Completing the transaction

Hostile transactions

What are the special considerations for unsolicited transactions for public companies?

In Sweden, hostile takeover bids (takeover bids where the offer is not recommended by the target company’s board) do occur but are not very common, mainly as a consequence of the shareholder structure in Swedish companies listed on a regulated market where institutional investors often hold significant stakes, which means that the probability of any hostile offer being successful without the recommendation of the target company’s board or the support of the institutions is low. With regard to competing bids, which is not an entirely uncommon situation in Sweden, the circumstances entail that the target board must refrain from recommending at least one of the bids.

The target board must, in all situations, act in the interest of the shareholders in matters relating to a takeover bid. In light of this, the board must make a decision on whether to allow a potential (hostile) offeror to conduct due diligence on the target company upon request and whether the target company, upon request, should assist the offeror in drafting applications for requisite regulatory approvals. There are also restrictions regarding the implementation of defence measures.

Break-up fees – frustration of additional bidders

Which types of break-up and reverse break-up fees are allowed? What are the limitations on a public company’s ability to protect deals from third-party bidders?

Normally, a target company must not commit itself to any offer-related arrangements, namely any arrangement related to the offer that entails an obligation on the target in relation to the offeror (eg, break-up fees), in relation to an offeror. However, confidentiality commitments and undertakings not to solicit the offeror’s employees, customers and suppliers are exempted from the prohibition. As reverse break-up fees typically do not entail an obligation on the target in relation to the offeror, reverse break-up fees, as such, are not prohibited, but they are uncommon in practice.

A target company listed on a regulated market may normally not, without the approval of the general meeting, take any measures that are intended to impair the preconditions for the submission or implementation of a takeover offer. Measures that a target company typically may not take include a directed issue of shares, a transfer or acquisition of assets or a takeover bid regarding the offeror company. However, the target company is always permitted to look for a white knight. In a hostile context, the process typically involves a significant public angle and may accordingly involve actions by the board that relate to public communications and may be of a defensive nature. Furthermore, if the target board ensures that the stock market is well informed of, among other things, the company’s business, financial conditions, results of operations and prospects, on a continuous basis, it somewhat reduces the likelihood of a hostile approach. The target board’s opinion, which shall be announced no later than two weeks prior to the expiry of the acceptance period, is of course likely to have an impact on the target shareholders’ willingness to accept the offer.

The Swedish Companies Act (the Companies Act) prohibits Swedish limited liability companies from providing financial assistance for the acquisition of the company’s own shares or shares of companies further up in the same group. The prohibition covers direct funding as well as any provision of security or collateral for such financing.

Government influence

Other than through relevant competition regulations, or in specific industries in which business combinations or acquisitions are regulated, may government agencies influence or restrict the completion of such transactions, including for reasons of national security?

The Swedish Financial Supervisory Authority (SFSA) could restrict the completion of public transactions; for example, it will refuse to approve an offer document if the offeror has not undertaken, in relation to the exchange, to comply with the Swedish Takeover rules for Nasdaq Stockholm and Nordic Growth Market NGM (the Takeover Rules) and to submit to the sanctions that may be imposed by the exchange for breaching the Takeover Rules, and it can prohibit a takeover bid or the marketing thereof if the bid is, or is likely to be, in contravention of the provisions of the Swedish Financial Instruments Trading Act or the Swedish Stock Market (Takeover Bids) Act.

Certain sector-specific rules apply and it should be noted that certain legislative actions have been taken in Sweden as a consequence of the entry into force of Regulation (EU) 2019/452 establishing a framework for the screening of foreign direct investments into the Union, and there is an ongoing government inquiry regarding how a Swedish system for this screening may be designed.

Conditional offers

What conditions to a tender offer, exchange offer, merger, plan or scheme of arrangement or other form of business combination are allowed? In a cash transaction, may the financing be conditional? Can the commencement of a tender offer or exchange offer for a public company be subject to conditions?

With respect to voluntary takeover bids and statutory mergers, it is common for completion of the offer or merger to be subject to certain conditions. Certain transaction documents, such as the announcement of the transaction, must include information on any condition for completion. 

According to the Takeover Rules, a condition for completion shall be formulated in a way that allows for its fulfilment to be objectively determined; it may not be formulated in a way that gives the offeror decisive influence over its fulfilment. Completion of the offer may, however, be conditional on the offeror being granted requisite regulatory approvals on terms that are acceptable to the offeror. If completion conditions are stipulated, the offeror shall state that the offer may be withdrawn based on a condition for completion only if the non-fulfilment of the condition is of material importance to the acquisition of the target company by the offeror. However, this does not apply to conditions regarding achievement by the offeror of a certain level of acceptances of the offer. A condition for completion may be waived, in whole or in part, if the offeror has reserved the right to do so.

In practice, the specific conditions vary but will usually include conditions such as the offeror receiving acceptances of the offer of more than a certain percentage of the shares (and possibly also voting rights) in the target company or, in the case of a merger, the general meetings of the involved companies approving the merger plan, and the obtaining of all necessary approvals and clearances, including any competition clearances, on acceptable terms. Mandatory takeover offers cannot be made subject to conditions, other than a condition of obtaining requisite regulatory approvals.

The Takeover Rules include a requirement that the offeror, prior to the announcement of the offer, must ensure that it has sufficient financial resources to implement the offer. That said, the offeror may make a takeover offer conditional on a lender disbursing an acquisition loan. However, conditions for disbursement of the loan, which are stipulated in the acquisition loan agreement, may not be invoked by the offeror as grounds for not completing the offer, unless stipulated as conditions for completion of the offer. The offeror may, therefore, accept that the lender stipulates conditions for disbursement of the loan that are not included as conditions to completion of the offer provided that they are of such a nature that the offeror is personally able to ensure, in practice, that the conditions are met (eg, conditions that security will be provided and the requisite loan documentation signed). Non-fulfilment of these conditions may not constitute the basis for withdrawing the offer.

Financing

If a buyer needs to obtain financing for a transaction involving a public company, how is this dealt with in the transaction documents? What are the typical obligations of the seller to assist in the buyer’s financing?

If an offeror needs to obtain financing for a transaction involving a company listed on a regulated market, the completion of the offer is sometimes made subject to a condition that a lender disburses an acquisition loan, which is included in the announcement of the offer and the offer document. There are typically no obligations for a seller or a target company to assist in a buyer’s financing.

Minority squeeze-out

May minority stockholders of a public company be squeezed out? If so, what steps must be taken and what is the time frame for the process?

The Companies Act provides for a squeeze-out mechanism, including both a right for the minority owners to sell and for the majority owner to purchase minority shares in a company, if a shareholder’s direct and indirect ownership exceeds 90 per cent of the shares in the company. As set out in detail in the Companies Act, there are several steps to be taken by different parties in connection with such a process. Initiation of the process is made by the submission of a written request to the company’s board that the dispute be resolved by arbitrators. A majority shareholder normally submits a petition for advance vesting of title in the majority shareholder with respect to the minority shares, prior to the final determination of the purchase price. This petition may be decided upon by the arbitrators only where the parties agree on the existence of a buy-out right or obligation, or it is otherwise clear that the right or obligation exists, and the majority shareholder has provided security for the future purchase price and interest, and the security has been approved by the arbitrators. Normally, where a demand for a buy-out of shares has been preceded by a takeover bid and the bid was accepted by holders of more than 90 per cent of the shares, the purchase price in the buy-out procedure shall correspond to the value of the consideration in the offer (unless special cause otherwise dictates). The time period from the initiation of a squeeze-out procedure until the obtaining of advance title varies but is normally approximately six months.

Waiting or notification periods

Other than as set forth in the competition laws, what are the relevant waiting or notification periods for completing business combinations or acquisitions involving public companies?

There are, in general, no such waiting periods with respect to takeover bids, although the acceptance period must typically be at least three weeks.

In respect of statutory mergers, the Companies Act provides for a relatively detailed process involving, among others, the Swedish Companies Registration Office, which entails that there are several waiting periods in this regard.

Depending on the nature of the specific transaction, other waiting periods may apply, for example in connection with ownership and management assessment by the SFSA or filing regarding authorisation from the SFSA to implement a merger plan.

Law stated date

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1 May 2020.