Two judgements of the Civil Chamber of the Supreme Court made in December 2004 deal with the regulation of share takeover bids, an issue that has been a subject of disputes to date. Pursuant to the Commercial Code a majority shareholder whose shares represent at least 9/10 of the share capital of a public limited company, has the right to take over the shares of minority shareholders in return for fair monetary compensation. The majority shareholder must determine the amount of such fair compensation, submitting an audited takeover report to the general meeting. In its judgement in civil matter no 3-2-1-138-04 (Action of Aasmäe and Isotamme against AS Sampo Pank) the Supreme Court decided that the fair compensation offered had to compensate fully for the loss of holdings for minority shareholders. The Supreme Court stated that a takeover bid may not be declared invalid on the grounds of the price or insufficient auditor’s report, however, upon the request of a minority shareholder the court may determine the fair compensation. The Supreme Court also dealt in more detail with the objective of the auditor’s report and the requirements as to its contents. The Supreme Court found that an insufficient auditor’s report can serve as a basis for a claim against the auditor.
In its judgement in civil matter no 3-2-1-145-04 (Action of OÜ Amaterasu against AS NG Investeeringud) the Supreme Court took an in-depth look at the methods used for and legal acts regulating establishing fair compensation. The Supreme Court was of the opinion that the economic value of the public limited company as a whole had to be determined for the purposes of fair compensation. According to the judgement the book value had to be deemed as a minimum on the basis of which the fair compensation could be determined, since the future prospects of the company, i.e. the chances of shareholders to gain from their shares, had to be taken into account as well. The Supreme Court stated that if necessary, also the liquidation value or market value had to be considered. The Supreme Court emphasised that the market value had to be taken into account only in case a real market existed, a sufficient number of transactions involving a sufficiently large number of shares had been concluded and the trade had not been subjected to manipulation. However, the Supreme Court added that the market price was not the only criterion for determining fair compensation, and other methods must be used for comparison. The Supreme Court mentioned that the discounted cash flow (DCF) method was a recognised method of determining the value of companies. The Supreme Court stressed that one was not bound by any specific method of establishing fair compensation for shares taken over, but different methods had to be compared in deciding, which of them would serve as the best basis for the particular company. The judgement also provided for the possibility of taking into account analogous laws of other states, international standards and practice in resolving the issue of how to determine the fair compensation for shares. The position of the Supreme Court will help improve protection of the interests of minority shareholders in the future.
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