The legal merger process between two companies consists of at
least four stages.
There are several reasons based on which a company adopts the
decision of merging with another firm, as well as different types
of merger. Mergers may be classified into vertical, horizontal and
A vertical merger occurs when a company performs a
"backward" or "forward" integration of its
activities, e.g. the acquisition of a vendor of the required raw
materials or a distribution company.
A horizontal merger occurs between two companies across the same
business line, e.g. the merger of two beverage companies.
Lastly, conglomerate mergers are those that take place between
firms engaged in different business lines, e.g., when a company
that sells food stuffs merges with another firm engaged in the
commercialization of cleaning products.
Mergers may consist in transactions under which a company is
absorbed by a second firm, in which case the absorbed company will
cease to exist legally-wise while the absorbing company survives.
This type of merger is known as "merger through
There is a second type of merger in which two firms decide to
integrate with each other in order to form a third company or a new
In these two types of merger, both the absorbed firm and the two
companies integrated with each other will cease to exist
legally-wise and the surviving company or the new legal entity, as
the case may be, will assume any rights and obligations of the
absorbed firm or of the merging companies upon completion of the
merger transaction in order to continue with their operations.
In Costa Rica, the legal procedure through which a merger is
implemented consists of several stages.
Generally, a due-diligence process is conducted before the
merger takes place. The purpose of this process is reviewing and
analyzing the status of the entities to be absorbed or integrated.
The main aspects that should be assessed are of a
commercial-corporate nature, and also involve contractual, labor,
tax and accounting issues.
As soon as the due-diligence process has been completed and once
the parties involved are aware of the status of their targets, a
second phase will begin which consists in the drafting and
negotiation of a merger agreement where both parties will resolve
upon the terms and conditions governing said merger (effective
term, price, conditions precedent for the closing of the merger
transaction, affirmative and negative covenants during the
execution term of the merger, non-compete clauses, the way in which
the merger will be executed, among others).
The third phase entails holding the relevant shareholders'
meetings of the concerned companies, where their shareholders must
approve the merger transactions as well as the terms and conditions
As for the fourth stage, an excerpt of the merger (decree) must
be published in a newspaper with nationwide circulation. This
notice must be published just once (it is commonly published in the
Following said publication, a 1-month period must be granted
allowing third parties to submit their objections to the
transaction, if any. Upon expiration of said term without receiving
any objections, the merger will be deemed effective after
registration with the Commercial Registry.
Before 2012, there was no prior merger control; however,
following the enactment of the amendment to the Law to Promote
Competition and Effective Protection of Consumers under Act No.
9072 dated September 20, 2012, and published in the Official
Gazette on October 5, 2012, a new article 16 bis was added
to regulate this topic. The analysis of the situations in which the
corresponding merger will take place is very important, as to
determine if such merger falls into the provisions set forth in
said article and, therefore, if such merger will require or not the
filing of an application to request the prior authorization from
the Commission to Promote Competition (COPROCOM) or otherwise being
rendered null and void.
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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