Norway: Returning to health

Author: | Published: 1 Apr 2012
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Although the Norwegian economy was, comparatively, not as hard hit as its neighbours during the financial turmoil of 2008, M&A activity was still significantly less pronounced in the aftermath of the financial crisis. Activity in 2010 and 2011 seems almost to have returned to pre-2008 levels.

The Norwegian economy in general is powered to a large extent by the energy and shipping industry; however, significant M&A-activity will occur across a broad spectrum of industries.

Among the largest domestic transactions in 2011 were China National Bluestar's acquisition of Elkem and Transocean's tender offer for the shares in Aker Drilling. Norwegian companies were also active internationally as evidenced by Statoil's tender offer for the shares in the US company Brigham Exploration. Another feature in the Norwegian transaction market in 2011, although not strictly falling within the traditional M&A label, was the sale by several incumbents including Statoil of their shares in the Norwegian gas pipeline system Gassled to various financial buyers.

The Oslo Stock Exchange (OSE) has, as predicted by most analysts, experienced a volatile year. The OSE is the world's largest marketplace for seafood. It is also the second-largest regulated market for shipping worldwide, and the second-largest in Europe for energy. These three rather volatile sectors have been the key drivers of the development on the OSE in 2011.

Last year, a total of 13 public offers were launched on the OSE, a decrease compared to the level in 2010. Furthermore, a total of 13 new listings in 2011 on the OSE (including Oslo Axess), including the IPO of Kværner ASA, represent a decrease from the 20 new listings in 2010.

Norwegian law is consistent with the latest European Union regulations, and has implemented key EC directives relating to takeovers, merger control and similar. However, Norwegian legislation applies lower thresholds for filing obligations than their European counterparts.

The acquisition of a Norwegian company or business may take many forms, depending both on the requirements of the acquirer, the corporate structure of the target company and the nature of its business. When structuring an acquisition, it is recommended to consider whether the acquisition should take the form of an acquisition of the entire corporate entity or certain subsidiaries, of certain assets or be structured as a merger. In determining the structure, one must inter alia consider which liabilities will be assumed from the target company and tax aspects. An acquisition of a privately-held company is not subject to such strict statutory requirements as an acquisition of a listed company. In a privately-held company the contractual framework for share ownership in the form of shareholder agreements and the articles of association of the target company are normally of significant importance, however.

The most common transaction form in Norwegian transactions is an acquisition of shares in the target company. Most Norwegian companies are organised as limited liability companies (aksjeselskap, or AS), and discussion in this article will be limited to transactions in these companies.

A transfer of shares in a privately-held Norwegian limited liability company is subject to pre-emptive rights for existing shareholders and requires the approval of the board of directors unless the company's articles of association provide otherwise. The board of directors must consider a request for approval as soon as possible after the transfer has been reported to the company, and consent cannot be unreasonably withheld. Pre-emption rights are subject to a detailed regime for providing notices and so on, either under statute or in the articles of association.

An investor acquiring more than 90% of the share capital and an equivalent share of the voting rights may squeeze out the remaining shareholders. The minority shareholders have a corresponding right to require the majority shareholder to acquire their shares.

If the selling company is a shareholder in the buying company there are certain additional procedures regarding corporate consent, documentation, and registration that need to be observed.

Tax issues


A sale of a company's assets is considered a realisation of the individual assets transferred, which constitutes a taxable event. Such a realisation may give rise to a capital gain or loss depending on the value of the assets transferred compared to their tax basis.

A capital gain will be subject to tax at a rate of 28 %. The tax may in some cases be deferred depending on the type of asset in question. Capital loss may be carried forward and deducted in future years, provided that the transferring company continues to exist.

In an asset purchase, the purchase price must be allocated among the assets acquired. How the purchase price is allocated on the individual assets can be of great importance to the parties because the tax rules regarding, for instance, depreciation and deduction, differ from one type of asset to another. Allocation must be made on the basis of market value, independent of what the book value of the seller was. Any payment in excess of the market value of the tangible assets may be classified as acquired goodwill and depreciated at a rate of 20 %. The tax authorities are entitled to reallocate the purchase price between assets if they deem the allocation made by the parties to be in conflict with the real market values.

If it is likely that a sale will result in capital gain, it will from a seller's perspective often be preferable to sell shares rather than assets. For corporate shareholders that are tax resident in Norway, the gain on a sale of shares in a limited liability company is not subject to tax. A loss on a share sale is on the other hand not deductible, so if the sale is likely to produce a loss, a sale of assets would be preferable.

As a general rule, investors who are not tax resident in Norway are not subject to taxation in Norway for any gain on a sale of shares in Norwegian companies. However, there are some exceptions, for instance for personal investors that carry out business activities in Norway.

From the buyer's perspective it may for pure tax reasons be preferable to buy assets rather than shares. For instance, in a share acquisition, the purchase price cannot be depreciated, it creates no step-up of the tax base of the assets of the enterprise, and no part of it may be allocated to depreciable goodwill. An asset sale is, however, a more cumbersome transaction and raises issues regarding the survival of contracts and rights of employees that buyers normally wish to avoid.

Merger


A merger of limited liability companies is defined as the transfer by one or several companies (the surrendering company(ies)) of all assets, rights and obligations as a whole to another limited liability company (the surviving company), with the shareholders of the surrendering company being compensated by way of shares in the surviving company. Alternatively the compensation may consist of a combination of shares and cash, provided the amount of cash does not exceed 20% of the aggregate compensation. In the event that the surviving company belongs to a group, and if one or more of the group companies hold more than nine-tenths of the shares and the votes of the surrendering company, the compensation to shareholders of the surrendering company may also consist of shares in the parent company, or in another member of the surviving company's group. In any event, once the merger has been consummated by the surviving company the surrendering company is liquidated.

A merger may also be effected pursuant to the rules set out above by combining two or more companies into a new company established for the purpose, and thereby liquidating the surrendering companies.

As a general rule, the merger and a specific plan for the merger must be approved by a qualified majority of two-thirds of the votes at the general meeting in each of the merging companies. In addition to the merger plan, there are certain other documents that must be prepared in the merger process. It is the board of directors' responsibility to prepare the necessary documentation, and the board is obliged to inform the employees about the merger plan. The remuneration shares to the shareholders in the surrendering company are issued according to the rules applicable for capital increases.

The merger resolutions must be reported to the Register of Business Enterprises within a certain period of time to avoid the resolutions being deemed void.

In the event of a merger between a parent company as the surviving company and its wholly-owned subsidiary, the merger process is somewhat simplified insofar as all resolutions may be passed by the board of directors of the two companies, thus avoiding (among other things) the necessity for resolutions by the general meeting.

In the case of a merger between one or more limited liability companies and one or more foreign companies with limited liability, the Norwegian legislation is based on the provisions in EC Council Directive 2005/56/EF, but accommodated to the Norwegian public limited companies act. Such mergers are conditioned on the foreign company having a registered office or head office in another EEA state and being governed by the laws of an EEA state other than Norway. A private or a public limited liability company can only be merged with such foreign company as here described, which has a company structure that according to its state's company legislation corresponds to a private or a public limited liability company.

Under current law, most mergers between limited liability companies may be carried out tax free at both company and shareholder level. A loss carry-forward is not automatically lost in a merger, except where use of a loss carry-forward for tax purposes is in fact the dominant reason for the merger. Irrespective of which accounting method is applied for accounting purposes, continuity must be used in the tax accounts. A merger cannot give any right to the appreciation of assets for tax purposes.

Public takeovers


Norwegian law requires that a mandatory offer must be presented to all shareholders of a Norwegian company listed on the OSE if any person (or consolidated group) as a result of acquisition(s) becomes owner of shares representing more than one-third of the voting rights. A mandatory offer is subject to regulation which implements Directive 2004/25/EC on takeover bids.

A voluntary offer may be launched at the offeror's discretion; however if a voluntary offer is made which, if accepted by shareholders eligible to accept, may lead to the passing of the one-third threshold, certain parts of the mandatory offer regulation will apply to the voluntary offer. The main difference between a mandatory bid and a voluntary bid is that under a voluntary bid the offeror may make the bid conditional and offer consideration other than cash.

Key issues when structuring a takeover strategy, apart from determining whether to launch a mandatory or voluntary offer, include issues such as target's disclosure requirements, handling of insider information, securing pre-acceptances for the forthcoming bid, and considering whether to tie up the board of the target company through a transaction agreement.

Mandatory offers


Any person or consolidated group that acquires more than one-third of the voting rights of a Norwegian company listed on a regulated market is required to make an unconditional general offer to acquire all issued shares of the company within four weeks. The mandatory offer requirement is also triggered when a shareholder, through acquisitions, controls 40% or 50% or more of the voting rights in the company, provided that the shares are not acquired under the initial mandatory offer. The shareholder may dispose of the shares to avoid the obligation to present an offer.

An offeror acquiring more than 90% of the share capital and an equivalent share of the voting rights, may squeeze out the remaining shareholders, usually at the price payable in the public offer. Thus, a public offer is generally considered successful if the 90% acceptance level is reached.

The offer price must, as a general rule, be equivalent to the highest price the acquirer has paid or agreed to pay in the six-month period before the requirement to make a mandatory offer. Settlement under a mandatory offer should be in cash, but the offeror may also give the offerees a right to choose other forms of settlement.

The offer document must be approved by the supervisory authority before publication. The approval process takes up to two weeks from the time the draft offer document is presented to the OSE.

The board of directors of the target company must issue a statement on the offer, disclosing its opinion on the effects of the offer. Such statement must be published no later than one week before the end of the offer period.

The offeror must provide a bank guarantee from a bank authorised to do business in Norway as security for the settlement of a mandatory offer.

Voluntary offers


Under a voluntary offer the offeror must also prepare an offer document which must be approved by the supervisory authority, the OSE, before publication. The board of directors of the target company must still issue a statement on the offer, disclosing its opinion on the effects of the offer. The offeror is also under a strict obligation of equal treatment of the shareholders of the target company. A voluntary offer may be subject to conditions. Common conditions are minimum acceptance levels, financing, satisfactory due diligence and governmental approvals.

Merger control


Norwegian merger control rules are to a large extent inspired by and similar to the EU merger control regime.

The Norwegian turnover thresholds are very low compared to most other jurisdictions. A takeover will require filing in Norway if each of the purchaser and the target company has a turnover in Norway exceeding Kr20 million (€2.3 million; $3 million), provided that their combined turnover in Norway exceeds Kr50 million. Norwegian merger control rules are of significant practical importance due to the low filing thresholds. Merger filing in Norway will often be required if both parties have some sales to Norwegian customers, even if none of them are established in Norway. The filing thresholds are under review and there exists a proposal for a significant increase, but any revision is not expected to become effective until 2013 at the earliest.

The procedure of the Norwegian Competition Authority (NCA) in merger cases is divided into two main phases, similar to the EU merger control rules. However the content requirements for a so-called standardised notification, which starts off phase 1, are very limited, and the duration of the initial review is only 15 working days.

If the NCA finds reason to examine the merger in further detail, it will order the submission of a complete notification, bringing the case to phase 2. The content requirements for a complete notification are considerably more detailed than for a standardised notification.

A standstill obligation applies to all transactions that have to be notified to the NCA, which means that the parties cannot implement the transaction until the expiry of the 15-working-day period at the earliest. If the submission of a complete notification is ordered by the NCA, the standstill obligation will be extended for at least another 25 working days following the submission.

As under the EU merger rules, a public bid or a series of transactions in securities admitted to trading on a market such as the Oslo Stock Exchange, can be partly implemented notwithstanding the general standstill obligation. In order for the exemption to be effective, the acquisition will have to be notified immediately to the NCA. In the NCA's comments to the regulation in question it is stated that "immediately" will normally mean the day control is acquired.

Standardised notifications may be submitted in English, whereas complete notifications have to be submitted in Norwegian.

Ketil E Bøe
  Ketil E Bøe is a partner in Wikborg Rein’s Oslo office and is part of the firm’s corporate group.

For several years, he has been advising Norwegian and international companies on mergers, acquisitions, sales and restructurings in Norway as well as abroad. In recent years he has advised Norwegian clients on several profiled cross-border acquisitions. He also advises on trades in listed securities, as well as stock-exchange introductions, equity issues and establishing new businesses. In addition, Bøe assists Norwegian and international actors with investments, project work and general commercial law advice. His clients include Norwegian listed companies, Norwegian and international banks and investment banks and profiled international companies.

Wikborg Rein
Kronprinsesse Märthas pl. 1
0160 Oslo

Postboks 1513 Vika
0117 Oslo
T: +47 22 82 75 00
F: +47 22 82 75 01
W: www.wr.no

Kaare Christian Tapper
  Kaare Christian Tapper is a senior lawyer at Wikborg Rein’s Oslo office and is part of the firm’s corporate group. His main areas of practice relate to company and securities law, mergers and acquisitions, and other equity transactions.

Wikborg Rein
Kronprinsesse Märthas pl. 1
0160 Oslo

Postboks 1513 Vika
0117 Oslo
T: +47 22 82 75 00
F: +47 22 82 75 01
W: www.wr.no