Supervision, Injunctions and Fines
Estonia has taken a leap towards the standards of western corporate and securities law with the introduction of takeover rules. The amendments to the Securities Market Act are generally in line with the EU Draft Directive on Takeovers. Takeover law allows the stock exchange to promulgate respective detailed takeover regimes in its rules and regulations.
The new law states that all holders of shares of the same class in a target company shall be given equal treatment. For example, under the stock exchange regulations for allotment, if shareholders offer more shares than the offeror is willing to purchase, the offeror must acquire the shares that are the object of the takeover bid (i) by kind and (ii) in proportional stakes to the number of securities that are for sale during the acceptance period. This does not apply to mandatory bids, where the offeror has a duty to buy all shares offered.
The new law states that when a person acquires shares of a listed company which, added to any existing holdings, give her/him 50% of the total voting rights in the listed company, she/he must make a mandatory takeover bid to all remaining shareholders of the listed company to buy all remaining shares.
In the case of mandatory bids, the relevant stock exchange must determine an equitable price to be paid for the shares, in cooperation with the offeror. The regulations of the stock exchange specify several tests as the bases for determining an equitable price, although the stock exchange can exercise some discretion here. Alternatively, the offeror has the right to appeal against the stock exchange's resolution.
The new law states that the offeror's consideration should consist of cash or securities. The regulations of the stock exchange specify that securities offered as consideration should be:
- liquid shares traded in the regulated market;
- liquid bonds (including convertible bonds) traded in the regulated market; or
- other liquid instruments that are traded in the regulated market and comparable to shares and bonds.
In addition, such securities could be offered as consideration only in cases where the stock exchange finds that equal treatment of shareholders is ensured, and the securities are transferred to the shareholders upon acceptance of the offers by the offeror.
Shareholders of the target company should now have sufficient time and information to enable them to reach an informed decision on the bid. The minimum bid period is 28 days. The offeror and the target company must give necessary, relevant, correct, precise, complete and identical information to all shareholders concerning the takeover bid. The offeror should give notice of a bid via the information channel of the stock exchange and in national newspapers. Also, the offeror must make the offer document available. This document states, among other issues:
- the terms of the bid;
- the name of the offeror;
- the shares and consideration to be paid;
- the quantity of shares that the offeror wishes to acquire; and
- the offeror's intention with regard to the future business of the target company.
Members of the management board of the target company should act in the interests of the company and should not deny shareholders the opportunity to decide the merits of the offer. Stock exchange regulations describe certain activities as improper/unlawful defence measures.
The target company must issue and disclose a reasoned, written opinion on the takeover bid within 14 days following its disclosure. The target company is obliged to ensure access to its written opinion to everybody, free of charge.
Generally, false markets should not be created in the shares of the target company during the period of the takeover bid.
The regulations of the stock exchange state the maximum validity period for the takeover bid. Longer periods of time are fixed in cases of competing bids.
The new law states that the offeror and parties acting with her/him should not undertake new takeover bids for one year following the lapse of the takeover bid period.
Supervision, Injunctions and Fines
The new law prescribes that the Securities and Exchange Commission (Väärtpaberiinspektsioon) has the duty to exercise supervision, and that the stock exchange listing the shares of the target company has limited power to exercise supervision over the parties and procedure of takeover bid. The stock exchange has ultimate supervisory power in respect of the control procedure to be carried out before the launch of the takeover bid.
The holder of the controlling interest cannot temporarily exercise her/his voting rights in the listed company in case the person who acquired the controlling interest in the listed company does not launch a mandatory takeover bid, as stated in the statute and regulations of the respective stock exchange. Temporary inability to exercise voting rights will last until a proper mandatory bid is made. Transactions made in connection with unlawful takeover bids are considered void.
In addition, the commission may request that the keeper of the central register temporarily blocks the shares of anyone who has violated the takeover rules. The securities account of the alleged violator should be blocked until the question of violation has been resolved. Substantial fines may be imposed on persons who breach the takeover rules of the act and/or the regulations of the stock exchange.
For further information on this topic please contact Kilvar Kessler at Law Office Tark & Co by telephone (+372 611 0900) or by fax (+372 611 0911) or by e-mail ([email protected]).
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