SWEDISH UPDATE – Proposed Revised Swedish Takeover Rules
- A review of the Swedish Takeover Rules has resulted in a proposal to amend and update the Rules in a number of respects including, deal protection, top ups, and the put up or shut up regime.
- The revision has also resulted in the codification of a number of Securities Council statements including disclosure of holdings of long equity derivatives.
The Swedish Corporate Governance Board has published a proposal for revised takeover rules. It is expected that the revised rules will be adopted by the two stock exchanges, NASDAQ OMX Stockholm AB and Nordic Growth Market NGM AB, and enter into force on 1 July 2012. This article summarizes certain proposed key changes.
DEAL PROTECTION MEASURES
Under the revised rules the target board may not enter into any deal protection arrangements, such as no-shop provisions and inducement fees, unless the target board determines in each case that there are “special reasons” that justify such arrangements. This modification is intended to express a restrictive approach to deal protection measures.
The revised rules clarify that pre-offer acquisitions where the bidder agrees to compensate a seller of target shares for any difference between the sale price and the ultimate bid price are permitted.
THE ACCEPTANCE PERIOD
The revised rules clarify that the bidder is not required to extend the acceptance period if the bid becomes subject to a “Phase II” investigation by a competition authority.
THE “PUT UP OR SHUT UP” REGIME
The current rules provide that if the bidder has made a leak announcement of a possible offer, the Securities Council may impose a deadline by which an offer must be made and, unless a bid is made by that deadline, impose restrictions to prevent the bidder from making an offer for the relevant target during a certain period. The revised rules clarify that the Securities Council has the authority to impose a deadline by which a bid must be made also where no leak announcement by the bidder has been made, if the target would otherwise be hindered in the conduct of its affairs for longer than is reasonable.
EXEMPTION IN RESPECT OF WARRANTS AND CONVERTIBLE DEBT INSTRUMENTS ISSUED UNDER EMPLOYEE INCENTIVE SCHEMES
A public offer must generally be made for all warrants and convertible debt instruments in the target at a “fair“ price. It has become common practice for bidders to ask the Securities Council for a dispensation not to make an offer for such securities if they have been issued under an employee incentive scheme. Such dispensations are normally subject to a condition that the holders of such securities receive “fair” treatment by the bidder outside the offer. The revised rules codify this practice by introducing a blanket exemption from the requirement to make a public offer for securities that have been issued under an employee incentive scheme, provided that the bidder ensures that the holders of such securities are treated fairly outside the offer.
RESTRICTIONS FOLLOWING AN UNSUCCESSFUL BID
The current rules provide that if a bid is withdrawn, the bidder and its concert parties cannot (except in accordance with a waiver from the Securities Council), within 12 months of the expiry of the acceptance period, make another bid for the same target or acquire a stake in the target that would require the bidder to make a mandatory bid. The revised rules clarify that this requirement does not apply where the bidder announces a recommended bid during the 12-month period.
The revised rules provide that if the bid has been made subject to the approval of the general meeting of the bidder or the target, reliance on such condition requires that the non-satisfaction of the condition is of material importance to the bidder’s acquisition of the target. The practical impact of this modification should be limited since this type of condition is normally only relevant in exchange offers and the non-satisfaction of such condition in exchange offers would generally satisfy the materiality test.
PUBLIC STATEMENTS OF INTENTION
Under the current rules a bidder may not generally set aside a “no-extension statement”. The revised rules clarify that the Securities Council has the authority to determine also in other cases whether parties involved in a takeover may set aside firm statements of intention, such as statements by a bidder that the bid will not be “increased” or “revised”.
RESTRICTIONS CONCERNING THE DISCLOSURE OF NEW INFORMATION
Under the revised rules the target board should generally not announce new information of “importance to the assessment of the bid” later than two weeks prior to the expiry of the acceptance period, other than in accordance with its continuing disclosure obligations.
CODIFICATION OF SECURITIES COUNCIL STATEMENTS
The revised rules include a number of modifications intended to codify certain Securities Council statements, including the following.
- Any incentive scheme offered by the bidder to target employees will need to be approved by the target board and be disclosed in the offer documentation.
- A bidder is required to disclose its holdings of long equity derivatives in the offer documentation, even if such derivatives are cash-settled.
- A bidder is not required to make a “fair” offer for warrants issued by the target if the value of the warrants (generally including their time value) is negligible, whereas such offer is generally required to be made for convertible debt instruments even if the value of the conversion right is negligible.