In 2008 the stock prices of Finnish companies listed on the OMX Nordic Exchange Helsinki Oy have dropped considerably. This decline, combined with a fairly new takeover regime with more liberal rules on the pricing of tender offers, brings new opportunities to potential bidders for Finnish listed companies.

For a number of years it has been unattractive to launch a public tender offer for a Finnish listed company in declining stock markets. This has been due to provisions effectively setting a minimum offer price equal to the previous 12-month volume-weighted average price of the shares when launching a public tender offer for all shares of a Finnish target.

The provisions of the Finnish Securities Markets Act (the SMA) regulating public takeovers were amended in 2006 in connection with the implementation of the Takeover Directive. The previous provisions leading to a minimum tender offer price were abolished.

Consequently, for the first time since the early nineties, a bidder for a Finnish listed company is free to determine the price of a tender offer in an environment of declining stock prices. There are some signs that this may be reflected in the level of activity when it comes to public-to-private transactions on the Finnish market.

Three stages

There are three main stages in a typical Finnish public-to-private transaction:

1. Negotiations with the target and the main shareholders, possible due diligence, conclusion of a possible combination agreement, possible block trade or irrevocable undertaking to accept the offer.
2. Voluntary and/or mandatory offer (if the mandatory offer threshold of three-tenths or one half of the votes are exceeded).
3. Squeeze-out (if the threshold of more than 90% of the shares and votes is exceeded) and delisting of the shares in the target.

No mandatory offer will be required if the relevant thresholds are exceeded as a result of a voluntary offer that is made for all shares and securities entitling shareholders to shares in the target.

Regulatory framework

The regulation of Finnish public takeovers essentially consists of rules applicable to public takeovers included in Chapter 6 of the SMA; the Standard 5.2c on public offers issued by the Finnish Financial Supervision Authority (the FSA); and the Takeover Recommendation issued by the Takeover Panel.

Chapter 6 of the SMA sets forth the general requirement to treat holders of each class of securities subject to the offer equally. It also outlines the general structure of the offer procedures, rules on publication of the offer and disclosure obligations, the requirement to make a mandatory offer, pricing of offers and rules on competing offers.

Public offers are monitored by the FSA, which is authorised to interpret the relevant statutory provisions and issue standards and guidelines. The Standard 5.2c supplements the statutory rules and sets forth the FSA's interpretation of the relevant provisions of the SMA. The standard contains more detailed rules on matters such as the takeover procedure, disclosure obligations and pricing.

Where the consideration consists of securities, the rules of the SMA relating to public offering and listing of securities may also become applicable. Under the EU prospectus regime, an EU listing prospectus may be used in exchange offers in Finland where the consideration consists of securities listed in Finland or in another EU member state. In such cases, the offer document will also have to comply with the EU prospects regime.

Another source of law is the Finnish Companies Act. The Companies Act sets forth certain general principles of company law and provides the regulatory framework for squeeze-outs.

In December 2006, the Takeover Panel of the Finnish Chamber of Commerce issued a recommendation on practices to be followed in public takeovers (the Takeover Recommendation). The Takeover Recommendation is intended to codify best industry practices and reflect certain general principles of the Companies Act. It deals with matters such as the duties of the target board in takeover situations, due diligence review, dealings with major shareholders and competing offers.

Furthermore, the rules and regulations of the OMX Nordic Exchange Helsinki Oy, regulate, inter alia, the trading in securities.

Timeframes

The offeror is required to publish the decision to make a public offer immediately. In its announcement, the offeror is obliged to state the number of shares subject to the offer, the offer period, the consideration and other material conditions to the offer. The offeror is further required to prepare an offer document containing information enabling the holders of the target's securities to reach a properly informed decision of the offer.

The document may be published after it has been approved by the FSA. The FSA's review period is five banking days from the submission. Where the consideration consists of shares, the FSA's review period is 10 banking days.

Although there is no explicit statutory requirement concerning the time for commencement of a voluntary offer, the FSA takes the view that the offer should normally start within one month of its publication.

Under the SMA, the offer must be open for acceptance for at least three weeks and no longer than 10 weeks. Pursuant to the Takeover Recommendation, the minimum offer period should be four weeks in a hostile offer.

For special reasons, such as when it is necessary for obtaining antitrust approvals, the offer period may be longer than 10 weeks, provided that the conduct of the target company's business is not hampered for an unreasonably long period of time.

The FSA may, upon the target company's application and, if necessary, without hearing the offeror, order that the offer period be extended to enable the target company to convene an extraordinary general meeting of shareholders to assess the offer. In such a case, the offeror is entitled to withdraw the offer within five banking days of the notification of the FSA's extension decision.

The subsequent squeeze-out procedure may last for between five and nine months. During the process, the offeror may, however, against sufficient security, obtain the ownership of the shares subject to the squeeze-out.

Pricing

The pricing of a voluntary offer is generally at the offeror's discretion. A general principle is that all target shareholders shall be treated equally. The same consideration shall be offered to all shareholders and no special deals shall be concluded with any target shareholders.

A special pricing rule applies where the offer is made for all shares and securities entitling shareholders to shares. This is because no obligation to make a mandatory offer will arise when the mandatory offer thresholds are exceeded through such an offer. In such a case, unless there are special reasons, the offer price is the highest price paid by the offeror during the six months before the announcement of the offer. There is no minimum pricing rule for voluntary offers where the offeror has not made such purchases.

The relationship between considerations offered for different classes of shares must be equitable. When the different classes of shares subject to the offer are publicly traded, the difference of their trading prices may be indicative in determining the respective offer considerations. Where trading prices are not available, the differences in the rights afforded by the different classes of shares may be taken into account in setting the respective offer prices.

If the offeror purchases the target's shares for a price higher than the offer price after the publication of the offer and before its expiry, the offeror is obliged to increase the offer consideration correspondingly (top-up obligation). Also, if the offeror makes such purchases during the nine months after expiry of the offer, it is obliged to pay the difference to shareholders that have accepted the offer.

These obligations apply if the offer is completed, irrespective of any subsequent higher competing offer. They do not apply if an arbitration tribunal sets a higher redemption price in a subsequent squeeze-out procedure. Nor does a sale of target securities by the offeror trigger these obligations.

In a mandatory offer, the offeror is required to pay the fair price. In determining the fair price, the starting point is the highest price paid by the offeror during the six months preceding the date when the mandatory bid obligation arose.

In the absence of such purchases, the starting point in determining the fair price is the volume-weighted average price paid for the target securities in public trading during the three months preceding the date when the mandatory bid obligation arose.

Cash and other considerations

Shareholders may be given the right to choose between cash and share consideration. In mandatory offers, the offeror is obliged to offer cash as an alternative. The cash and share consideration are not required to be of the same value, provided that the aim is not to put shareholders in an unequal position.

The consideration in a voluntary offer may consist exclusively of securities when the securities offered as consideration are admitted to trading on a regulated market in an EEA country and the offeror has not purchased for cash target securities entitling to 5% of the total voting rights in the target company during a period beginning six months before publication of the offer and ending at the expiry of the offer.

A principal difference between offering cash and other considerations is in relation to the amount of information that has to be provided to the shareholders. If transferrable securities are to be offered, the offeror is obliged to publish a prospectus, which is generally a part of the offer document.

Conditions

A voluntary offer may contain conditions. Conditions are required to be reasonable in that there is a proper balance between the respective rights and obligations of the offeror and the holders of target securities.

The conditions must be such that their fulfilment can be objectively determined and is not left to the offeror's discretion. In order for the offeror to be allowed to invoke a condition, it is required that the non-fulfilment of the condition in question is of material significance to the offeror in the context of the proposed acquisition.

Conditions that have been accepted by the FSA include:

• receipt of regulatory approvals without conditions or with such conditions that can be accepted by the offeror;
• obtaining of a certain number of acceptances (often more than nine-tenths of all shares and votes – that is, the threshold triggering the squeeze-out right);
• the offeror having been granted the right to conduct a due diligence investigation in the target company;
• absence of material adverse change in the target company (including corporate reorganisations and divestments);
• a possible combination agreement being in effect; and
• conditions agreed for obtaining financing from financial institutions having been fulfilled and financing being at the offeror's disposal.

In the offer document, the offeror usually reserves the right to waive any conditions that have not been fulfilled. If the offeror has reserved the right to waive a condition concerning the number of acceptances, the FSA considers that the target shareholders should be allowed to withdraw their acceptance while the offer is valid.

As regards financing, it is permissible that debt financing is made subject to conditions that are customary and commonly used in the financial markets. Such conditions include the absence of a material adverse change in the financial markets or the target company, and completion of the offer in accordance with its terms.

Board statement

The board is required to issue a statement concerning a public offer for the company's shares as soon as possible after the offer document has been presented to the company and in any event no later than five banking days before the earliest possible expiry date of the offer. The statement shall include a reasoned assessment of the offer from the point of view of the target company and the holders of securities issued by the company; and the strategic plans presented in the offer document, and their likely effects on employment and the target company's operations.

The board is required to express its opinion on the favourability of the offer, taking into account matters such as the current value of the company and possible alternatives to the offer. If the board is unable to recommend that shareholders accept or reject the offer, for instance due to difficulties in evaluating the offer consideration, it should explain why it has not been able to form a view.

The employee representatives of the target are entitled to attach their statement to the board's opinion. In evaluating the offer, the board is allowed but not required to procure a fairness opinion from an external adviser.

Break fees and no-shop clauses

Break fees are not specifically regulated under the SMA. There is no case law on break fees. Pursuant to the Takeover Recommendation, the board should exercise caution in entering into arrangements involving payment of a break fee. If the target board regards the offer as favourable and decides to agree to a break fee arrangement, the break fee should be limited to cover only reasonable costs incurred by the offeror and should not be payable when the offer is not fulfilled for reasons attributable to the offeror.

Like break fees, no-shop clauses are not regulated under the SMA, and there is no case law on no-shop clauses.

As general principle, any contractual arrangement with the offeror should not unduly prevent the board from acting in the shareholders' best interest, particularly when a competing offer is launched. If a no-shop clause is a precondition to the offer, the board may, if it considers it to be in the interest of the shareholders to facilitate a favourable offer, agree on a no-shop clause according to which the board shall not actively seek alternative arrangements. The board is, however, obliged to ensure that it is free to take appropriate action, including withdrawing its recommendation of the offer and entering into discussions with another offeror, if a more favourable offer is proposed.

Competing offers

In the case of a published competing offer, the first offeror is entitled to prolong the offer period, modify the terms of the offer or withdraw the offer.

The publication of a competing offer triggers the obligation of the first offeror to amend its offer document. The FSA has indicated that it will, in the case of a competing bid, normally require the first offeror to extend the validity of its offer so that the first offer remains open for acceptance at least 10 business days after the publication of the amendment to the offer document.

Following the publication of a competing offer, a target shareholder that has accepted the first offer has the right to withdraw its acceptance during the time the first offer is open for acceptance, even if the sale and purchase of tendered securities had already been effected. In order to avoid difficulties in this respect, the FSA recommends that the sale and purchase of tendered securities are not carried out until the offer closes for acceptance. The withdrawal right does not extend to securities that the offeror has acquired outside the offer.

Squeeze-out and delisting

A shareholder holding directly or indirectly through a group company more than 90% of the shares and votes of a company has the right to redeem the remaining shares. A shareholder whose shares can be redeemed may request that the majority shareholder redeem that shareholder's shares. The squeeze-out and sell-out rights only concern shares but not other securities issued by the target.

The redemption price is the fair price. When the 90% threshold is exceeded as a result of a voluntary or mandatory public offer, the offer price is regarded as the fair price unless there are special reasons for deviation from it. Where the offeror intends to exercise the squeeze-out right upon reaching the legal threshold through a tender offer, that intention should be disclosed in the offer document.

The squeeze-out is effected through arbitration proceedings, which are usually initiated by the majority shareholder against all other shareholders. The Arbitration Institute of the Central Chamber of Commerce appoints the arbitration tribunal, which determines the squeeze-out price. The proceedings generally last between three and seven months. Title to the remaining shares can be transferred to the majority shareholders earlier through an interim decision of the tribunal against security (such as a bank guarantee) for the payment of the redemption price placed by the majority shareholders. The arbitration award can be appealed to a District Court and further to a Court of Appeal, and, if leave to appeal is granted, the Supreme Court.

According to FSA guidelines, the top-up obligation and the compensation obligation do not apply where the arbitration tribunal sets the squeeze-out price at a higher level than the price paid in a voluntary or mandatory offer, provided that the offeror has not offered to purchase target securities at a higher price before or during the arbitration proceedings.

When the majority shareholder has obtained title to all shares in the target, the OMX Nordic Exchange Helsinki Oy will upon application decide on a delisting of the shares.

Author biographies

Jan Ollila Dittmar & Indrenius Jan Ollila is the managing partner of Dittmar & Indrenius. He advises international and domestic public and private corporate clients, private equity houses and financial institutions in a wide range of matters, with a particular emphasis on public and private mergers and acquisitions, financing arrangements and related dispute resolution. Ollila joined Dittmar & Indrenius in 1992 and became a partner in 2000. Anders Carlberg Dittmar & Indrenius Anders Carlberg heads the firm's mergers and acquisitions practice and has extensive experience in PTO transactions. In addition to mergers & acquisitions his work focuses on capital markets and finance transactions as well as on corporate law. Carlberg has acted for international and domestic public and private corporate clients, private equity and venture capital houses, and financial institutions in a wide range of transactions and advisory matters. He joined Dittmar & Indrenius in 1999 and became a partner in 2007. Carlberg has obtained an LLM degree from New York University School of Law.