Nordic Market Newsletter
Facilitating Mergers and Demergers
The European Council set a goal in 2007 to reduce the administrative burdens on companies by 25% by the year 2012 in order to enhance the competitiveness of companies in the EU. Company law, especially the regulation of mergers and divisions, was identified as one area imposing numerous information obligations, some of which were considered outdated or excessive. The EU adopted a directive in 2009 with the intention to reduce the administrative burdens on companies to a minimum level. The directive (the “Amendment Directive”) was to be implemented nationally by 30 June 2011.
Directive 2009/109/EC of the European Parliament and of the Council of 16 September 2009 amending Council Directives 77/91/EEC, 78/855/EEC and 82/891/EEC, and Directive 2005/56/EC as regards reporting and documentation requirements in the case of mergers and divisions.
In Finland, the legislative changes implementing the Amendment Directive have recently passed Parliament and are expected to enter into force in August 2011. Although the Finnish Companies Act and related regulation already fulfill most of the requirements set out by the Amendment Directive, certain technical amendments are proposed to further reduce the costs incurred by limited liability companies due to the regulation of merger and demerger proceedings. The amendments also extend to unlisted companies in order to maintain consistency in the Companies Act, as well as to insurance companies. The cost savings due to the implementation are, however, deemed to be quite limited in Finland.
The proposed amendments include:
i) the removal of the obligation to send documentation in relation to a merger or demerger to shareholders, even when requested, provided the documentation is available for review and posted on the company’s website. For consistency, this possibility was proposed to be extended to general meeting material in general. The Economy Committee of the Finnish Parliament has, however, deemed appropriate that companies should, despite the new proposed wording of the Companies Act, send general meeting documentation to shareholders in hard copy if they so request, since all shareholders may not have reasonable access to the documents through the internet;
ii) the possibility to only have interim reports (as drafted on a regular basis by listed companies) instead of interim financial statements (often drafted specifically for the merger or demerger process) available for review in relation to a merger or demerger;
iii) the obligation to inform the other companies participating in the merger or demerger of material changes in assets and liabilities during the process (since an explicit requirement in this respect has not previously been stipulated);
iv) in subsidiary mergers (where the acquiring company holds 100% of the shares of the merging company), the new legislation makes decision making easier, allowing the resolution of the merger to be made by the board of directors in the merging company instead of the general meeting (currently this has only been an option) and, correspondingly, in demergers where the acquiring companies hold all shares and other equity securities of the demerging company, the resolution of demerger shall be made by the board of directors of the demerging company;
v) the shareholders of the acquiring company in a merger holding a minimum of 5% of the shares of said company may only require the resolution of merger to be made at the general meeting if the acquiring company holds less than 90% of the shares of the merging company;
vi) in full demergers where the shares of the acquiring companies to be established are divided as consideration in proportion to the shareholding of the demerging company, the presentation of certain documentation for the shareholders’ review will no longer be required.
Mergers and divisions: reporting and documentation requirements was implemented in Sweden on 1 June 2011 by amendments to the Swedish Companies Act (2005:551). The types of mergers and divisions regulated by the directive are unusual in Sweden. In Sweden, the directive constitutes small amendments to, primarily, chapters 23 and 24 of the Swedish Companies Act.
The Amendment Directive has been implemented in the Danish Companies Act with effect from 1 March 2011. As a consequence of the reduced requirements imposed on companies contemplating a merger or demerger, the Danish Companies Act now also allows public limited liability companies (A/S) (as opposed to only private limited liability companies [ApS] before the implementation) to abstain from preparing certain documents in connection with the merger or demerger. More specifically, the shareholders can unanimously decide to deviate from the company’s obligation to prepare a merger/demerger statement. Both in national and cross-border mergers and demergers, the shareholders may decide unanimously to not prepare an interim balance (no requirement exists if less than six months have passed since the expiry of the last financial year). Listed companies are now, without a unanimous decision by the general meeting, exempted from the obligation to prepare an interim balance provided that the company has published an audited interim financial report available to shareholders. Finally, companies are no longer required to have a valuation report prepared subject, however, to a statement by a valuation expert on the merger/demerger plan or a declaration by a valuation expert on the creditors’ position being prepared. This deregulation applies in both national and cross-border mergers and demergers.
Directive on Alternative Investment Fund Managers (“AIFM”) Formally Adopted
The Council formally adopted the AIFM Directive (“AIFMD”) on 27 May 2011. The directive will enter into force on the 20th day following its publication in the Official Journal of the EU and the Member States will have two years to implement the directive into their national laws.
The directive is one of the most debated pieces of financial regulation ever to emerge from the EU and has seen over 2,000 amendments to the original draft. The updated adopted directive is less draconian than the initial draft but it is still claimed to be “the most important legislative process ever faced by the European private equity and venture capital industry” according to EVCA.
The AIFMD covers managers of alternative investment funds (“AIFs”) which are based or marketed in the EU. There are some exemptions from the directive , most importantly funds that fall under the de minimis threshold (100/500 MEUR) and some already existing funds (“Grandfathering”).
The directive will impose increased administrative burdens, such as, inter alia, an authorisation requirement and an obligation to appoint an independent and qualified depositary. The directive’s focus on increased transparency may have a severe impact for private equity managers who might be obliged to disclose sensitive deal information regarding, inter alia, financing information and information on their future intentions for the business and the likely repercussions on employment.
Managers who will be regulated under the directive are advised to start preparing for compliance with the directive as soon as possible. Please note that funds and the companies they acquire today are likely to be regulated by the directive within two years. The forthcoming requirements, especially regarding transparency and disclosure, should therefore be taken into consideration today, e.g., when drafting investment agreements.
Proposed Changes to Rules on Capital Adequacy and Large Exposures
The Swedish Financial Supervisory Authority has proposed that changes should be made in rules regarding the capitalization and disclosure of information for financial companies. The new rules would implement changes in two EU-directives. The changes are suggested to enter into force on 31 December 2011.
Proposed Changes to Swedish Companies Act Regarding Issuance of Shares
An investigator has reviewed the current so-called Leo-rules in chapter 16 of the Swedish Companies Act (2005:551). The results were published in a memorandum. The investigators proposition contains, in short, some relief regarding the issuance of shares to employees etc. compared to the current regulation in the Swedish Companies Act and mainly concerns listed companies.
Regulatory Notices from Nasdaq OMX
- Notification of Changes to Rulebook for Issuers
NASDAQ OMX Stockholm AB (the “Exchange”) has decided to make changes in sections 4.1, 4.2.2 and 4.2.3 of the Rulebook for Issuers of shares. The amendments concern the publication of valuation reports and documents relating to transactions with closely related parties. The amendments also concern rules regarding the purchase of a company’s own shares through a stock broker.
- Notification of Changes to Rules Regarding Fixed-Income Instruments
This amendment specifies that issuers must publish a listing document on their websites, if such is issued.
- NASDAQ OMX Stockholm Disciplinary Committee Fines AllTele
The Disciplinary Committee of NASDAQ OMX Stockholm has ruled that the listed company AllTele Allmänna Svenska Telefonaktiebolaget (“AllTele”) on three occasions breached the Exchange’s rules and regulations governing public information and the disclosure of information to the stock market.
The case concerns AllTele’s disclosure of information in relation to a forecast, a change of control clause, and, finally, guidelines for compensation to senior executives.
- NASDAQ OMX Stockholm Disciplinary Committee Fines Carnegie Investment Bank, Skandiabanken and UBS
Carnegie Investment Bank, Skandiabanken and UBS, trading members at the Exchange, have contravened the Exchange’s rules and regulations by mediating sales orders subject to terms that deviated from the current market value.
Swedish Securities Council
In statement 2011:14 (Aqualiv), the Securities Council granted two companies an exemption from the mandatory bid obligation. Renhult Invest was granted an exemption for its subscription of shares in Aqualiv, making its ownership as high as 42 per cent. The exemption was granted due to the fact that the transaction could be beneficial for other shareholders. In another transaction, Renhult Invest was to transfer shares in a third company to Aqualiv, which would put the latter above the mandatory bid threshold. In respect to Renhult Invest’s ownership in Aqualiv, the Council granted an exemption from the mandatory bid obligation since there would be no de facto change in the ownership.
In statement 2011:12 (Reinhold Polska) an exemption from the mandatory bid obligation was granted since the new shares constituted payment in an acquisition of a company.
In statements 2011:08 (Karolinska Institutet Holding) and 2011:13 (Transmode Holding), the Council was asked whether a mandatory bid obligation would arise in connection to the listing of a company’s shares on a stock exchange. One of the shareholders was to lend shares to facilitate the delivery of shares to the new owners emerging. The company would fall below the mandatory bid threshold. The shares would also be subject to conditional trade. According to the Swedish Securities Council, no mandatory bid obligation would arise in either of the listings if the shareholder once again exceeded the threshold when the shares were returned.
Changes to Danish Marketing Practices Act
Two significant changes to the Danish Marketing Practices Act have been proposed and amended by the Danish Parliament. From 1 July 2011, the use of coupons in price marketing as well as marketing through prize competitions based on consumer purchases are no longer prohibited.
On 1 June 2011, long awaited legislation was passed in Denmark, as the 15 year old prohibitions on the use of coupons in price marketing as well as marketing through prize competitions, where the consumers are forced to purchase a product in order to participate, were removed. The changes to the Act have been initiated by the Danish Consumer Ombudsman following two decisions rendered by the Court of Justice in 2009 and 2010. In these decisions, the Court of Justice decided that similar prohibitions in Belgium were in conflict with the EC Unfair Commercial Practices Directive.
Since the decisions were rendered by the Court of Justice, the Danish Consumer Ombudsman has not enforced the prohibition on marketing activities that fell within the category of coupons or prize competitions, but it is not before 1 July that such activities for the first time will be legal in Denmark. This means that, in the future, international companies may now also include Denmark in pan-European marketing campaigns using these methods - still taking into consideration, of course, regular consumer protection legislation.
The Danish Marketing Law team is available for reviews of marketing material in order to ensure that these are not in conflict with any national consumer protection legislation.
Changes in Stock Exchange’s Rules
Oslo Børs has decided on changes in the rules regarding the day-to-day obligations for listed companies as well as in the admission rules. Among the changes in the day-to-day obligations is a demand to make public all decisions on changes in the board of directors of a company, as well as the CEO or financial director. The changes enter into force on 14 July 2011.
Oslo Børs has also made similar changes and amendments to the rules regarding bonds. They enter into force on the same date as above.