A New EU Business Combination Form to Facilitate Cross-Border M&A : The Compulsory Share Exchange

Facilitating cross-border mergers and acquisitions has long been one of the objectives of European company law directives and regulations. This short essay shows that the current European legal framework unnecessarily raises the transactions costs to be incurred when the acquirer aims both to gain 100 percent of a company's shares and to preserve the acquired company as a separate entity. Higher transaction costs result from the limited availability of the squeeze-out right. Instead of proposing to extend such right, which would be politically contentious, the solution proposed here is for a directive to require member states to let companies execute acquisition transactions via a “compulsory share exchange.” This is a transaction form in which the acquiring and the target companies agree that the target shareholders will receive shares in the acquiring company in exchange for their shares. It is shown that a subset of the rules applying to cross-border mergers would be sufficient to regulate such transactions