The new Helsinki Takeover Code takes effect on 1 October 2022
The Finnish Securities Market Association has approved a new, revised Helsinki Takeover Code which enters into force on 1 October 2022.
The New Code provides for the following material changes:
- will apply to mergers in addition to takeover bids;
- regulates transactions on a multilateral trading facility (such as Nasdaq First North Growth Market Finland) in addition to transactions on a regulated market (such as the official list of Nasdaq Helsinki);
- more detailed disclosures of contractual arrangements with the offeror will be required, concerning for instance break-up fees;
- more detailed disclosures of contractual arrangements and undertakings entered into with the target company’s shareholders will be required, such as irrevocable undertakings;
- the binding nature of certain intentions and plans in the bid process has been specified; and
- the offeror will be required to maintain project lists of persons with access to information about the project also in situations where Regulation (EU) No 596/2014 (Market Abuse Regulation) would not technically require this.
The New Code also includes a number of structural and technical changes to the recommendations and explanatory notes, which are intended to provide for further clarity on its application in different takeover scenarios.
Expanded scope of application
The scope of application of the New Code covers not only takeover bids but also mergers. The New Code applies when the merging company is a Finnish limited liability company whose shares have been admitted to trading on a regulated market or, by application of or with the consent of the merging company, admitted to trading on a multilateral trading facility. Under the New Code, the acquiring company is generally treated as the offeror, the merging company as the target company, and the disclosure of the bid as the disclosure of the merger plan.
The New Code includes detailed guidelines on how the individual recommendations will apply to mergers, considering in particular the differences between takeover bids and mergers from the perspective of corporate and securities law. The recommendations of the New Code that apply to mergers include:
- Recommendation 1: ensuring prerequisites to complete the transaction;
- Recommendation 2: duty of the board of directors of the target to take measures due to a proposal;
- Recommendation 3: contractual arrangements with the offeror;
- Recommendation 4: disqualification issues and other connections to the transaction of the members of the board of directors;
- Recommendations 6 and 7: due diligence review both in respect of the target company and the offeror;
- Recommendation 8: actions of the target company in the event of a competing transaction;
- Recommendation 9: acquisition of securities of the target company from the market;
- Recommendation 10: preparing for information leaks;
- Recommendation 11: disclosure of the transaction;
- Recommendation 12: binding nature of the intentions and plans of the process; and
- Recommendation 13: invoking completion conditions.
When announcing the merger plan, the acquiring company and merging company must state whether they have undertaken to comply with the New Code and, if not, the reasons for non-compliance. Thus, the comply or explain model, on which the New Code is based, also applies when the transaction is structured as a merger.
The New Code requires the acquiring company to disclose information on the securities of the merging company it has acquired and on the consideration paid (if any). In connection with the announcement of the merger plan, the acquiring company must disclose information on shares in the merging company (and securities giving rights to such shares) issued by the merging company that have been acquired by the acquiring company or by a person acting in concert with the acquiring company during the six months before the merger plan has been signed, and the consideration paid.
The acquiring company must also disclose corresponding information on securities acquired after the disclosure of the merger plan and before the general meeting of the merging company deciding on the merger.
Contractual arrangements with the offeror
The recommendation regarding contractual arrangements between the target and the offeror has been updated to correspond to recent Finnish market practice.
Under the New Code, the board of directors of the target company must not, without justifiable reason, commit to contractual arrangements that limit the freedom of action of the target company and the board. If the board commits to such contractual arrangements, the commitment must be in the best interests of the shareholders.
In its statement about the offer, the board of the target company must give reasons for any material commitments that limit the company’s or the board’s freedom of action. Such material commitments include all commitments in force at the time of or after the announcement of the bid, including any combination or transaction agreement.
Material exclusivity arrangements that have expired prior to the announcement of the bid may also need to be made public. However, short-term commitments made during the negotiation process or, for example, during a due diligence review are generally not considered to be material commitments that must be justified in the board’s statement if, before entering into the commitment, the board has assessed the company’s options and is not aware of a competing bid at the time of the commitment.
With regard to break-up fees, the New Code specifies that, if the offeror imposes a break-up fee as a condition for making a bid that would be favourable to shareholders, it may be justified to accept such an arrangement provided that:
- in the opinion of the board of directors, acceptance of the arrangement and receipt of the bid is in the interests of the shareholders; and
- the amount of the break-up fee is reasonable and, as a general rule, based on the costs incurred by the offeror in preparing the bid.
According to the New Code, the assessment of the reasonableness of the amount of the break-up fee may not be influenced by the amount of a possible reverse break-up fee (that is, a break-up fee payable by the offeror in the event the offeror causes the termination of the bid). Furthermore, it is recommended that the target company should carefully define the situations in which a break-up fee may be payable. The New Code clarifies that it is not justifiable for the target company to pay a break-up fee in a situation in which the bid is not completed due to a reason arising from the offeror.
Additional disclosure obligations
The New Code imposes an obligation on the offeror to disclose material terms and conditions of undertakings relating to the bid given by the target company’s shareholders as well as combination or transaction agreements with the target company, if such undertakings or agreements are in place.
The New Code provides that the offeror must disclose shareholdings and voting rights of shareholders in the target company who have undertaken, conditionally or unconditionally, to accept the bid, and the material terms and conditions of such undertakings. Such material terms and conditions generally include terms under which such shareholders may withdraw the undertakings, and which may affect the ability of such shareholders to accept a competing bid, including the possible threshold value contained in the undertakings and the period of validity of the undertakings. Furthermore, the offeror must also disclose shareholdings and voting rights of shareholders in the target company who have otherwise announced their support for the bid.
If the offeror and the target company have signed a combination or transaction agreement, the offeror must also describe the material terms and conditions of that agreement. Terms and conditions that may generally be deemed material include those concerning the consideration offered, timetable, possible break-up fee, and negotiation prohibitions, as well as all terms relevant to the assessment of the bid itself. Material terms of the agreement also include the procedural requirements to be followed in the event of a competing bid, such as a possible right for the first offeror to consider competing bids and increase its own bid as a condition to changing the endorsement made by the board of directors (including related waiting periods).
The recommendation concerning preparation for information leaks has also been amended to specify that the offeror must maintain a project list of individuals with access to information about the project. The project list must be drawn up no later than when the information about the project constitutes inside information concerning the target company. The recommendation is aimed at covering situations in which the offeror is not obligated to keep an insider list under the Market Abuse Regulation.
Multilateral Trading Facilities
The New Code also applies to mergers and takeover bids where the shares of the target company, by application of or with the consent of the target company, have been admitted to trading on a multilateral trading facility, such as Nasdaq First North Growth Market Finland.
With respect to mergers and takeover bids on a multilateral trading facility, the New Code is based on so-called genuine self-regulation, as the mandatory comply or explain model laid out in Chapter 11 of the Finnish Securities Markets Act (746/2012, as amended) is only applicable to takeover bids for companies whose shares are admitted to trading on a regulated market. Accordingly, with respect to mergers and takeover bids on multilateral trading facilities, the comply or explain model is based on the New Code itself and good practice in the securities markets.
The New Code includes a new recommendation concerning the binding nature of the intentions and plans announced by the offeror regarding the bid process. Under the New Code, the offeror is bound to comply with any intention or plan related to the bid process that the offeror discloses in connection with the bid.
The new recommendation covers any kind of information disclosed by the offeror about its intentions or plans to take action, or not take action, in relation to the bid process, if such information is likely to influence the assessment of the takeover bid by the target company, holders of the target company’s securities, or other investors. Such information can include information that the bid will not be increased, that the offer period will not be extended, or that the offeror will not waive a certain offer condition. However, the binding nature of the plans and intentions relates to the bid process only and does not apply to, for example, any strategic plans disclosed by the offeror regarding the target company and its employees.
Furthermore, the structure of the New Code has been updated and other technical adjustments have been made to several recommendations. Guidelines regarding insider regulation are also now presented in a separate chapter at the end of the New Code. In addition, clarifications have been made to the explanatory notes to all recommendations as a result of changes in legislation, recommendations, and market practice.
During the preparation of the New Code, the Finnish Securities Market Association also considered including several recommendations in the New Code regarding takeover bids and the obligation to launch a bid for shares admitted to trading on multilateral trading facilities. However, instead of issuing self-regulation, the Finnish Securities Market Association submitted an initiative to amend the Finnish Securities Markets Act to the Ministry of Finance.
Article written by Partners Antti Ihamuotila, Petri Avikainen, Seppo Kymäläinen and Associate Teemu Jokiharju