Simga Tau Pharmaceutical Ltd & Anor, Re

This an application made by Sigma-Tau Pharma Ltd (“Pharma”) and Sigma-Tau Rare Diseases for the approval of a proposed merger between them pursuant to the Companies (Cross-Border Mergers) Regulations 2007 (S.I. 2007/2974) (“the 2007 Regulations”). Pharma and Sigma-Tau Rare Diseases are sister companies; both I am told ultimately wholly owned by Nomura Europe Holdings plc.

Pharma is a private limited company registered in England and so is a UK company for the purposes of regulation 3(1) of the 2007 Regulations. Sigma-Tau Rare Diseases is incorporated in Portugal and they are both engaged in the development manufacturer and distribution of orphan drugs.

The proposed merger will be a merger by absorption within the meaning of regulation 2(2) of the 2007 Regulations. The entire business and undertaking of Sigma-Tau Rare Diseases, including all its assets and liabilities of whatever nature, will be absorbed into Pharma on completion. Following completion the Portuguese company will be dissolved and removed from the Portuguese company register.

Regulation 16 of the 2007 Regulations provides that the court may on the joint application of all the merging companies make an order approving the completion of the cross border merger for the purposes of Article 11 of Directive 2006/56/EC on cross border mergers (Official Journal L 310, 25.11.2005) (‘the Directive’).

Evidence in support of the application has been given by Mr Marco Brughera who is a director of Pharma and has been authorised by Pharma’s board of directors to make his three witness statements on Pharma’s behalf and I have read those three witness statements.

As far as the conditions that must be complied with as set out in regulation 16 of the 2007 Regulations are concerned, as regards the first one Pharma is a UK company and the transferee of the business. As regards the second, an order was made by Registrar Derritt on 17 September 2013 certifying that Pharma has completed properly the pre-merger acts and formalities for its proposed merger with Sigma-Tau Rare Diseases. Thirdly, an order was made on 19 August 2013 by the Commercial Registry Office of the Madeira Free Trade Zone in Funchal stating that according to Portuguese law all acts and formalities prior to the merger had been complied with in relation to Sigma-Tau Rare Diseases; that commercial registry being an authority designated by Portugal for these purposes. As regards the fourth requirement, the application is made within six months of those orders.

And as regards the fifth, Mr Brughera states in his third witness statement that the merger plan agreed by the two companies in June 2013 was the plan that was approved by both the English court and the Portuguese Registry and that plan remains unchanged.

Finally, so far as the arrangements for employee participation in Pharma are concerned, Mr Brughera explains in his third witness statement that there were no procedures by which any employee participation rights in Sigma-Tau Rare Diseases and Pharma are to be determined, and that the provisions in regulation 16(1)(f) of the 2007 Regulations do not therefore apply to the merger.

So far as the financial position of the two companies is concerned, Mr Brughera explains in his second witness statement that the merger is aimed at rationalising the group’s assets and skills of the orphan drug sector by combining these two entities into a single company. Mr Thornton, appearing for the applicants today, has explained to me that whereas it used to be tax efficient to have subsidiaries in each jurisdiction, that advantage has been removed. It is now regarded as preferable to have branches operating rather than separate corporate entities.

The claimants referred me to the judgment of Sales J in Diamond Resorts (Europe) Ltd [2012] EWHC 3576 (Ch) in which he described the factors that I should take into account when exercising my discretion whether to approve the completion of the merger for the purposes of Article 11 of the Directive. He held that the exercise to be undertaken by the court is to examine the proposed merger with a view to being satisfied that it does not adversely affect any stakeholder in any of the merging companies (whether shareholder, employee or creditor) in any material way and further that there is no other good reason why approval of the proposed merger should be refused. Sales J went on to hold that the fact that a pre-merger certificate has been issued by the competent authority designated by the Member State of one of the companies involved does not remove the need for this court to scrutinise the merger from the point of view of the stakeholders in that overseas jurisdiction. In the Diamond Resorts case the learned judge was concerned that the transferee English company was a non-trading holding company which was insolvent whereas the fourteen Spanish companies that were going to be absorbed into it were solvent. He therefore examined whether the proposed merger would cause material detriment to the stakeholders in the merging of Spanish companies. Having considered a re-stated balance sheet of the transferee company, the learned judge was satisfied that there was no such detriment and he approved the merger.

In the present case both companies are wholly-owned subsidiaries within the same corporate group, so there can be no concern about the interests of the shareholders who are directing the merger. As far as creditors are concerned both companies are solvent. As at 30 June 2013 the net assets of Pharma were about £850,000, the net assets of Sigma-Tau Rare Diseases were about €473 million and I am assured that there has been no material change in their financial position since that date.

As regards the employees of the Portuguese company, Mr Thornton has told me this morning that the intention is that the facilities in Funchal will carry on as currently except that the employees will be employed by the English company rather than by the Portuguese company. I do not see that they are therefore disadvantaged in any way by the merger.

I am therefore satisfied that there is no evidence here that gives rise to any concern about this merger and I will therefore grant the order approving it. The effective date will be 1 December 2013, being not less than 21 days from the date of the order that I make today.