Prior to the Companies Act coming into effect, South African company law did not have any statutory merger provisions. The concept of statutory ‘amalgamations and mergers’ was borrowed from the United States of America and introduced into South African company law by section 113 of the act, which provides a simple and uncomplicated method whereby two or more companies can merge. Maleka Femida Cassim states: “the adoption of the statutory merger marks a substantial liberalisation in legislative policy.” In her article, she further explains how the statutory merger is an additional procedure to, and not a replacement of the already existing methods of obtaining control of a company, namely business acquisitions, schemes of arrangement and takeover offers.
Companies wanting to effect business combinations and fundamental transactions have been provided with a further very useful option. The biggest single change proposed by the act, in the context of takeovers, is the introduction of a US-style merger takeover method into South African law. The statutory merger does, however, represent a significant shift or liberalisation of policy on the part of the legislature between two conflicting underlying policies. On the one hand there is the value of facilitating the restructuring of businesses in the interests of economic growth: while, on the other hand, there is the interest of shareholders in retaining their investments in companies.The act includes some new innovations in company law, which should enhance the objective of balancing the encouragement of economic activity and prudent risk-taking with appropriate protections for the interests of all company stakeholders.The regulatory regime for fundamental transactions has been comprehensively reformed under the act to facilitate the creation of business combinations.
Fundamental transactions are governed in terms of chapter five of the act. The procedures which have typically been used in the past to implement business combinations in South Africa namely the scheme of arrangement, the tender offer and the sale of business as a going concern are to be found in the chapter. Like the scheme of arrangement, the statutory-merger procedure is suited more to a friendly or recommended transaction, where the board of directors of the target company co-operates with the acquiring company both in negotiating the terms of the merger and in recommending the merger to the shareholders.
Two or more profit companies, including holding and subsidiary companies, may amalgamate or merge if, upon implementation of the amalgamation or merger, each amalgamated or merged company will satisfy the solvency and liquidity test. Although prescriptive regarding those matters which must be included in the agreement, the act appears to place very little limitation on the substance of the agreement, and it is clear that companies will have considerable latitude to structure the merger transaction in a manner that best meets their requirements.
During the next stage of the transaction the solvency and liquidity test is applied and the board of each amalgamating or merging company must consider whether upon the implementation of the merger agreement, each proposed amalgamated or merged company will satisfy the solvency and liquidity test. The third step in the merger procedure is acquiring the requisite approvals in accordance with section 115 of the act. All creditors must be notified of the merger after a resolution approving an amalgamation or merger has been adopted by each company that is a party to the agreement.Upon the implementation of the merger or amalgamation agreement whereby the property becomes the property of the newly amalgamated or surviving merged, company or companies activates certain benefits. Should transfer be effected at this point the costs and legal formalities normally required for the transfer as well as the length of time it takes to transfer property will be expedited.
Should you require more information on implementing a statutory merger contact us today.
 71 of 2008 hereafter the act all reference to sections are to sections of the act unless otherwise indicated.
 Cassim “The introduction of the statutory merger in South African corporate law: majority rule offset by the appraisal right (part 1)” 2008 SA Merc LJ 1 1.
 Boardman “A critical analysis of the new South African takeover laws as proposed under the Companies Act 71 of 2008” 2010 Acta Juridica 306 307.
 FHI Cassim, MF Cassim, R Cassim, Jooste. Shev and Yeats Contemporary Company Law (2011) 677.
 Davids,Norwitz and David Yullis “A microscopic analysis of the new merger and amalgamation provision in the Companies Act 71 of 2008” Modern Company Law for a competitive South African economy 337.
 MF Cassim and J Yeats ‘Fundamental transactions, takeovers and offers’ in FHI Cassim, MF Cassim, R Cassim, Jooste. Shev and Yeats Contemporary Company Law (2011) 672 675.
 Davids (n 5) 340.
 Cassim (n 2) 23.
 Davids (n 5) 340.
 s 113(1).
 Delport and Vorster Henochsberg 344.
 s 4.
 s 116(1)(a).