Finland: Takeovers in Finland Today: Legal Aspects

by Jan Waselius and Tanja Jussila

The declining investment climate during the past two years has left its mark on the Finnish M&A market. The years 2002 and 2001 have seen a dramatic decrease in the both the number and the value of transactions consummated, when compared to the almost irrational exuberance that, at least with the benefit of hindsight, permeated the Finnish M&A market during the bull market of the late 90s. Although the year 2002 was relatively quiet, two significant public takeovers did take place. In April 2002, the British beer company Scottish & Newcastle plc launched an offer to acquire the Finnish brewery Oyj Hartwall Abp and in October 2002, the Swedish telecom company Telia AB made an offer to acquire Finnish Sonera Oyj. In January 2003, US giant General Electric Company offered to purchase the shares of healthcare technology innovator Instrumentarium Oyj, which offer seems to evolve into the major takeover of 2003.

The following examines the general legal framework governing M&A transactions in Finland. In particular, the focus is set on private acquisitions, public takeovers, takeover defences and certain competition law issues that should be considered when contemplating M&A transactions in Finland.

Finland does not possess specific legislation governing mergers and acquisitions. The provisions governing takeovers of companies are found in a number of different laws and regulations. The applicable law in each transaction is dependent on whether or not the shares of the target company are listed on the public market.

Under the Finnish Companies Act of 1978 (as amended, the "Companies Act"), limited liability companies are divided into private limited liability companies (Oy/Ab) and public limited liability companies (Oyj/Abp). Only shares in public limited liability companies may be subject to "public trade", as defined in the Securities Market Act of 1989 (as amended, the "SMA"). Consequently, only Finnish public limited liability companies may be listed on the Main List of the Helsinki Exchanges. However, due to a recent amendment of the SMA, shares in private limited liability companies may as of September 2002 be listed on the Brokers' List at the Helsinki Exchanges. At present, no private limited company has made use of this possibility. Thus, public acquisition of shares in Finnish private limited liability companies is still not possible in practice.

Mergers and acquisitions involving shares of listed companies are regulated by the SMA, which is the main legal framework governing, inter alia, trade in publicly quoted securities, public tender offers and the disclosure of significant holdings. The SMA is supplemented by, inter alia, guidelines on the interpretation of the SMA issued by the Finnish Financial Supervision Authority (the "FSA").

Mergers and acquisitions involving shares of other than publicly listed companies are, on the other hand, mainly regulated by the Companies Act as well as by general principles of contract law. Furthermore, branch-specific legislation may be applicable in transactions relating to, inter alia, credit institutions, investment firms, insurance companies and telecommunications operators.

A private (as well as public) acquisition may be executed either as a purchase of shares or as a purchase of business. In practice, the decision to structure an acquisition as a share deal or asset deal is primarily dependent on tax considerations. In the case of an asset deal, the seller and purchaser may, in principle, freely determine how the target company’s assets and liabilities are allocated. On the other hand, an acquisition of shares in a stand-alone limited liability company facilitates shielding of the purchaser from unknown liabilities.

Under the Companies Act, a shareholder that, either alone or together with entities under its control, holds more than nine-tenths of the shares and voting rights of a limited liability company is entitled and, upon demand, obligated to purchase the remaining shares in the target company at market value. This possibility to squeeze-out minorities pertains to both private and public limited liability companies.

A typical public tender offer in Finland generally includes the following principal steps:

1. Possible acquisition of shareholdings from major shareholders of the target company;
2. Launch of a voluntary public tender offer;
3. Launch of a mandatory public tender offer (under the SMA) after more than two-thirds of the voting rights of the target company have been reached by the acquiror; and
4. The squeeze out of minority holdings (under the Companies Act) after nine-tenths of the shares and voting rights of the target company has been reached by the acquiror.

A voluntary public tender offer may in principle be launched at any time, but is usually preceded by an acquisition by the launcher of a major amount of shares in the target company. The SMA provides that the launcher of the voluntary public tender offer must, prior to the commencement of the offer period, publish a tender offer document, which must be kept available for the public during the offer period. The tender offer document must contain essential and sufficient information enabling the shareholders to make an informed assessment of the merits of the offer. The tender offer document may only be published after approval by the FSA.

The acquiror may, in general, freely decide upon the terms of a voluntary offer. No requirements apply to e.g. the duration of the offer period, the amount and kind of the consideration offered or the means of payment. A voluntary offer may concern all shares and other securities issued by the target company, or be limited only to a specified maximum number of shares or other securities. A voluntary offer may also be conditional on, inter alia, the proportion of shares or voting rights attained by the acquiror through the offer.

However, according to the SMA, all holders of the securities tendered for must be treated equally and the terms of the offer must therefore be equal to all shareholders participating therein.

The SMA stipulates that any shareholder whose holding in a publicly traded company exceeds two-thirds of the votes in the company must offer to purchase all the outstanding shares in the target company as well as the securities entitling thereto at a "fair market value". The consideration in such mandatory offer normally should be cash, although the offeror may offer its shares as alternative consideration.

When determining the "fair market value" for the purpose of the mandatory offer price, the SMA provides for three factors to be taken into consideration. The first and primary factor is the volume weighted average price of the target company’s shares on the Helsinki Exchanges over the 12-month period preceding the moment when the obligation to launch the mandatory offer arose.

Secondly, any higher prices paid by the offeror for the shares of the target company over the said 12-month period shall be taken into account when calculating the mandatory offer price. The final factor affecting the determination of the mandatory offer price is "any other relevant circumstances". Such other relevant circumstances have not been defined in the statute, but, generally, must be related to the target company and may include e.g. material changes in the target company’s debt-to-equity ratio.

Hostile takeovers have not in the past been part of Finnish business culture and Finnish law does not distinguish between friendly and hostile takeovers. Neither does Finnish legislation expressly address takeover defences.

In Finnish law, the legality of takeover defences are evaluated primarily in light of the leading principles of the SMA, the principle of equal treatment of all shareholders, and general principles of company law. If challenged, the legality of the defensive measures is subject to review by the courts.

Many Finnish limited liability companies have taken precautions against unwanted takeover attempts by amending their Articles of Association. As the rules of the Helsinki Exchanges do not allow restrictions on the transferability of shares, Finnish listed limited liability companies often in practice use the following types of clauses:

1. Clauses obligating the shareholder acquiring a certain minimum stake (often 30 per cent) to make an offer for all the outstanding shares; and
2. Clauses requiring qualified majority (e.g. 4/5) for certain wide-reaching resolutions, e.g. amendment of the Articles of Association, mergers or sale of the company’s core assets, to be passed at shareholders’ meetings.

Other defensive measures may also be used in the Finnish context but may always be subject to specific review as to their validity. It should be noted, that in all types of defensive measures the principle of equality of the shareholders must be adhered to. The obligation of the Board of Directors to act in the interest of the company and its shareholders may also limit the availability of such measures. It should also be observed that the right of a company to acquire its own shares is limited under Finnish law. In practice, the obligation to launch a mandatory tender offer when a shareholder’s proportion of voting rights exceeds two-thirds, acts as a significant deterrent against takeover activity.

Finally, it is worthwhile to note that mergers and acquisitions may fall under the Finnish national merger control set out in the Finnish Act on Competition Restrictions of 1992 (as amended, the "Competition Act"), provided that provisions on EC merger control are not applicable and that certain turnover-related criteria laid down in the Competition Act are met. In such a case, the acquisition must be notified to the Finnish Competition Authority (the "FCA") within one week from the signing of the final agreements. Within one month from the date of submission of the notification, the FCA will determine whether further enquiries into the transaction are necessary. The transaction will be deemed to have been approved within three months of the submission of the notification, if the FCA elects to pursue further investigations but does not impose conditions for or make a proposal to the Market Court to prohibit the transaction.