The future of Finnish takeovers

Author: | Published: 1 Feb 2006
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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, plant nutrition).

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 Takeover Directive.

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 company.

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 bids.

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.

Competing bids

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 Directive.

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 bid.

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 period.

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 mandate

Author biographies

Mikko Eerola

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.

Mårten Knuts

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.