Merger agreement (plan of merger)

The merger agreement, or plan of merger, is the contract that legally organises the absorption of one company by another. It sets all the parameters of the transaction: identification of the companies, valuation of the assets and liabilities contributed, Exchange ratio of the shares, amount of the absorbing company's capital increase and any Equalisation payment (soulte). It is the central document of a Merger, submitted for approval to the meetings of the companies concerned.

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The agreement also states the effective date of the merger, which may be retroactive for accounting and tax purposes, as well as the entitlement date of the shares issued. It details the undertakings given under the Merger tax neutrality regime (art. 210 A CGI), which secure tax neutrality, and the fate of specific items such as provisions, Carry-forward of tax losses (France) or existing security.

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For example, the agreement sets an exchange ratio of three absorbing-company shares for two of the absorbed company and an effective date retroactive to 1 January. The absorbed company's results since that date are thus deemed realised by the absorbing company, which simplifies the year-end close of the merger year.

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Its drafting binds the absorbing company durably, since it takes over the entirety of the absorbed company's estate. A precise merger agreement, consistent with the valuations retained, secures the transaction and prevents later disputes; it is the culmination of upstream mergers and acquisitions advisory and valuation work.