Acquiring a Listed Company
Norwegian businesses consist mainly of public limited liability companies and private limited liability companies. Businesses may also take other forms (eg, partnerships and individual enterprises, mutual companies and savings banks), although these forms are not discussed in this Overview. All Norwegian companies listed on Oslo Børs (the only stock exchange in Norway) must be organized as public limited companies. The website of the stock exchange can be accessed at www.ose.no.
There is no specific Norwegian takeover code. The main takeover legislation for limited companies is found in the Public Limited Companies Act and the Private Limited Companies Act. In addition, the Securities Trading Act (and rules created pursuant to it) and the Stock Exchange Regulations regulate various aspects of acquisitions of listed companies.
Acquisitions of both listed and unlisted companies may also be subject to provisions in the target company's articles of association and sector-specific legislation.
This Overview describes some of the main rules and regulations concerning mergers and acquisitions in Norway. Some of the general issues concerning acquisition of sharholdings in Norwegian limited companies are described, as well as specific issues relating to the acquisition of shares in listed companies. Finally, the rules concerning corporate reorganizations (mergers and demergers) involving limited companies are summarized.
Private limited companies
The main rule for private limited companies incorporated on or after January 1 1999 is that the transfer of shares is subject to approval by the company's board of directors. Consent may only be refused on objective grounds. Further, existing shareholders have a pre-emptive right to purchase shares that are to change ownership. The company's articles of association may derogate from these rules.
In private limited companies incorporated prior to January 1 1999, shares are freely transferable without any pre-emptive rights or requirement of board approval unless otherwise stipulated in the company's articles of association.
Public limited companies
Shares in public limited companies are freely transferable, unless the company's articles of association stipulate otherwise. The articles of association may provide that shareholders or other parties will have pre-emptive rights in the event of a share transfer or that transfer is subject to board approval.
For listed companies the main rule is that shares are freely transferable. Oslo Børs is unlikely to accept for listing shares of a company in which the articles of association impose trading restrictions that are stricter than what follows from applicable legislation. For historical reasons, there are still certain listed companies that have such regulations in their articles, but Oslo Børs will normally not accept the exercise of such rights. If the rights are exercised, the companies risk being suspended from trading or delisted.
Share certificates are no longer used in Norway. Shares in public limited companies must be registered with the Norwegian Central Securities Depository. For private limited companies registration with the depository is voluntary. Shares in private limited companies not registered with the depository must be registered in the company's own shareholders register.
Credit for the acquisition of shares
A company (both private and public) is not allowed to make funds or assets available in connection with the acquisition of shares or rights to shares in the company itself or any other company within the same group of companies. In other words, a purchaser may not directly or indirectly obtain loans or guarantees from the target company or from a company within the same group of companies as the target, or put liens on a target's or a group company's assets to finance the acquisition. The prohibition also applies in the period after the acquisition has been finalized, as long as there is a relationship between the acquisition and the company making funds or assets available.
Legal distributions of funds to shareholders are probably not covered by the prohibition, such as distribution of dividends, group contribution and distribution to shareholders through decreases in share capital.
If a company has granted credit or otherwise acted in violation of these regulations, the transaction will normally be invalid. Any assets transferred from the company in violation of these regulations or an amount equivalent to the value of such assets must immediately be returned to the company. Further, the persons who made or approved the illegal transaction on behalf of the company may be held personally liable for the return of the funds to the company.
Credit to shareholders
A company may only grant credit to, or provide security for, a shareholder or close associates of a shareholder to the extent there are funds available for the distributions of dividend, and only if adequate security is provided for the claim for repayment or restitution. There are certain exceptions to this prohibition for group companies and for credits of ordinary duration in connection with commercial agreements.
If a company has acted in violation of these regulations, the transaction will normally be invalid. Any assets transferred from the company in violation of these regulations, or an amount equivalent to the value of such assets, must immediately be returned to the company. Further, the persons who made or approved the illegal transaction on behalf of the company may be held personally liable for the return of the funds to the company.
Compulsory acquisition of shares in a subsidiary
The board of directors of a company that owns more than 90% of the shares in a subsidiary, and that has an equivalent share of the votes that may be cast at the general meeting, may decide that the parent company is to take over the remaining shares in the subsidiary (squeeze-out). Further, each of the minority shareholders in the subsidiary may at any time demand that the parent company take over the shares.
The parent company must offer minority shareholders a redemption price. The shareholders will be given a deadline of at least two months during which they may object to the offered redemption price. If no objection is raised within the relevant deadline, the offer is considered accepted. In the absence of an amicable agreement, the redemption price shall be fixed through a valuation process.
Once the board of directors of the parent company has resolved to take over the shares, the parent company shall be registered as shareowner in the shareholders register of the subsidiary. At the same time the parent company must pay the total offered redemption price into a separate bank account.
Governmental approvals/regulated businesses
Previously, all acquisitions through which the acquirer became the owner of shares exceeding one-third, one-half or more, or two-thirds or more of the share capital or voting rights in a company were subject to filing and approval by the Ministry of Trade and Industry pursuant to the Norwegian Business Acquisition Act, provided that certain thresholds with respect to the size of the business were met.
On June 17 2002 the Norwegian Parliament decided to repeal the Norwegian Business Acquisition Act, with effect from July 1 2002. As a result, there are no longer any general notification requirements for acquisitions of shares in Norwegian companies other than the disclosure obligations pursuant to the Securities Trading Act (see below). However, an acquisition of shares may still be subject to other sector-specific ownership limits, notification and/or concession requirements.
Acquiring a Listed Company
Privately negotiated deals or public offer
A listed company is normally acquired through either privately negotiated transactions or tender offers. The first step in making a tender offer is usually to contact the target company in order to determine whether the target's board of directors will recommend the offer to its shareholders. Depending on the share structure of the target company, an alternative approach may be to contact a major shareholder. In recent years Norway has also seen hostile takeovers and takeover attempts.
With respect to listed companies, it is of importance that the information flow in the takeover process is considered carefully and generally kept to a minimum. This is because a listed company must immediately notify the Oslo Børs of any information regarding circumstances that may have some bearing on the price of the issuer's shares. Further, an offeror that becomes privy to price-sensitive information that is not publicly available to, or commonly known in, the market will be prohibited from trading in the shares to which the information relates, until it is disclosed to the market or has lost its relevance. The same applies to the offeror's advisors and other persons that are privy to price-sensitive information.
The Norwegian regulations regarding insider trading are stricter than in most European countries. Under the Securities Trading Act, 'price-sensitive information' includes any information about financial instruments, the issuer thereof or other information which may influence prices and which is not publicly available or commonly known in the market.
Notification requirement for primary insiders
Primary insiders must immediately notify the Oslo Børs of any purchase, sale or subscription made by them or a close associate for shares issued by the company or other companies in the same group. The same applies to:
- convertible loans;
- agreements on, purchase or sale of subscription rights; and
- options and corresponding rights connected with shares as mentioned.
If an entity is represented on the board of directors of the company as a result of its shareholding in the company, this requirement also applies to transactions by the entity in financial instruments issued by the company.
Notification must be sent immediately following the purchase, sale or subscription. 'Immediately' means as soon as an agreement has been reached, irrespective of when settlement is to take place. In certain circumstances notification may be sent no later than before the start of trading the day after the agreement was made. However, the conditions for qualifying for this exception are strict.
The Securities Trading Act specifies the information which must be included in the notification.
Disclosure of substantial shareholdings
If an acquisition of shares causes the acquirer's proportion of shares and/or rights to shares to reach or exceed one-twentieth, one-tenth, one-fifth, one-third, one-half, two-thirds or nine-tenths of the share capital, or of shares representing an equivalent proportion of the voting rights, in a company whose shares are listed on Oslo Børs, the acquirer must notify the exchange of such acquisition. The same applies where a shareholding is reduced to or falls below the mentioned thresholds as a result of disposal.
For the purpose of these disclosure requirements, convertible loans, subscription rights, options and equivalent rights are regarded as 'rights to shares'. 'Equivalent rights' are all agreements obliging the other party to transfer shares at the discretion of the first party. Disposal of rights to shares will not trigger the disclosure requirement. Since January 1 2003 the disclosure obligations have also applied to primary capital certificates.
The borrowing and return of shares to the lender are regarded as acquisitions and disposals at the hands of the borrower.
For the purpose of the disclosure requirements, shares held, acquired or disposed of by close associates of the acquirer or disposer are considered equivalent to the acquirer's or disposer's own shares or rights to shares.
Disclosure must be made immediately after one of the thresholds has been reached or exceeded. The term 'immediately' has been very strictly interpreted and enforced. It will not be sufficient (as in other countries) to wait until the opening of trading the following day. As soon as Oslo Børs receives the disclosure notification, it is made public through its information system.
The Securities Trading Act contains requirements on what type of information must be included in the notification.
Since January 1 2003 certain exemptions from the disclosure requirements have applied to investment firms that fulfil certain criteria.
Voluntary offers to acquire the shares of a listed company may be made conditional. Common conditions include obtaining clearance from competition authorities or other public authorities, or consent from various third parties. Further, it is common to include a condition of acceptance from shareholders representing more than, for example, 90% of the share capital and the voting rights of the company. By acquiring more than 90% of the shares, the offerer will be able to acquire the remaining shares through a squeeze-out.
There is generally no requirement to prepare a prospectus or other offer document for a voluntary offer. However, an offer with a proposed settlement in the form of shares that is directed to more than 50 persons in the Norwegian securities market will usually trigger an obligation to prepare a prospectus pursuant to other regulations in the Securities Trading Act.
Further, if the voluntary offer results in the offeror holding more than 40% of the voting rights in the company, this triggers an obligation to make a mandatory offer. Certain of the provisions concerning mandatory offers will thus apply. This includes the obligation to prepare an offer document.
Any person who through acquisition becomes the owner of shares representing more than 40% of the voting rights in a Norwegian listed company is obliged to make an offer for the purchase of the remaining shares. In addition, a consolidation of its own shares and those owned or acquired by close associates may take place. There are certain exceptions to the mandatory offer obligation.
In addition, Oslo Børs may impose a mandatory offer obligation if a person's acquisition of the right to become owner of shares is regarded as a de facto acquisition of those shares, provided that as a result of the acquisition the person would hold more than 40% of the voting rights in a listed company.
When a mandatory offer obligation is triggered, the person required to make the offer must immediately notify Oslo Børs and the company accordingly. The notification must state whether an offer will be made or whether a sale will take place. If notification is not given, Oslo Børs will decide on the questions raised by this failure.
The mandatory offer must be made without undue delay, no later than four weeks after the mandatory offer obligation was triggered. It must be made for all the shares in the company, including those with restricted or no voting rights. The mandatory offer must be unconditional. The offer period must be at least four weeks and no more than six weeks. Prior to the expiry of the offer period, the acquirer may make a new offer, provided that this is approved by Oslo Børs. Notice of sale may be changed to notice of offer provided that the offer is made within four weeks of the activation of the mandatory offer obligation.
The mandatory offer obligation ceases to apply if the shares that exceed the threshold are sold no later than four weeks after the mandatory offer obligation is triggered. Further regulations on the mandatory offer obligations and sales procedure are set out in Chapter 4 of the Securities Trading Act.
At a minimum, the offer price must be the higher of (i) the market price when the offer obligation was triggered, or (ii) the highest payment which the offerer made or agreed in the six months prior to the triggering of the mandatory offer obligation.
If the acquirer pays or agrees to pay an amount greater than the offer price in the period after the mandatory offer requirement is triggered, but before the expiry of the offer period, a new offer is deemed to have been made with an offer price equal to that higher price.
Settlement under the offer must be in cash. However, an offer may give shareholders the option to accept other forms of settlement, typically shares in the acquirer. Settlement of the offer must be guaranteed by a bank or insurance company which is authorized to conduct business in Norway in accordance with rules established by Oslo Børs.
The acquirer must prepare an offer document which meets certain minimum requirements stipulated in the Securities Trading Act, and which gives correct and complete information about significant factors for evaluating the offer.
Once the company has been informed that a mandatory offer will be made, and until the offer period expires and the result of the offer is clear, the Securities Trading Act prohibits the board of directors and management of the company from making decisions with regards to:
- the issuance of financial instruments by the company or a subsidiary;
- the merger of the company or a subsidiary;
- the sale or purchase of substantial areas of operation of the company or its subsidiaries;
- the purchase or sale of the company's shares; or
- other dispositions of material significance for the nature or scope of its operations.
However, these restrictions do not apply to dispositions which are part of the company's normal business operations, or in cases where the general meeting has empowered the board of the company or manager to make such decisions specifically with respect to buy-out situations.
Further, under the Stock Exchange Act the board is prevented from conducting a directed offer based on authorization from the general meeting if the company is in a takeover situation, unless the authorization explicitly states that the board of directors is empowered to do this. While the Securities Trading Act only applies in connection with a mandatory offer, the Stock Exchange Act also applies in connection with a voluntary offer and a systematic acquisition of shares in the market.
Delisting by application
Following an acquisition of all or almost all of the shares of a listed company, the acquiring party will typically seek to delist the company's financial instruments.
The issuer may apply to Oslo Børs to have its financial instruments removed from the quotation lists. This must be decided by the general meeting of the issuing company, with a majority of at least two-thirds of the votes cast and the share capital represented. Oslo Børs will typically approve the delisting of a company that has only one shareholder.
However, a company with one majority shareholder holding close to 90% of the shares and a number of minority shareholders will not necessarily be granted approval for delisting, even if the conditions for listing are no longer met. This aims to protect the rights of minority shareholders to trade their shares on a regulated market.
The rules concerning mergers are almost identical for public and private limited companies, although the rules concerning private limited companies are slightly less complicated. The rules only apply to mergers between Norwegian limited companies, but the merging entities may be both private and public companies.
The provisions of the Public Limited Companies Act and the Private Limited Companies Act apply where one company takes over another's total assets and liabilities, while the shareholders of the transferor acquire shares in the transferee as consideration. Cash may constitute up to 20% of the consideration value.
If the transferee belongs to a corporate group and one or more of the group companies holds more than 90% of the shares and voting rights in the transferee, the consideration may be either (i) shares in the parent company, or (ii) shares in another subsidiary in which the parent company, alone or through a subsidiary, holds more than 90% of both the shares and the voting rights.
The boards of directors of the merging companies must prepare a joint merger plan. The merger plan must be approved by the general meeting of each of the merging companies by at least two-thirds of the votes cast and the share capital represented, provided that the articles of association do not stipulate more stringent criteria. The resolution on the merger may also be adopted by the transferee's board of directors, provided that the board of directors has been granted the power to increase the share capital by the general shareholders meeting, and that such power also includes the power to approve mergers.
There are certain requirements regarding the content of the merger plan. The merger plan may allow the transferee company to take over the management of the transferor as soon as all companies participating in the merger have approved the plan. After the merger plan has been prepared, the board of directors of each company must prepare a report on the merger and the effect it will have on the company.
Companies participating in a merger that involves at least one public limited company must notify the Norwegian Register of Business Enterprises of the merger plan no later than one month before the general shareholders meeting is to decide on the matter. If the resolution is to be adopted by the board of directors, the register must be notified of the plan no later than one month before the general meeting in the transferor at which the plan is to be approved.
Companies involved in a merger between limited companies (public and private) must notify the Norwegian Register of Business Enterprises no later than one month after the merger plan is approved by the general meetings. The register will arrange for two public creditor notices of the merger. Any objections against the merger must be submitted to the company within two months of publication of the last notice. Once the notice period has elapsed and all matters concerning the creditors have been resolved, the transferee must notify the register on behalf of all the participating companies that the merger will enter into force.
Mergers involving listed companies will normally be subject to prospectus requirements.
A demerger is a situation in which a company's assets and liabilities are to be distributed between the transferor and one or more transferees. A demerger may also include a complete transfer of all assets of the transferor to two or more transferees whereby the transferor company is dissolved.
As consideration for the demerger, the shareholders in the transferor will receive shares in the transferee. In addition to the share consideration, shareholders may receive other consideration limited to up to 20% of the total value of the consideration.
If the transferee belongs to a group of companies, and one or more of the group companies holds a total of more than 90% of both the shares and the voting rights in the transferee, the share consideration may instead take the form of shares in the parent company or shares in another subsidiary in which the parent company, alone or through a subsidiary, holds more than 90% of both the shares and the voting rights.
The board of directors of the demerging company must prepare a demerger plan. The requirements of the demerger plan are largely identical to those of a merger plan, but with some adjustments. If the demerger involves a transfer to an existing company, the boards of directors of the participating companies must draw up a joint demerger plan.
The resolution on the demerger must be adopted by the general meeting by at least two-thirds of the votes cast and the share capital represented, unless the articles of association stipulate more stringent demands.
Pursuant to the Stock Exchange Regulations, a company whose shares are listed on the Oslo Børs must normally prepare a prospectus in the event of a demerger. The main rule is that the shares of both companies will be listed following the demerger. If the shares of one or both companies do not comply with the conditions for listing in accordance with the Stock Exchange Regulations, the board of the Oslo Børs shall decide whether the shares shall be delisted or if the listing may be upheld.
For further information on this topic please contact Joachim Bjerke or Rolf Johan Ringdal at Bugge, Arentz-Hansen & Rasmussen by telephone (+47 22 83 02 70) or by fax (+47 22 83 07 95) or by email ([email protected] or [email protected]).