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Due diligence requirements
What due diligence is necessary for buyers?
There is no mandatory requirement to conduct due diligence reviews in M&A transactions, but this has become the norm. Due diligence reviews are typically conducted by the relevant professional advisers (eg, legal, financial, tax and technical advisers) as a combination of document reviews and Q&A sessions with the target’s management.
While there is no requirement to carry out due diligence, a buyer’s decision not to conduct a due diligence review despite the seller having given it the opportunity to conduct one may affect the buyer’s ability to file a claim against the seller for a warranty breach if the basis for the claim would have been disclosed in the data room and the seller did not withhold relevant information.
What information is available to buyers?
In addition to the information disclosed by the seller in the data room, the buyer may take advantage of relevant information available in public databases. The articles of association, financial statements and target’s details (eg, registered address, board, managing director, representation rights, share capital and information on registered floating charges) are available at the Patent and Registration Office. The Title and Mortgage Register contains relevant information on real property.
In addition, public companies will make available interim reports, information required under the company’s disclosure obligations and minutes of shareholder meetings.
What information can and cannot be disclosed when dealing with a public company?
If a public company’s board has received a serious takeover bid and the board deems that bid to be in the interests of shareholders, the Helsinki Takeover Code provides that the target’s board allow the bidder to conduct a due diligence review concerning the target. In such cases, the board must see to it that confidentiality and insider issues are properly agreed with the bidder.
The target may also, in certain cases, disclose inside information to the bidder. However, use of this inside information by the bidder is prohibited. If the bidder receives inside information during the due diligence process, the bidder can neither make public the bid nor purchase shares outside the bid before the received inside information has been made public.
How is stakebuilding regulated?
A bidder for shares in a listed target may, during or after the offer period and at any time determined by the bidder, buy shares or other securities subject to the bid outside the bid. However, the bidder must afford equal treatment to all holders of the securities subject to the bid. Stakebuilding can be achieved either by making acquisitions through the stock market or through privately negotiated transactions. However, trading in securities based on inside information is prohibited in Finland.
The bidder must further make a disclosure to the Financial Supervisory Authority and the target when its direct or indirect holding in a public target reaches, exceeds or falls below 5%, 10%, 15%, 20%, 25%, 30%, 50%, 66.67% or 90% of the votes or shares. However, written disclosure must be made without delay no later than the next trading day after the holding has triggered a threshold, after which the target must publish the information.
The disclosure requirements also apply to acquisitions made by entities that the bidder controls and parties with whom the bidder has reached an agreement or mutual understanding with a third party with respect to the use of the voting rights in the target held by the third party. Warrants, convertible bonds and other share subscription rights, as well as cash and physically settled derivatives, are also included in the calculation of the bidder’s shareholding.
In a takeover bid the offer price should equal, at minimum, the highest price paid by the bidder (or any related party) during the six months preceding the day on which the voluntary offer was made public, unless there are special circumstance that give rise to an adjustment of such price. In relation to acquisitions during the tender period in a bid and nine months thereafter, an immediate top-up payment to shareholders which have already accepted the bid is required if the price of such acquisitions exceeds the offer price.
If the thresholds for mandatory bids (ie, acquisitions) lead to a stake equal to or exceeding 30% of the votes in the target, the bidder must make a mandatory bid in accordance with the Securities Market Act.
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