Unlike the legislation in most other European jurisdictions, the Swedish Companies Act or any other similar piece of Swedish legislation does not specifically address public offers and other forms of corporate takeovers. Even though the regulation on takeovers in Sweden underlies statutory law, the Swedish securities market is highly influenced by self-regulatory recommendations. The main source of information regarding takeovers is the Recommendation concerning Public Offers for the Acquisition of Shares issued by the Swedish Industry and Commerce Stock Exchange Committee (NBK). Stock market companies that are listed on the Stockholm Exchange are obliged to enter into a listing agreement with the Stockholm Exchange, of which a number of NBK-recommendations are made part. Consequently, non-listed companies are not contractually bound by the recommendations. Failure to comply with the requirements in the takeover regulation would result in bad feeling and criticism from the Swedish securities Council (Sw. Aktiemarknadsnämnden) and Swedish media and, in the case of a listed company, the Stockholm Exchange might decide to de-list the company's shares from the exchange.
The Swedish Securities Council has the right to interpret the takeover recommendation and to grant dispensations from its requirements.
Scope of the new recommendation
In 1971, the first recommendation on takeovers in Sweden was issued. Its essential features were based on the London City Code on Takeovers and Mergers. Revised and updated versions of the first recommendation were issued in 1988 and 1999. At the beginning of 2003, the NBK issued a new takeover-recommendation, applicable on takeover bids that are made public on or after March 1 2003. The most substantial changes that this recommendation will introduce are the following:
- the field of application is extended;
- further requirements regarding preparations of takeover bids and a new time frame for preparing a prospectus;
- rules regarding the execution of due diligence investigations;
- further disclosure requirements;
- stricter requirements on the conditions for the implementation of takeover bids;
- requirements regarding the financial conditions of the bidder;
- restrictions on the bidder withdrawing an announced takeover bid;
- the main principle as to the equal treatment of shareholders made more stringent; and
- fundamental general principles as guidance.
The recommendation will have an impact on takeover bids not only made on or by Swedish listed companies but also on foreign target companies listed in Sweden. Because a foreign target company may have to comply with regulations in more than one jurisdiction and this might be considered unreasonable, the Swedish Securities Council can grant a dispensation from the recommendation. This dispensation is more likely to be granted if the trading in the shares in Sweden is less substantial.
The recommendation stipulates that the bidder must make due preparations regarding the implementation of the takeover bid, meaning that it must be able to show that it has got the ability to implement the bid and that its intentions are sincere. However, the takeover bid may be subject to conditions relating to shareholder or regulatory approval.
The decision to implement a takeover bid must be followed by an immediate press release containing certain details relating to the takeover. The scope of the information to be disclosed has been extended in the recommendation. Furthermore, unless a despensation is granted by the Swedish Securities Council, it is now required that a prospectus must be presented within five weeks from the date of the press release containing the takeover bid.
Restrictions have been introduced regarding the bidder´s trading in shares of the target company following a due diligence investigation, which are stricter than those found in the Swedish Insider Penal Act. A due diligence investigation should be limited to verifying facts related to the takeover bid. Competing bidders will normally be provided with equivalent information. It is recommended that the target company and the bidder enter into a confidentiality agreement to prevent leakage of information and insider trading. Should the target company provide the bidder with non-public and price sensitive information, the target company must ascertain that the shareholders of the target company are provided with the same information before they decide to accept or reject the takeover bid.
If the implementation of a takeover bid is conditioned by certain circumstances, the recommendation prescribes that such conditions must be made precise and clear in order to establish objectively whether the conditions have been fulfilled or not. Arbitrarily designed conditions are consequently not accepted.
Requirements have been introduced regarding takeover bids that are subject to external financing. Such bids must be made conditional on the external financing being paid out. The specific conditions relating to this must be reflected in the press release as well as in the prospectus.
Rules related to the bidder´s ability to withdraw an announced takeover bid are made more restrictive. After a takeover bid has been publicly announced, withdrawal is only permitted in the following cases:
- if the bid is conditional to shareholder approval on a general meeting of the bidder or the target company;
- if there are competing offers and the bid is conditional on the fact that such competing offers do not exist; or
- if it is clear that conditions of material significance will not be fulfilled.
To strengthen the main principle regarding equal treatment of shareholders, the Recommendation stipulates that the minimum offer price should be determined by reference to the highest price paid by the bidder for shares in the target company in the six months before and the nine months after the offer. Furthermore, it is now stipulated that if more than 10% of the shares of the target company are acquired by the bidder for consideration in cash six months before the announcement of the takeover bid, the shareholders of the target company will also be entitled to a cash alternative.
Finally, a number of general principles are introduced as guidance in the recommendation. Apart from the main principle of equal treatment of shareholders and respect for the confidence that has to be put into the capital markets, the recommendation puts emphasis on speed, simplicity and clarity, when handling and implementing takeover bids. Furthermore, the recommendation now stipulates that the board of the target company cannot take any action that is likely to put a takeover bid at risk, unless approved by the shareholders of the target company at a general meeting of shareholders or a dispensation to that effect is granted by the Swedish Securities Council.
Klaes Edhall and Charlotta Grähs