M＆A（Mergers and Acquisitions)
Mergers, demergers, share exchanges, capital increases and capital reductions
Mergers often conjure up images of mergers where a company in financial difficulties is acquired and absorbed, but in corporate law or legal proceedings, mergers can also take the form of mergers by incorporation, as opposed to mergers by absorption, as described above.
In a merger by incorporation, companies A and B merge into a new company C based on a merger agreement between them, while companies A and B are dissolved. In a merger by incorporation, Companies A and B are dissolved and a completely separate company, Company C, operates the business, which is used in cases where the financial statements of Companies A and B should not affect Company C.
On the other hand, in a general merger by absorption, the surviving company takes over the financial statements (assets and liabilities) of the absorbed company and also the licensing procedures, which is very effective if the licences and permits held by the absorbed company have exclusive value.
In practice, the suitability of the company will be verified not only with regard to the will of the shareholders, etc., but also with regard to the Antimonopoly Law, etc., and this will be done on a case-by-case basis.
A demerger is the opposite of a merger in simple terms. A demerger is carried out when a business is to be spun off for some reason in the continuation of the business.
A share exchange is the exchange of shares (all shares issued) in a joint stock company for shares in another company. To explain this in terms often used in newspaper reports, Company A, which wants to make Company B a subsidiary (assuming that Company A shares are more expensive than Company B shares), offers some of its own (Company A) shares to Company B, which in turn offers all or some of its shares to Company A, and Company B becomes a subsidiary of Company A. M&A through share exchange has the advantage that it prevents cash outflows for the acquiring company and is a significant method of increasing corporate value.
Capital increase and capital reduction
A capital increase is carried out when the company needs to increase its capital (net assets) in order to continue its business. From the company’s point of view, a capital increase has the primary purpose of providing funds for the business, but also has the effect of reducing financial risk by increasing equity capital. A capital reduction is the opposite of a capital increase and is often referred to as a nominal capital reduction, which is carried out with the intention of reducing the amount of capital below the amount of net assets in order to eliminate a capital deficit, such as a company in financial difficulties where the net assets are no longer sufficient to meet the amount of capital.