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 conglomerates.

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 absorption".

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 legal entity.

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 thereof.

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 Official Gazette).

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.