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Abstract

This report aims at analysing the implications of changes in European Corporate Law on cross-border

mergers, with particular focus on strategic management’s decision on intangible assets of the integration

stage. It consists of two parts, (1) an analysis of the implications of changes in European Corporate Law,

and (2) an assessment of their impact on post merger integration. Part 1 is about the European Court of

Justice’s jurisdiction and its implications on German Corporate Law: It explores how European Law is

influencing and thereby changing national law. Having analysed the effect of its rulings on - until

recently in continental Europe prevailing - seat theory, I carefully analyse the subsequent developments

and trends, including reform of the German Limited Liability Company Act (MoMiG), competition of

legal forms, opportunities offered by recently introduced supranational legal forms with particular focus

on the Societas Europaea, and EU merger directive with its influence on the German Transformation Act.

Part 2 not only critically evaluates prevailing merger integration theories, it also reflects on the

opportunities the afore-mentioned changes in European Corporate Law offer to successful post merger

integration. Hence, I analyse and further develop Jansen’s 7c model and educe a strategic plan.

German Translation. Dieser Bericht zielt darauf ab, die Auswirkungen der Änderungen im europäischen

Gesellschaftsrecht bei grenzüberschreitenden Fusionen zu analysieren, insbesondere im Hinblick auf

Entscheidungen des strategischen Managements bezüglich der immateriellen Werte in der

Integrationsphase. Er besteht aus zwei Teilen, (1) einer Analyse der Auswirkungen der Änderungen im

europäischen Gesellschaftsrecht, und (2) einer Beurteilung ihrer Bedeutung für die Post Merger

Integration. Teil 1 behandelt die Rechtsprechung des Europäischen Gerichtshofs und deren

Auswirkungen auf deutsches Gesellschaftsrecht: Er untersucht, wie europäisches Recht nationales Recht

beeinflusst und dabei verändert. Nachdem ich die Auswirkungen der Entscheidungen bezüglich der bis

vor Kurzem in Kontinentaleuropa vorherrschenden Sitztheorie analysiert habe, untersuche ich sorgfältig

die nachfolgenden Entwicklungen und Trends, inklusive der Reform des deutschen GmbH-Rechts

(MoMiG), dem Wettbewerb der Rechtsformen, den durch kürzlich eingeführte supranationale

Rechtsformen entstandenen Chancen mit besonderem Schwerpunkt auf der Societas Europaea, und der

EU-Verschmelzungsrichtlinie mit ihrem Einfluss auf das deutsche Umwandlungsgesetz. Teil 2 bewertet

nicht nur kritisch die vorherrschenden Integrationstheorien bei Fusionen, er reflektiert auch über die

Chancen, die die zuvor genannten Änderungen im europäischen Gesellschaftsrecht für eine erfolgreiche

Post Merger Integration bieten. Deshalb analysiere ich Jansen’s 7 K-Modell, entwickle es weiter, und

leite einen strategischen Plan daraus ab.

Keywords. Mergers & Acquisitions, Germany, automotive industry, European Corporate Law, post

merger integration, intangible assets, Sevic, Cartesio, race to the bottom, MoMiG, SE, SPE, DIR

2005/56/EC, Transformation Act, Opel, Schaeffler, 7c model, strategic plan

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Table of  Contents  

ABSTRACT   I

TABLE OF  CONTENTS.  II

LIST  OF FIGURES.  IV

LIST  OF ABBREVIATIONS  VI

I.  INTRODUCTION  1

II.  CHANGES IN EUROPEAN CORPORATE LAW:  

AN  OPPORTUNITY FOR SUCCESSFUL POST MERGER INTEGRATION?  4

1.  M A FOUNDATIONS.  4

1.1  OVERVIEW ON THE M A MARKET  4

1.2  TYPES OF M A DEALS  8

1.3  THE M A PROCESS.  10

2.  EUROPEAN CORPORATE LAW  12

2.1  THEORETICAL FOUNDATIONS: ANALYSIS AND CRITICAL EVALUATION.  12

2.1.1  CHARACTERISTIC ASPECTS OF GERMAN LAW  12

2.1.2  THE RELATIONSHIP BETWEEN EUROPEAN LAW AND NATIONAL LAW.  15

2.1.3  RECOGNITION OF COMPANIES WITH FOREIGN LEGAL FORM  18

2.1.3.1  THE IMPACT OF THE ECJ’S JURISDICTION ON THE APPLICATION OF SEAT THEORY.  19

2.1.3.2  CONSEQUENCES: COMPETITION OF LEGAL FORMS AND GERMAN “MOMIG  24

2.1.4  THE OPPORTUNITIES OF SUPRANATIONAL LEGAL FORMS.  28

2.1.4.1  SE SOCIETAS EUROPAEA  28

2.1.4.2  OTHER.  32

2.1.5  THE RIGHT TO CHANGE THE LEGAL STRUCTURE.  37

2.1.5.1  THE EU CROSS-BORDER MERGERS DIRECTIVE: LEGAL DEVELOPMENT.  37

2.1.5.2  GERMANY: NEW OPTIONS FOR CORPORATIONS  41

2.1.5.3  TRANSFORMATION ACT: FORMS TO CHANGE THE LEGAL STRUCTURE  44

2.1.6  TRENDS AND PROSPECTS  52

2.2  APPLYING THEORY TO PRACTICE: EXEMPLIFICATION  53

2.3  FINDINGS: IMPLICATIONS ON POST MERGER INTEGRATION.  56

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3.  POST MERGER INTEGRATION  60

3.1  THEORETICAL FOUNDATIONS: ANALYSIS AND CRITICAL EVALUATION.  60

3.1.1  CLASSIFICATION OF THE CONTEXT.  61

3.1.2  DEFINITIONS AND FORMS  64

3.1.3  JANSEN’S 7C MODEL OF INTEGRATION.  71

3.1.3.1  C1: COORDINATION OF INTEGRATION  73

3.1.3.2  C2: CULTURE  73

3.1.3.3  C3: CUSTOMERS AND SUPPLIERS.  74

3.1.3.4  C4: COMMUNICATION  75

3.1.3.5  C5: CORE EMPLOYEES.  76

3.1.3.6  C6: CORE COMPETENCY AND KNOW-HOW.  76

3.1.3.7  C7: CONTROL AND AUDIT  77

3.1.3.8  CORRELATION TO THE CHANGES IN EUROPEAN CORPORATE LAW.  78

3.1.3.9  CRITICAL APPRAISAL AND FURTHER DEVELOPMENT  80

3.1.4  TRENDS AND PROSPECTS  83

3.2  APPLYING THEORY TO PRACTICE: A STRATEGIC PLAN  84

3.3  FINDINGS.  90

III.  CONCLUSION AND PROSPECTS  92

APPENDIX VIII   

GLOSSARY  ENGLISH-GERMAN  XV

REFERENCES.   XX

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List  Of Figures  

FIGURE  1 - DRIVERS FOR ALLIANCES, MERGERS AND ACQUISISTIONS  

FIGURE  2 - GLOBAL M A ACTIVITY TREND 2003-2008  

FIGURE  3 - BREAKDOWN OF ANNOUNCED DEALS 2008 BY GEOGRAPHIC REGION  

FIGURE  4 - THE FOUR STAGES OF CONSOLIDATION (BY INDUSTRY)  

FIGURE  5 - TOP 10 ANNOUNCED GLOBAL DEALS 2008.  

FIGURE  6 - TYPES OF M A DEALS  

FIGURE  7 - THE 3 STAGES OF THE M A PROCESS  

FIGURE  8 - GERMAN CORPORATE LAW: A COMPARISON OF LEGAL STANDARD FORMS  

FIGURE  9 - THE RELATIONSHIP BETWEEN EUROPEAN LAW AND NATIONAL LAW  

FIGURE  10 - EUROPEAN SECONDARY LAW: STATUS OF TRANSPOSITION.  

FIGURE  11 - SEAT THEORY AND INCORPORATION THEORY.  

FIGURE  12 - GERMAN MOMIG’ 01.11.2008.  

FIGURE  13 - THE IMPACT OF THE SE COUNCIL REGULATION  

FIGURE  14 - OTHER SUPRANATIONAL LEGAL FORMS  

FIGURE  15 - COMPARISON: SPE AND LIMITED LIABILITY COMPANY.  

FIGURE  16 - THE IMPACT OF EUROPEAN MERGER DIRECTIVES ON NATIONAL LAW  

FIGURE  17 - COM (2008) 26: STATUS OF DECISION-MAKING PROCESS  

FIGURE  18 - FORMS TO CHANGE THE LEGAL STRUCTURE  

FIGURE  19 - SE: OPEL / VAUXHALL.  

FIGURE  20 - MERGER: SCHAEFFLER / CONTINENTAL  

FIGURE  21 - THE 3 STAGES OF THE M A PROCESS: PMI.  

FIGURE  22 - THE MERGER SYNDROME  

FIGURE  23 - THE STAKEHOLDERS OF THE COMPANY  

FIGURE  24 - FORMS OF INTEGRATION  

FIGURE  25 - JANSEN’S 7C MODEL OF INTEGRATION  

FIGURE  26 - 8C MODEL OF INTEGRATION.  

FIGURE  27 - FORMULA FOR SUCCESSFUL POST MERGER INTEGRATION CONDITIONS.  

FIGURE  28 - THE FOUR STAGES OF THE PLANNING PROCESS.  

FIGURE  29 - STRATEGIC PLAN: ANALYSIS STAGE.  

FIGURE  30 - STRATEGIC PLAN: STRATEGY AND PLANNING STAGE  

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FIGURE 31 - STRATEGIC PLAN: IMPLEMENTATION STAGE ............................................88 FIGURE 32 - STRATEGIC PLAN: MONITORING AND CONTROL STAGE ...........................89 FIGURE 33 - LEAGUE TABLE OF LEGAL ADVISERS TO GLOBAL M&A .......................VIII FIGURE 34 - LEAGUE TABLE OF FINANICAL ADVISERS TO GLOBAL M&A ................... IX FIGURE 35 - LEAGUE TABLE OF PR ADVISERS TO GLOBAL M&A............................... IX FIGURE 36 - FOREIGN LEGAL FORMS .............................................................................X FIGURE 37 - ARTICLES APPLIED: EC TREATY ............................................................ XII

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List Of Abbreviations

BB Betriebsberater (German journal) BMJ Bundesministerium der Justiz (German Federal Ministry of Justice) CA Confidentiality Agreement DIR Council Directive by the EEC / EC DStR Deutsches Steuerrecht (German journal) EC European Community ECJ European Court of Justice EEA European Economic Area (EU + Norway, Iceland, Liechtenstein) EEC European Economic Community EEIG European Economic Interest Grouping E.g. Exempli gratia / for example Et al. Et alii / and others Et seqq. And the following EU European Union EuZW Europäische Zeitschrift für Wirtschaftsrecht (German journal) GM General Motors HBDI Herrmann Brain Dominance Instrument HR Human Resources I.e. Id est / that is IFRS International Financial Reporting Standards IM Information Memorandum IPO Initial Public Offering IT Information Technology LBI Leveraged Buy-In LBO Leveraged Buy-Out

LLC Act Limited Liability Company Act (German GmbHG) LoI Letter of Intent M&A Mergers and Acquisitions MAC Material Adverse Change-clause MBI Management Buy-In

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MBO Management Buy-Out MgVG Gesetz über die Mitbestimmung der Arbeitnehmer bei einer

MoMiG Gesetz zur Modernisierung des GmbH-Rechts und zur Bekämpfung von

MoU Memorandum of Understanding NDA Non-Disclosure Agreement NJW Neue Juristische Wochenschrift (German journal) NZG Neue Zeitschrift für Gesellschaftsrecht (German journal) OEM Original Equipment Manufacturers (automotive manufacturer) PE Private Equity PMI Post Merger Integration PR Public Relations PPP Public Private Partnership R Regulation R&D Research & Development ROI Return On Investment SCE Societas Cooperativa Europaea (European Cooperative Company) S/h Shareholders SME Small- and Medium-Sized enterprises SPE Societas Privata Europaea (European Private Company) SE Societas Europaea (European Public Company)

SEStEG Gesetz über steuerliche Begleitmaßnahmen zur Einführung der Europäischen

UK United Kingdom US United States VDA Verband der Automobilindustrie (German assoc. of the automotive industry) VDMA Verband deutscher Maschinen- und Anlagebauer (German association of

Manuela Schweizer MBA Leadership

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I. Introduction

Only 9% of M&A are successful and have achieved its original objectives (Hay, 2007:2). ¹ Can an economy afford this? How can the percentage of successful M&A be increased, especially nowadays with the number of distressed M&A expected to rise?

These questions are of major importance, especially for the export nation Germany, heavily suffering from today’s credit crunch and the subsequent economic downturn.

Being the world’s number one export nation, Germany strongly depends on international trade, internationalisation and globalisation and, thus, is heavily affected by the current economic situation. The automotive industry still is Germany’s major contributor to this role: In 2008, the export share of motor vehicles and parts amounted to 17.5%, consolidating its position as driving force of the economy - though it has declined for the first time in this decade to EUR 181 billion, which is mainly based on reduced sales in Western Europe and the NAFTA region (www.destatis.de/jetspeed/ portal/cms/Sites/destatis/Internet/EN/Content/Statistics/Aussenhandel/Handelswaren/Ak tuell.psml, 29.03.2009; VDA, 2009:5). In Germany, one out of six jobs is allocated to the automotive industry; hereof 43% are employed with the automotive suppliers (Wyman, 26.02.2009:1). For years, the automotive sector has been in a severe crisis and restructuring process, with up to 70% of processes and value added being transferred from the OEM to the suppliers - or the after-sales market. Besides the fierce competition of an enormous number of suppliers and high cost pressure from the OEM, this goes along with high financing costs for personnel, research and development, and liability regulations. According to Mercer’s 2004 survey ‘FAST 2015’, the number of automotive suppliers was supposed to decrease by 50% until 2015. Today, with the credit crunch and subsequent economic downturn, this process is expected to accelerate, with some very large auto companies being close to insolvency.

¹ This is the result of a three-phase research programme, conducted by Hay Group and La Sorbonne on European M&A: 200 interviews with senior European business leaders who have experienced a major M&A during the past three years, desk research into the 100 largest M&A, qualitative & quantitative research amongst 300 employees of merging organisations. Other recent surveys (Arthur D. Little, A. T. Kearney, Booz & Company, BCG, McKinsey, Mercer) came up with the result that 60% of mergers are not successful (Picot, 2008:571)

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A market adjustment is mandatory in many industrial sectors, mainly due to the fact that many companies will no longer receive sufficient financing, and cash-pooling gains in importance. It is expected that the banks - that are already reluctant to provide loanswill further restrict the extension of loans, especially for highly leveraged deals, at higher interest charges. In addition, only companies with an excellent reputation and creditworthiness will be able to obtain money from the capital market. The combination of declining sales, restricted extension of loans at high interest rates, and low equity ratio is hazardous. Therefore, the consequences of the economic downturn will affect all industrial sectors, with the export-orientated automotive industry in particular.

Yet, the reasons for M&A are different than in the past: According to KPMG’s very recent automotive survey, the drivers have shifted from a clear ‘access to new markets and customers’ in 2007, to a mixture of reasons, including a high ‘risk of bankruptcy’ in 2009. Details can be obtained from the below illustration.

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In view of the above, it is hard to judge if large M&A deals will be put on hold due to the difficult financing nowadays. Even fixed mergers are at risk because of this situation, as is currently illustrated by Schaeffler-Continental. However, it is expected that many companies will become insolvent due to the forced market restructuring and thus have to consider in time merging with others or demerging parts of their business in order to sell it, as is illustrated by General Motors-Opel/Vauxhall. If this is the case, the prices obtained are expected to be much lower than in previous years.

Yet, the financing of an M&A remains difficult. This is one of the main reasons why the total amount of M&A has experienced a major decrease in 2008: Globally, the total value of USD 2.5 trillion represented a drop of 31%, while volumes were down 20% on just over 12,000 deals (MergerMarket, 2009a:2). This has affected all sectors, especially in the last quarter 2008.

In light of the above, all the more important is it that M&A are successful - and a 9% success rate compared to the original objectives of the deal is by far not enough. This is unaffordable, especially in today’s economic situation.

Therefore, this paper outlines how the number of successful M&A can be increased, focusing on changes in European Corporate Law and thus resulting opportunities offered for successful post merger integration. In doing so, this report aims at analysing the implications of these changes on merger integration, with particular focus on strategic management’s decision on intangible assets of the integration stage. This is imperative, as most managers only focus on tangibles of the deal, while recent surveys have proven that intangibles are equally important for deal success. Its focus is the German automotive industry and cross-border activities within Europe.

Given the scope of this paper, 3 ^rd country M&A, tax issues, tangible assets, pre merger and transaction stage are not part of this analysis, and are only mentioned marginally.

This paper enables automotive companies to better prepare for possible upcoming transformations within this sector, by providing an outline of the existing opportunities for successful PMI, and highlighting the issues that have to be considered.

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II. Changes In European Corporate Law: An Opportunity For Successful Post Merger Integration?

The main part of this report is divided in two sub-categories, (1) an analysis of changes in European Corporate Law, and (2) an assessment of their implications on post merger integration. First of all, it introduces major merger and acquisition aspects to provide a mutual basis.

1. M&A Foundations

To create a mutual understanding, I will provide a brief overview on the M&A market and the various types of M&A deals, before explaining the M&A process.

1.1 Overview On The M&A Market

In 2008, after a continuous rise in both M&A value and volume, the 6 ^th wave of global M&A has come to a sudden end. The total amount of M&A has decreased significantly: Globally, the total value of USD 2.5 trillion represented a drop of 31%, while volumes were down 20% on just over 12,000 deals. North America, the main M&A market with usually more than 40% of values globally, now only represents 34% - a decline from USD 1.5 trillion to 848 billion, i.e. a drop of 44%. Declines in Europe are comparable to the global trend with a decline from EUR 1.1 trillion to 742 billion and thus a drop of 32% in value, whereas the Asia-Pacific region has only experienced a minor decline of 5% by value from USD 420 billion to 399 billion (MergerMarket, 2009a:2).

This has affected all sectors, especially in the last quarter 2008. It is not astonishing that the busiest sector by value was financial services with 25% of values, given the urgent need to consolidate. All other sectors and private equity firms suffer from the difficulty in adequate financing. Within Europe, UK & Ireland and the Germanic countries are most active. An overview of both the global M&A activity trend 2003 -2008 and the deals by geographic region can be obtained from the below illustrations.

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Figure 3 - Breakdown Of Announced Deals 2008 By Geographic Region

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Despite the decline, these figures show that M&A are an integral part of today’s business world. According to Kearney’s merger endgames survey, all industries and thus M&A even follow a certain pattern, from ‘market entry’ over ‘growth accumulation’ and ‘focus on position’ to ‘alliances’, details can be obtained from the below illustration. According to their survey, the global automotive supplier industry is in the ‘growth accumulation’ stage, focusing on economies of scope and scale and preventing themselves from hostile takeovers, whereas the automotive manufacturer industry already is in the ‘focus on position’ stage, i.e. strengthening their core competencies and cleaning up their portfolio. When they reach the alliance stage, mergers will no longer apply, because of their high market shares and the thus resulting anti-trust law restrictions. To sum up, to remain competitive in the long run, it is important to actively pursue the consolidation of one’s own industry (Kearney, 2001:1).

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It has to be highlighted that as a result of today’s economic situation many deals lapsed, so did one of the biggest hostile takeovers all-time, the BHP Billiton-Rio Tinto deal. Unsurprisingly, the top 10 of announced deals 2008 include several financial institutions such as Merrill Lynch, as a consequence of the credit crunch and the thus resulting need to consolidate, but only one deal of the automotive industry, Schaeffler-Continental. The full list can be obtained below.

In an M&A deal, several parties are involved, including (1) the bidder company, (2) the target company, (3) external sources, and (4) a broad range of advisers with expertise knowledge. The bidder company can be either a strategic investor or a financial investor. The target company can be any organisation, either actively looking for a bidder, or being targeted by means of a hostile takeover. External sources are usually the banks, offering various forms of financing to use the leverage effect. Alternatively, it can be asset-backed securities, private equity, hedge funds or even family offices. In the field of advisers, there is a broad range of legal, financial and PR advisers; the ranking in terms of the league tables 2008 can be found in the appendix.

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1.2 Types Of M&A Deals

There are various definitions of Mergers and Acquisitions. In brief, they can be defined as “a link between two or more companies or parts of companies, implying that the ownership structure of at least one company or part of a company changes” (DGFP, 2002:15). In the following, the terms M&A, mergers, deals and transactions are used synonymously.

As is illustrated below, M&A disregard contractual agreements such as traditional contracts (e.g. franchising, licensing) as well as non-traditional contracts (e.g. joint research & development, shared services). Co-operations such as joint ventures also differ from M&A, as they maintain their economic and corporate sovereignty (Child J, 2006:224, Picot G, 2008:271).

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M&A can either be conducted as (1) ‘share deal’ or as (2) ‘asset deal’. A share deal implies that the bidding company acquires shares of the target company, e.g. shares or the provision of the general partner. Depending on the share, the influence on the target company varies. This form does not have a direct effect on employment relationships with the target company, as the bidding company enters the rights and duties of the former owner (‘universal succession’). Though a share deal is a very straightforward acquisition, it might include unknown debts, which are a high liability risk. In addition, the share deal of a public M&A implies that a binding offer has to be made to all shareholders, if more than 30% of voting rights are acquired (§29 German Securities Acquisitions and Takeover Act). In contrast, an asset deal implies that assets are transferred from the target company to the bidding company, e.g. real estate, divisions of the company. This form has a direct effect on employment relationships, as they are transferred to the bidding company by means of the asset transfer (‘singular succession’): Pursuant §613 German Civil Code, collective labour agreements in principle devolve to the bidding company with the previous labour conditions and under consideration of job seniority, with the employees having the right of objection (“Betriebsübergang”), and the workers council having the right of co-determination pursuant §111 German Work’s Constitution Act. An asset deal offers the benefit of selecting single assets and avoiding the risks of unknown debts, though additional approvals might be required. An asset deal is of particular importance for distressed M&A, i.e. insolvent companies after adjudication order, as nobody wants to take the full risk and liabilities: Pursuant §25 German Commercial Code, former debts are explicitly excluded from the deal (DGFP, 2002:17; Picot G, 2008:209).

In addition, there are many other types of M&A deals that can be considered as M&A in a broader sense, including Management buy-out (MBO) when the company is acquired by the former managers, Management buy-in (MBI) when the company is acquired by external managers, Leveraged buy-out (LBO) or Leveraged buy-in (LBI) if the MBO or MBI requires additional funding by Private Equity (PE), Public Private Partnership (PPP) when a long-term cooperation is agreed upon between the public authorities and the private sector, as well as Initial Public Offerings (IPO) when additional equity is required for future M&A (Picot G, 2008:324).

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1.3 The M&A Process

The M&A process can be divided in three stages, (1) pre merger stage, (2) transaction stage, and (3) post merger stage. The pre merger stage is concerned with the decisionmaking process related to the deal, the transaction stage involves the actual deal, and the post merger stage entails the implementation of the ex ante developed integration strategy (Picot G, 2008:22).

The below illustration shows that strategic management is involved in all three stages, though the pure strategy is of importance mainly at the very beginning of the pre merger stage and again in the second half of the transaction stage, in order to develop a post merger strategy; the high importance of this strategic management task is illustrated by the dark colour. Besides the pure strategy, strategic controlling is of importance during the entire transaction and post merger stage. Strategic management is also required in the field of organisation, HR management and placement, as well as communication. Their strategic view is important in the transaction stage, but gains even more in importance in the post merger stage (Borowicz F, 2006:168).

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In the three stages, some standard activities apply respectively. In the (1) pre merger stage, concerned with the decision-making process related to the deal, this includes basic strategy, screening of target candidates, Information Memorandum (IM) offering the benefits of the target company, informal exploratory talks after the signing of a respective Confidentiality Agreements (CA) also known as Non-Disclosure Agreement (NDA), rough business evaluation and financing planning, first planning of concept and transaction structure, ex ante examination in terms of anti-trust law, and signing of preliminary contracts by means of a Letter of Intent (LoI), also known as Memorandum of Understanding (MoU).

The (2) transaction stage, involving the actual deal, includes activities in the field of due diligence, business valuation and financial planning, internal resolutions, contract negotiation and signing, Material Adverse Change-clauses (MAC) to fix contract adaptation or withdrawal rights in favour of the bidding company in the period between signing and closing, final registration for merger control in terms of the anti-trust law, as well as transfer of ownership when the bidding company settles the purchase price and in turn the target company is transferred (closing). In this stage, the due diligence is of major importance, as it is the basis for the negotiations and thus the purchase price. This evaluation of the target company is highly labour-intensive and time-consuming and takes place in a data room, either virtually or physically. Though it is common to have a purchaser due diligence, a vendor due diligence sometimes also applies. The due diligence can be split into several sub-evaluations, i.e. legal, tax, financial, commercial, HR, organisational, cultural, IT and logistics, as well as environmental due diligence.

Last, the (3) post merger stage, entailing the implementation of the ex ante developed integration strategy, entails the implementation of organisational, HR and cultural, and communication strategies in line with the overall strategic plan, as well as their monitoring and controlling. The refinement of the strategic plan in details as well as an ongoing adaptation is mandatory. An evaluation of the integration process in terms of time, quality and costs is important; the introduction of knowledge management in terms of best practice experience and lessons learned is recommended for the ongoing deal as well as upcoming future deals (Borowicz F, 2006:168, Gran A, 2008:1409, Picot G, 2006:156, Van Kann J, 2009:1)

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2. European Corporate Law

This Corporate Law section is divided into three parts, i.e. a detailed analysis and critical evaluation of theory as theoretical foundations with focus on the implications of changes in European Corporate Law, an application of theory to practice by means of an illustration of recently applied European Corporate Law in the German automotive industry, and the findings with their implications on merger integration.

2.1 Theoretical Foundations: Analysis And Critical Evaluation

This section analyses and critically evaluates European Corporate Law. After providing an overview of the characteristic aspects of German law, I explore the relationship between European and national law. Subsequently, I analyse the recognition of companies with foreign legal forms in light of the European Court of Justice’ jurisdiction on seat theory and the thus resulting reform of the German Limited Liability Company Act (MoMiG), before I examine the opportunities offered by supranational legal forms, as well as by the right to change the legal structure in terms of the recently implemented EU cross-border merger directive and the German Transformation Act. The findings are summarised at the end of each chapter. The section concludes with a summary of the trends.

2.1.1 Characteristic Aspects Of German Law

In Europe, there are as many legal systems as there are nation states. This is partly due to jurisprudence, i.e. “that the law of a country has come to be regarded as a characteristic expression of its national spirit” (Zimmermann R, in Reimann & Zekoll, 2005:8). However, since the adaptation of a joint EC law and its superseding jurisdiction with binding nature for all member states, this has started to change.

This report focuses on German Corporate Law in light of the changes in the preceding European level. Corporate Law aims at framing options and regulating boundaries of associations of persons that have been founded for a common purpose. As in Germany

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Corporate Law consists of two fields of law - private law for private coalitions, and business law for coalitions with economic intentions - it can be defined concisely as “the law of associations under private law and of cooperative contractual relationship” (Schmidt K, 2002: §1,1).

The legal basis for German Corporate Law can be found in a variety of Acts and Codes, but there is not one single Code that contains all general regulations. Consequently, not only the regulations of the Civil Code such as legal capacity, conclusion of contract and declaration of intend apply. Depending on the subject matter, the relevant sections of Commercial Code, Companies Act, Limited Liability Company Act, and Transformation Act, etc also apply.

There are two legal standard forms that can be distinguished, corporations and partnerships. Both forms are based on a contract, can acquire rights and obligations, and are able to sue or be sued. Partnerships, however, only have partial legal personality, i.e. they cannot own assets, as they belong to the partners in joint ownership (“Gesamthandsgemeinschaft”): Assets of partnerships may only be transferred concordantly, e.g. by means of a partnership contract or a general meeting. Whereas the partners of partnerships are jointly and severally liable, the members of corporations have a fixed share capital. I have elaborated the major differences in their structure, purpose, features and sample legal forms; details can be obtained from the below illustration.

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Figure 8 - German Corporate Law: A Comparison Of Legal Standard Forms

Legal forms for corporations such as stock companies and private limited companies are primarily in use in the middle market and large-scale enterprises, with the limited liability company being predominant with more than 1,000,000 companies, followed by the stock companies with 10,500. Partnerships such as general, limited and dormant partnerships are common for small medium enterprises, with general partnerships forming the majority with approximately 250,000 partnerships (Assmann HD, Lange B, Sethe R, in Reimann & Zekoll, 2005:143). Both can be involved in merger and acquisition activities, though cross-border mergers are unlikely to involve partnerships due to the current legal framework.

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2.1.2 The Relationship Between European Law And National Law

Though there are as many legal systems in Europe as there are nation states, there have been several attempts to align these systems. Whereas considerable harmonisation has already been achieved, particularly in terms of cross-border mergers and by implementing supranational legal forms, a full alignment of national Corporate Laws has not yet been accomplished. However, in adopting a joint European Community law, a legally binding consolidated jurisdiction has been created.

European law - whether of primary or secondary nature - has priority over National Law. Primary law includes the three founding treaties (European Coal and Steel Community Treaty signed 1952 and the Treaties of Rome signed 1958, i.e. European Economic Community Treaty and European Atomic Energy Community Treaty) with their minutes and subsequent changes, such as the Maastricht Treaty on European Union 1993, the Treaty of Amsterdam 1999 and the Treaty of Lisbon 2007 (http://europa.eu/abc/treaties/index_en.htm, http://eur-lex.europa.eu/en/treaties/ index.htm, all 05.02.2009).

Secondary law refers to regulations made by the Community institutions or bodies and is deduced from these treaties based on a verifiable legal basis. As such, it consists of regulations, directives, decisions, recommendations and opinions. Whereas a regulation generally applies and is thus binding to all member states, a directive is only binding as to the result achieved and the authorities of the Member States may choose on form and methods. Decisions are binding in its entirety upon those to whom they are addressed. Recommendations and opinions have no binding force (EC Treaty: §249; see Appendix for details). The relationship between European and National Law is illustrated in the below figure.

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Manuela Schweizer MBA Leadership

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Figure 9 - The Relationship Between European Law And National Law

Source: Own illustration, based on http://europa.eu/abc/treaties/index_en.htm

Within European secondary law directives, the most relevant ones in terms of Corporate Law are the Council Directives DIR 68/151/EEC (“Publizitätsrichtlinie”), DIR 77/91/EEC (“Kapitalrichtline”) with its amendment DIR 2006/68/EC regarding the foundation of stock corporations, DIR 78/855/EEC (“Verschmelzungsrichtlinie”) abrogated by DIR 2005/76/EC regarding EU cross-border mergers, DIR 78/660/EEC (“Bilanzrichtlinie”) with its amendments DIR 2006/46/EC regarding annual accounts and DIR 2006/43/EC regarding annual audits and annual accounts, DIR 89/666/EEC (“Zweigniederlassungsrichtlinie”) and DIR 89/667/EEC (“Einpersonen-Gesellschafts- Richtlinie”), amongothers (http://ec.europa.eu/interna_market/company/official/ index_en.htm; 22.02.2009).

Whereas Germany so far has successfully transposed the afore-mentioned European secondary law to national Corporate Law, other member states have not done so yet. I would like to highlight DIR 2005/56/EC on cross-border mergers of limited liability companies with a due date per 15.12.2007, which has not yet been transposed by

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