This article will cover investments in Sweden through mergers and acquisitions, primarily those of banks.
Generally, foreign takeovers are privately negotiated and made on an agreed basis but they may also be affected by means of a public offer.
The Swedish financial market consists of reliable and efficient systems for saving, financing and mediating payments and risk management, which is of great importance to Swedish wealth. These systems are operated mostly by banks, whose main business is to manage the financial system by accepting deposits and providing credits. They also provide a technically advanced and safe payment system at a low cost, and offer support to corporate and retail customers in assessing their financial risks. The systems are also operated by other credit institutions, insurance companies and securities companies, as well as other companies in the financial sector.
There are four main categories of banks in the Swedish financial market. The largest category is Swedish commercial banks and here we find some of the most important players in the Swedish financial market: Swedbank, Handelsbanken, Nordea and SEB. These leading banks are categorised as universal banks, meaning that they are represented on a large proportion of the financial markets and offer all kinds of financial services. Besides focusing on traditional banking, they have separately evolved since the mid-1990s into competing banking groups with extensive international activities across life insurance, asset management and mortgage lending. The second category of banks on the Swedish market is foreign banks. The most prominent are Danske Bank from Denmark and DnB NOR from Norway. The third category is savings banks, consisting of small banks in regional or local markets acting independently or often in cooperation with Swedbank. Finally, there are a few co-operative banks on the Swedish financial market that are organised as economic associations.
During the last 10 years, the Swedish banking system has been affected by changes in the financial markets. A significant change is the establishment of foreign bank branches, which have gained market share in Sweden. Certain banks (such as Länsförsäkringar Bank and ICA Banken) have established themselves as telephone/ internet banks, which are accessible to those customers that appreciate conducting their daily banking activities away from a bank's premises. These new channels of distribution have forced the established banks to develop their own internet banking services, as well as opening the market to new banks. Such new banks are, however, still mainly focused on the retail business.
The four most prominent Swedish commercial banks – Swedbank, Handelsbanken, Nordea and SEB – are all listed on NASDAQ OMX Stockholm, which is the main securities market in Sweden.
Banking business in Sweden is generally conducted through limited liability companies (Sw: aktiebolag, or AB). This article deals exclusively with mergers and acquisitions of such companies, and in particular with banking companies (as mentioned above, the co-operative banks are organised as economic associations and they will not be commented on further).
Ownership of a limited liability company (an AB) is conferred by the holding of shares. All shares in an AB must carry voting rights, although different classes of shares with differing voting rights may be issued. However, no share may be issued with more than 10 times the voting rights of another.
Swedish law draws a distinction between public and private ABs. Only public ABs are allowed to turn to the public to procure new capital. The minimum share capital in public ABs is SEK500,000 (US$72,000) whereas private ABs have a minimum share capital of SEK100,000. The share capital of an AB may also be expressed in euros. The share capital of a bank AB shall be decided taking into account the scope and nature of the business.
An AB is managed by a single board of directors, which is normally elected by the shareholders. A bank AB must have a board of directors consisting of at least three directors. The majority of these directors cannot be employed by the bank or by any other company within the same group of companies as the bank.
Control of more than 50% of the voting rights in a company will confer control of the composition of the board of directors. The board may appoint a managing director, and must do so where the company is a public AB or a bank AB. Unless the Swedish Companies Registration Office grants an exemption in a particular case, the managing director and at least half of the directors of a Swedish company must be resident within the EEA. In addition, if the company has a certain number of employees in Sweden and is bound by a collective agreement with a union, employees have the right to appoint directors and deputy directors. The employee directors may not outnumber the ordinary directors. The powers and duties of directors appointed by employees are essentially the same as those of the directors appointed by the shareholders.
Institutional investors and other companies often control the majority of the votes in Swedish publicly traded companies. As a rule, resolutions during a shareholders' meeting require a majority of more than half of the votes cast to be adopted. Certain resolutions however require approval by higher majorities. For example, approval by all shareholders present at a shareholders' meeting – representing at least nine-tenths of all issued shares in the company – will normally be necessary for amendments which:
1) reduces current shareholders' rights to profits or other assets
2) restricts the transferability of already issued shares in the company, or alters the legal relationship between already issued shares.
Existing shareholders have pre-emption rights to subscribe for new shares in the case of new issues of shares. These rights can, as regards cash and set-off issues, be disapplied by a shareholders' resolution or by a provision in the articles of association in certain circumstances.
The Companies Act 2005 provides that all shareholders may exercise their voting rights in full, unless otherwise provided in the articles of association. Minority shareholders i.e. holders of not less than one-tenth of all shares of a Swedish company have certain minority rights for the protection of their interests.
The Swedish code for corporate governance is based on the Companies Act 2005 and the tradition of self-regulation that prevails in Sweden. The code, which is applicable to all companies listed on a regulated market in Sweden, deals primarily with the organisation of corporate governance, management bodies and their work procedures, and interaction between these bodies. It does not deal with division of power among the company's owners. As with most similar codes in other countries, the Swedish code is based on the principle 'comply or explain'. This means that a company can deviate from the code's provisions without this entailing a breach of the code. A company that intends to deviate from a regulation in the code must, however, explain why the deviation is occurring.
Barriers to hostile acquisitions
There is no general prohibition on foreign persons or entities acquiring shares in Swedish companies. As mentioned at the outset, shares of a Swedish company may be divided into different classes with different voting rights and this may, in practice, impede the success of a hostile offer. When a company goes public, shares conferring voting control are often retained by the initial shareholders.
According to the Employment Protection Act 1982, an employee will – in the case of a sale of a business in whole or in part, i.e. not in the case of a share sale – automatically be taken over by the purchaser of the business provided the employee is not opposed to that arrangement. The employment agreements existing on the day of the transfer will be transferred to the purchaser. The purchaser of the business will be responsible (together with the seller) for monetary obligations which have arisen from the employment agreements prior to the transfer. These rules are based on EC law.
Swedish banks are subject to supervision by the Swedish Financial Supervisory Authority (the FSA). The objective of the FSA is to promote stability and efficiency in the financial system as well as to ensure effective consumer/retail protection. The FSA is responsible for issuing licenses to banks and other financial institutions as well as supervising them. Should the FSA find that the operations of an institution are not sound or that the institution otherwise is breaching laws or regulations, it may impose administrative sanctions – such as disciplinary reprimands, warnings, fines and ultimately revocation of the license to operate.
The acquisition of Swedish business enterprises by foreign entities is generally not subject to any restrictions.
To avoid conflicts of interest, the Swedish banks are based on the principle that ownership and lending shall not be mixed. As a result of this, the banks have an independent standing in relation to their counterparts.
The Banking and Financing Business Act, which is based on EC law, contains specific provisions regarding the assessment of an owner's suitability to own a qualified holding in a bank or financial institution. A qualified holding is a direct or indirect ownership in an undertaking where the holding represents 10% or more of the equity capital, all voting/ participating interests, or renders it possible for the owner to exercise a significant influence over the management of the undertaking.
The rules imply that a direct or indirect acquisition of bank shares, which result in a qualified holding for the acquirer, may take place provided that FSA consent has been obtained prior to the acquisition. The aforesaid also applies to acquisitions that result in an increase in a qualified holding – amounting to or exceeding 20%, 30% or 50% of the equity capital or voting capital for all shares – or that cause the undertaking to become a subsidiary.
If the acquirer is deemed suitable to exercise significant influence over the management of a bank – and it is believed that the anticipated acquisition is financially sound – then the FSA shall grant authorisation for a qualified acquisition.
When assessing whether a qualified acquisition shall be authorised, the FSA shall also consider the acquirer's likely impact on the business of the bank as well as its reputation and financial strength. The FSA shall also take into consideration the suitability of any person who, as a result of the acquisition, becomes a board member of the bank or act as its managing director. This includes whether he or she has sufficient insight and experience to participate in the management of a bank, and is also otherwise suitable for such a task.
Finally, the FSA shall also consider whether there is reason to believe that the acquirer might impede the operations of the bank in such a way as to be incompatible with the Banking and Financing Business Act.
If a bank becomes aware that a transfer of its shares has resulted in a qualified holding being reached, the bank shall immediately notify the FSA of the acquisition. The same applies if the bank becomes aware of a divestment of it shares that has resulted in that holding being less than any of the thresholds stated above. In addition, if a legal person owns a qualified holding of bank shares, it shall immediately report any changes in the management of the bank to the FSA.
Finally, in certain cases, the FSA may order an owner to divest such a portion of its shares that the holding thereafter no longer constitutes a qualified holding.
The Competition Act 2008, which is based on EC law, requires that certain mergers and acquisitions be notified to the Swedish Competition Authority. Notified transactions may, under certain circumstances, be prohibited by the Stockholm District Court.
The merger control rules of the Competition Act 2008 apply to concentrations, namely:
(a) mergers where two or more previously independent undertakings merge; or
(b) where control of an undertaking or a part thereof is acquired.
The Act also applies to the establishment of fully functioning joint ventures.
The merger control rules apply in all cases provided that a) the aggregate turnover of the undertakings concerned in Sweden in the preceding financial year exceeded SEK1 billion (US$144 million), and b) the turnover in Sweden of at least two of the undertakings concerned in the preceding financial year exceeded SEK200 million each. A negative prerequisite for the Swedish merger control rules is that the EC Merger Regulation does not apply.
If the purchasing party belongs to a group consisting of several companies under joint control or otherwise connected, the aggregate turnover of the group shall be deemed to be the purchasing party's annual turnover. If the purchaser is jointly controlled by two or more companies, the turnover of each of the groups to which the 'parent' companies belong shall be included when calculating the turnover of the purchasing party. With regard to the target, only the turnover of the undertaking or business activities being transferred is relevant (and not the turnover of the seller).
With respect to partial acquisitions (e.g. the acquisition of some but not all of the shares in a company), the merger control rules apply only if the transaction enables the purchaser to exercise a decisive influence over the target. It follows that the rules do not apply when somebody who already controls a company acquires additional shares in that company. However, they do apply to the transaction from joint to sole control since, in such a case, one form of decisive influence (joint control) is substituted for another form (sole control).
Regulation of conduct of mergers and acquisitions
As of July 1 2006, Swedish takeover rules are set forth in the Swedish Takeover Act 2006. These rules are complemented by the Rules Concerning Public Offers for the Acquisition of Shares issued by NASDAQ OMX Stockholm on October 1 2009 (this is a result of the implementation of the EC Takeover Directive).
Furthermore, certain provisions as regards the offer document are set forth in the Financial Instruments Trading Act 1991, through which inter alia the EC Prospectus Directive has been implemented. It should be noted that the greater part of the takeover rules and regulations described herein will also be applicable to companies whose shares are listed on other regulated markets in Sweden. The Swedish Industry and Commerce Stock Exchange Committee (the NBK) has issued new Rules Concerning Public Offers for the Acquisition of Shares issued by companies listed on First North, Nordic MTF and Aktietorget, which will enter into force from January 1 2010.
The Takeover Act 2006, the Takeover Rules, and the Financial Instruments Trading Act 1991 generally apply to takeover offers (irrespective of whether such offers are made by a Swedish or foreign legal entity or physical person) to shareholders in companies listed on NASDAQ OMX Stockholm to transfer their shares to the offeror on general terms. The rules cover public takeovers of shares listed on NASDAQ OMX Stockholm, not only issued by Swedish companies but also, under certain circumstances, to foreign companies.
Takeover Act 2006 and Takeover Rules
The primary aim of the Takeover Rules and the Takeover Act 2006 is to ensure that all shareholders of a target company receive sufficient information to enable them to make an informed decision on an offer. The Rules and Act also seek to ensure that all holders of shares of the same class receive equal treatment, and that the board of the target company acts in good faith – directed only by the best interests of the shareholders.
The Act mainly includes provisions regarding mandatory bid requirements, target board frustration measures, information to employees, and breakthrough clauses in a target company's articles of association and supervision. Other provisions regulating takeover offers are set forth in the Rules (other than those described below).
Financial Instruments Trading Act 1991
The Financial Instruments Trading Act 1991 contains inter alia regulations on how trading in financial instruments shall be conducted. It also contains regulations regarding dispositions concerning financial instruments belonging to others, and regulations on disclosure of shareholdings. In particular, the Act provides a set of rules with respect to prospectuses and offer documents to be issued in connection with public offerings and takeover offers respectively.
The Act corresponds to the development on the international securities market and is based on EC law.
The FSA supervises adherence to both the Swedish Takeover Act 2006 and the Financial Instruments Trading Act 1991. It may, in the event of non-compliance, prohibit an offer and impose a 'special fee' of up to SEK100 million (US$14.4 million). NASDAQ OMX Stockholm supervises adherence to the Takeover Rules and may also impose sanctions in the form of a special fee of up to SEK100 million (and in the case of companies whose shares are listed with the Exchange, delisting of the shares of the breaching party). Both the FSA and NASDAQ OMX Stockholm have delegated some of their supervisory roles to the Swedish Securities Council, a private body with an established role on the Swedish stock market. This includes the right to grant exemptions from certain provisions of the Takeover Act 2006 and the Takeover Rules and to interpret the Takeover Rules. If rulings by the Swedish Securities Council are not complied with, NASDAQ OMX Stockholm may issue sanctions. The Swedish Securities Council has been modelled on the Panel on Takeovers and Mergers in the UK. The Swedish Securities Council's opinions are made public on its website (with certain exceptions due to confidentiality considerations).
The influence of the Swedish Securities Council is not limited to the conduct of takeovers alone. The Swedish Securities Council also issues statements with respect to matters regarding what constitutes good stock market practice in Sweden in general. However, it has no legal authority to enforce compliance with its opinions or to require that it be consulted in these matters.
First published by China Law and Practice in association with International Financial Law Review.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.