merger, including on the proposed exchange ratio.

In addition, a report must also be submitted from a court-appointed expert dealing with the adequacy of the exchange ratio proposed. This report is compulsory unless the entire share capital of the company being absorbed is owned by the absorbing company. For listed companies, additional requirements are imposed, for instance an opinion of a firm of auditors on the proposed exchange ratio must be obtained and certain information must be supplied to CONSOB.
The above documents must then be deposited with the companies registry having jurisdiction over the place where each company has its registered office, at least 30 days before the date of the extraordinary general meeting (EGM) which must be called on the merger resolution. The merger plan must also be published in the Official Gazette at least one month before the meeting.
At the EGM, the shareholders can either accept or reject the merger plan, but have no power to amend it in any way. On approval, the resolution must be subsequently ratified by the court, registered with the appropriate companies' registry and published in the Official Gazette. At this stage, there is a two-month delay during which the creditors of the companies involved are given the opportunity to lodge objections to the merger with the court. However, this two month period can be reduced or avoided if all creditors consent, if all dissenting creditors are paid in full or sufficient funds are deposited with a bank, or if the companies involved in the merger give appropriate guarantees.
The court is given wide discretion in dealing with dissenting creditors and may order guarantees or the resolution of any valid objections to the merger. On expiry of the two month period (or sooner as applicable), the merger is completed and legally implemented by the execution of a formal deed of merger before a Notary Public and registration with the relevant companies registry.
Closer regulation and supervision applies where the merger concerns banks or the insurance industry.
The 1991 law relating to mergers also regulated the procedure relating to de-mergers of companies (scissione), which were previously not specifically regulated as separate transactions. The procedure basically follows that of merger transactions.

Competition Law
Italian competition legislation, contained in Law 287 of 10 October 1990 was intended to supplement EU competition law. It was therefore drafted to cover only those situations which were not covered by EU law.
As far as mergers and acquisitions are concerned, the most relevant aspect of the Italian Competition Law is that relating to transactions resulting in a concentration of market power, insofar as the term concentration applies to a merger between two or more entities; to the situation where one or more parties, which already control another entity, acquire control (as defined), directly or indirectly, of a third entity; or where two or more entities consolidate through the creation of a new entity.
If certain conditions are met (namely if the aggregate domestic turnover of all the undertakings involved exceeds an annually determined figure (currently L586bn), or if the domestic revenue of the target company exceeds another annually reviewed figure (currently L58.6bn) then advance notice of the transaction must be given to the anti-trust authorities and clearance for the transaction obtained.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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