General overview
What legislation governs the M&A activity within your jurisdiction?
M&A activity is governed mostly by the Commercial Code (the Code) and the Competition Act (the Act). With regard to the companies in the stock markets, M&A activity is governed also by the rules of the stock markets. Please note that the answers do not cover industry specific issues.
What was the impact of recent legislative changes on the nature and scope of the M&A activity?
No changes have been made recently to the legislation in relation to the M&A activity.
What were the most significant M&A transactions within your jurisdiction over the past year?
AS Magnum Medical and OÜ Parimex Invest
AS A Le Coq and OÜ Finelin
AS Sokotel and AS Hotell Viru
Tallink private placement and sales of shares.
How and to what extent is foreign involvement in M&A transactions within your jurisdiction regulated/restricted?
Mergers and acquisitions with foreign involvement are treated in the same way as those without and do not suffer any discrimination with regard to performance of M&A activity.
Due diligence
What are the principal disclosure requirements in a typical M&A transaction?
In a typical M&A transaction, the undertaking party must notify the Competition Board, if applicable, and in the case of listed companies, the undertaking party must notify the stock markets about the transaction. Also, in most cases, the Commercial Register must be notified about an M&A activity (for example, a merger of legal entities or acquisition of all shares of a company by one shareholder).
To what extent do disclosure requirements achieve market transparency?
There are no statistics covering all M&A transactions. The press, stock markets and Competition Board are the only channels for information, but they cover only the listed companies and transactions regulated by the Act. The closed stock companies (not listed in the stock markets) have to disclose information regarding a change of shareholders and this information is publicly available. All merger transactions are disclosed in Official Notices, which today exist in the form of an electronic database and are publicly available.
How significant is the issue of prospectus liability in a typical M&A transaction?
The issue of prospectus liability is only significant for listed companies. The issue is regulated by the rules of the stock markets: in the case of a merger or takeover a prospectus should be filed with the Financial Supervisory Authority. The law provides for any third party to claim for damages suffered due to infringement of stock-market rules, including damages incurred as a result of false or misleading information in the prospectus.
The Financial Supervisory Authority may issue a prescription requiring the violation to cease. Also, a fine of EKr50,000 ($3,962) may be imposed if the prospectus publication requirements or the stock-market rules are violated.
How did recent M&A transactions and/or legislation deal with the issue of material adverse change clauses?
The issue is not addressed specifically in Estonian legislation. But material adverse clauses are usually included in M&A documentation on the initiative, and at the discretion of, the parties.
Listed companies have to disclose information on material events in the company, including those related to M&A activities, to the stock markets.
What are the key unresolved issues within your jurisdiction?
The legislation regulating the operation of entities has only recently been adopted, so unresolved issues have yet to be identified. The most commonly mentioned issue is the lack of central statistics (except for listed stock companies and transactions regulated by the Act). But with the accession to the EU on May 1 2004 the application of the EU law may clear up unresolved issues.
Takeovers
Are there any specific regulations and/or regulatory bodies governing takeovers within your jurisdiction?
The Code stipulates specific regulations for the takeover of shares of minority shareholders for monetary compensation. The regulations governing takeovers are stipulated either by the Code, the company's articles of association and the Law of Obligations Act or only by the Law of Obligations Act (articles regarding the sale of goods) as well as the rules of the stock markets, depending on the nature of the takeover.
In case of joint-stock companies, the ECDS (Estonian Central Depository of Securities) should be notified immediately about the change of shareholders and, in the case of closed stock companies, the Commercial Register should be notified respectively.
What are the methods for achieving takeovers?
Takeovers may be achieved by several methods, which might be: (i) takeover of shares of minority shareholders for monetary compensation; (ii) purchase of shares or purchase of the property of the company; and (iii) mandatory offer. According to the rules of the stock markets, a shareholder that has acquired control over a listed company should make a mandatory offer (as a rule, control can be determined by 50% of shares, but the Financial Supervisory Authority may determine the existence of control in every specific case separately, based on particular circumstances).
How differently does legislation treat hostile and voluntary takeover bids?
Hostile takeover is not regulated in Estonia. The law prescribes very specific regulations for takeover of shares of minority shareholders for monetary compensation. Voluntary takeover is stipulated by the general terms of purchase of shares or property.
What penalties are imposed on parties that violate takeover regulations (or equivalent)?
In the case of takeover of shares of minority shareholders for monetary compensation, the Code determines that, at the request of a shareholder, a court may declare a takeover resolution that is in conflict with law invalid. The shareholder whose rights have been violated can claim for compensation of damages.
In the case of a voluntary takeover, the party whose rights have been violated can claim for all applicable remedies prescribed by the laws (that is, claims for damages, performance of obligation, diminution, and right of rescission).
The Financial Supervisory Authority may issue a prescription requiring the violation to cease. Also, if the takeover requirements or takeover rules are violated, a fine of Ekr50,000 can be imposed or takeover can be prohibited.
If a company fails to observe legal requirements related to concentration, the director general of the Competition Board has the right to issue a precept to a legal person. If the legal person fails to comply with the precept, the director general may impose a penalty of up to EKr100,000.
What are the thresholds for disclosing bids and offers?
The law does not prescribe special thresholds for disclosure. Companies participating in the stock markets must disclose all information regarding takeovers.
In case of concentration, a bid shall be subject to disclosure and control of the Competition Board if, during the previous financial year, the aggregate worldwide turnover of the parties to the concentration exceeded EKr500 million and the aggregate worldwide turnover of each of at least two parties to the concentration exceeded EKr100 million, and if the business operations of at least one of the merging undertakings or of the whole or part of the undertaking, whose control is acquired, are carried out in Estonia.
Competition/Antitrust
What were the recent developments in competition policy and legislation in relation to M&A within your jurisdiction?
No changes have been made recently in the legislation in relation to M&A. The laws regulating competition issues generally should comply with the EU laws.
How are the competition/antitrust regulations enforced within your jurisdiction?
The Act stipulates the competition/antitrust regulations. The regulations are enforced by the Competition Board, in some cases by the Ministry of Finance, as well as by the courts.
How does legislation approach the issue of abuse of the dominant position?
An undertaking in a dominant position is an undertaking that accounts for at least 40% of the turnover in the commodity market, or which enables the undertaking to operate in the market to an appreciable extent independently of its competitors, suppliers and buyers. According to the Act, any direct or indirect abuse by an undertaking of its dominant position in the respective market is prohibited, including the following:
directly or indirectly imposing unfair purchase or selling prices or other unfair trading conditions;
limiting production, service, goods' markets, technical development or investment;
offering or applying different conditions to similar agreements with other trading parties, thereby placing some of them at a competitive disadvantage;
entering into an agreement subject to acceptance by the other parties of supplementary obligations, which have no connection with the subject of such agreement;
forcing an undertaking to concentrate, enter into an agreement that restricts competition, engage in concerted practices or adopt a decision together with this undertaking or another undertaking;
unjustified refusal to sell or buy goods;
failure by an undertaking with special or exclusive rights or in control of essential facilities to perform the obligation specified in the Competition Act.
The director general of the Competition Board has the right to issue a precept to a legal person if the person abuses its dominant position. If the legal person fails to comply with the precept, the director general of the Competition Board may impose a penalty of to EKr 100,000.
To what extent are the parties of an M&A transaction subject to prior notification requirements?
All listed companies must notify the stock markets before the M&A transaction takes place. Companies subject to concentration (including M&A transactions) must notify the Competition Board and ask for the permission for the M&A transaction.
As mentioned, according to the Act, concentration shall be subject to control of the Competition Board if, during the previous financial year, the aggregate worldwide turnover of the parties to the concentration exceeded EKr500 million, and the aggregate worldwide turnover of each of at least two parties to the concentration exceeded EKr100 million, and if the business operations of at least one of the merging undertakings or of the whole or part of the undertaking, whose control is acquired, are carried out in Estonia.
Concentration will not be subject to control if credit institutions, financial institutions, insurers or securities' brokers, whose regular business activities include transactions and dealing with securities on their own account or on the account of others, acquire securities in an undertaking with a view to resell them, provided that they do not exercize voting rights in respect of those securities with a view to determining the competitive conduct of the undertaking that issued the securities, and provided that they exercize such voting rights only with a view to preparing the sale of the securities and that any such sale takes place within one year from the date of acquisition.
Author biography
Hedi Wahtramae
Ernst & Young Baltic AS, EY Law Manager, CPA (Estonia) since 1998.
Hedi Wahtramae received her diploma in law at the Faculty of Law (BA, 1992 to 1995) of Tartu University. Before joining Ernst & Young Baltic AS in 2002, Hedi worked as a consultant for Arthur Andersen AS for over seven years. Hedi specializes in corporate and M&A law and has considerable experience of tax and legal consulting for domestic and international companies, for example, foundation, merger, liquidation and restructuring of business activities.
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