In 2005 the Finnish market witnessed much domestic
consolidation through large takeovers in various business
sectors, including SOK-group's takeover of Suomen Spar
Corporation (retail trade), Elisa Corporation's takeover of
Saunalahti Group Corporation (telecommunications), OKO Bank's
takeover of Pohjola Corporation (insurance), Almanova
Corporation's takeover of Alma Media Corporation (media) and
Vapo Oy's takeover of Kekkilä Corporation (substrates,
Market participants are expecting increased opportunities in
2006 for takeovers alongside a continuously active private
M&A market. Considering the recent activity in other Nordic
countries, the activity of financial sponsors in public M&A
in Finland could be a pivotal feature for the Finnish takeover
market in 2006.
On the regulatory side, 2006 brings along the welcomed
implementation of the EU Takeover Directive. This
implementation is expected to set the scene for a more active
takeover market in Finland.
The contemplated Finnish takeover regime
The EU Takeover Directive (Directive 2004/25/EC of the
European Parliament and of the Council of 21 April 2004 on
takeover bids) is due to be implemented throughout the EU by
May 20 2006.
In 2004, as a part of the legislative process, the Finnish
Ministry of Finance appointed a legislative working group to
draft a proposal for the implementation of the EU Takeover
Directive and to upgrade and modernize the national regulatory
regime on takeovers*.
The legislative working group has proposed certain
amendments for the implementation of the Takeover Directive in
Finland, subject to possible further amendments that might
occur during the forthcoming legislative process in the Finnish
parliament later this spring.
The contemplated amendments will primarily be incorporated
into the Finnish Securities Market Act. This coincides with the
pending modernization of the Finnish Companies Act, according
to which regulations pertaining to the securities market will
primarily be incorporated into the Securities Market Act
instead of the Companies Act.
Further, the contemplated implementation also increases the
use of self-regulation on the securities market in Finland. The
increase in self-regulation concerns, among others, the
voluntary provisions set out in Article 9 and 11 of the
Mandatory bid thresholds lowered
For a cross-border M&A practitioner, probably the
biggest proposed amendments relate to the revised thresholds
for mandatory bids and the removed obligation to launch a
mandatory bid if mandatory bid threshold is exceeded in a
voluntary bid concerning all securities of the offeree
With reference to the existing UK and Swedish models, it is
proposed that the threshold for a mandatory bid under the new
Finnish regime be lowered from the previous threshold of
two-thirds of the voting participation of the offeree company
to a dual threshold of 30% and 50%. This change, if enacted,
will be welcomed, as it should encourage a more active takeover
market in Finland by removing the existing unusually high
threshold of two-thirds, which stands out as an exception from
the takeover regimes of other European jurisdictions.
In accordance with the Takeover Directive, contrary to the
currently applicable rules, the proposal contains an exemption,
according to which there is no obligation for an offeror to
make a subsequent mandatory bid, if the mandatory bid threshold
is exceeded through a voluntary bid of all the offeree
company's securities. This amendment, in conjunction with the
liberalized rules on the pricing of voluntary takeover bids in
Finland (discussed below), is expected to facilitate voluntary
Changes to the pricing of takeover bids
Another big amendment to the Finnish takeover regime
concerns the pricing of takeover bids. As regards mandatory
bids, the pricing is currently based on the fair price
calculated on the basis of the historic performance of the
securities subject to the bid, which must also be paid to those
that have accepted a previous voluntary bid at a possibly lower
price. The existing mechanism makes reference to the historic
12-month weighted average price in defining the fair price,
which has created some frustration, especially in the bearish
stock markets experienced in Finland some years ago.
With the implementation of the Takeover Directive, the fair
price in a mandatory bid will, at the outset, be the price paid
by the offeror, or those acting in concert with it, for the
same securities in the six months before the mandatory bid.
Absent regulation in the Takeover Directive, if the offeror has
not acquired any securities in the offeree company in the six
months preceding the bid, the fair price in a mandatory bid
will, at the outset, be the historic three-month weighted
average price of the securities in question. A weighty reason
to deviate from the fair price could, however, affect the
pricing in both situations above.
As regards voluntary bids, it is proposed that provisions be
included on the pricing of voluntary bids regarding all
securities in the offeree company. The price will be the price
paid by the offeror, or those acting in concert with it, for
the same securities in the six months before the voluntary bid,
again, unless a weighty reason to deviate from this price
exists. If the offeror has not purchased any securities in the
previous six months, the pricing in a voluntary bid is, as a
rule, at the offeror's discretion.
It is also proposed that the price of securities purchased
by the offeror subsequent to the launch of a bid, including
after the bid's expiry, will in certain circumstances affect
the pricing of the securities purchased by the offeror pursuant
to the bid.
Rules concerning the launch of a competing bid and the
effects such a competing bid has on a pending original bid are
proposed in connection with the implementation of the Takeover
It is proposed that the launch of a competing bid gives the
original offeror the possibility to react to the launch of a
competing bid by amending its original bid. The original
offeror could extend the offer period for the original bid to
equal the competing bid and/or adjust the terms of the original
To balance the increased possibilities of the original
offeror, the Finnish regime proposes to introduce an
opportunity for a shareholder having already accepted the
original bid to revoke the acceptance during the offer period
of the original bid if a competing bid is launched. The
proposed amendment mirrors the existing German practice where,
in the case of a competing bid, a shareholder is entitled to
revoke their acceptance of the earlier bid made before the
launch of the competing bid.
If the competing bid is launched towards the end of the
original offer period, the Finnish Financial Supervision
Authority may require the original offeror to extend its offer
Announcements by the offeree company
Also, in line with the Takeover Directive, the working group
proposes to impose an obligation on the offeree company to make
its opinion on the takeover bid public. This opinion must be
made public without any delay once the offeree company has
received the bid offer from the offeror, and in any case no
later than five banking days before the close of the offer
period. The offeree company must render an opinion on the
takeover bid from the shareholders' perspective and the offeree
company must make a statement on the strategic plan presented
by the offeror, including its views on the effects of
implementation on all the company's interests and,
specifically, on employment.
Prohibition on frustrative actions opted in
Article 9 of the Takeover Directive sets out a voluntary
prohibition on the management of an offeree company to take
defensive actions to frustrate a bid. Defensive actions by the
offeree company are often pinpointed as a predominant feature
for the success or failure of a takeover bid.
It is generally regarded that the implementation of Article
9 of the Takeover Directive to prohibit frustrative actions
does not require amendments to the Securities Market Act, as
corresponding provisions either already exist or will be
introduced in the new Companies Act.
Various Article 9 issues would be governed by corporations'
self-regulation. To monitor this self-regulation, the Finnish
regime proposes to introduce a supervisory body. This
supervisory body would be subordinate to the Finnish Central
Chamber of Commerce and be vested with powers to issue
guidelines on corporate conduct based on the Takeover
Directive. Such guidelines may be enacted on a company level by
decisions of the general meeting of shareholders.
In addition to issuing guidelines, it is proposed that the
supervisory body be vested with the power to issue non-binding
recommendations on the application of corporate
self-regulation, whether based on the provisions of the
Takeover Directive, other self-regulatory provisions or on
requests for interpretation by the Financial Supervision
Authority. Although the guidelines and recommendations of the
supervisory body should not have binding effect, monitoring
adherence to the comply-or-explain principle under corporate
governance rules is, in practice, expected to lead to greater
compliance and the establishment of so-called best practices
under the Finnish takeover regime.
Breakthrough rule opted out
Article 11 sets out provisions on contractual arrangements
adopted to control the offeree company. The Article reduces the
applicability of transfer restrictions on the securities of the
offeree company if a takeover bid has been launched. It also
provides for the so-called breakthrough rule.
Finland proposes to exercise the option conferred by Article
12 of the Takeover Directive not to require Finnish companies
to comply with Article 11. Nonetheless, the Finnish proposal
for implementation acknowledges the general principles of the
Takeover Directive, while opting out of the measures stipulated
under Article 11. Simultaneously, the pending amendments to the
Finnish Companies Act will give detailed guidance on companies'
decision-making that will also apply to offeree companies.
Under the proposed Finnish regime, companies domiciled in
Finland would be able, on a company level, to opt in to Article
11. If a Finnish company resolves to opt in to the provisions
of Article 11 by including such a resolution in its articles of
association, it will have an opportunity to invoke similar
rules in a takeover in relation to other companies within the
EU that have opted in to a similar rule. Also, in relation to
Article 11, the above-mentioned supervisory body is proposed to
be vested with powers to issue guidelines and recommendations
on corporate conduct based on the Takeover Directive.
*Tarja Wist of Waselius & Wist served on the
legislative working group on the Finnish Bar Association's
Waselius & Wist
Mikko Eerola, partner, joined Waselius & Wist in
1998 after obtaining his LLM from the University of
Helsinki in the same year. He was admitted to the
Finnish Bar in 2002. In 2002, Eerola received a
postgraduate diploma in EU competition law from King's
College. During 2003 he was a visiting lawyer in an
international law firm in Brussels.
Eerola's main areas of practice include mergers and
acquisitions, EU and competition law, energy law and
corporate and commercial law. He is an author of
various publications in these fields.
Waselius & Wist
Mårten Knuts, associate, joined Waselius &
Wist in 2002 after obtaining his LLM from the
University of Turku and his MSc (Econ) from Åbo
Akademi University in the same year. Knuts performed
his court practice in 2004.
Mårten Knuts is a member of the Association of
Finnish Lawyers. His main areas of practice include
mergers and acquisitions, banking and finance and
capital markets and he is an author of various articles
in international publications.