On 21 August 2006 LogicaCMG announced an SEK11.9 billion (£882 million) recommended cash and share offer for WM-data AB (publ), a Swedish IT services company listed on the Stockholm Stock Exchange. The voluntary takeover offer, the first to be subject to the new Swedish takeover rules following implementation of the EU Takeover Directive in Sweden on 1 July 2006, was declared unconditional less than two months later.
Herbert Smith and Setterwalls, one of Sweden’s leading law firms, working closely with Group Legal Counsel Lawrence Guedes and his team, advised LogicaCMG.
LogicaCMG, listed on the London Stock Exchange and Euronext Amsterdam, is an international provider of management and IT consultancy, systems integration and outsourcing services. In 2005, Herbert Smith’s London and Paris offices advised LogicaCMG on its €903 million takeover of Unilog SA, a leading French IT services company, in a two stage transaction involving the acquisition of a block of shares from management followed by a public tender offer for all remaining shares.
The takeover of WM-data, the third largest IT services company in the Nordic region, fulfils LogicaCMG’s strategy of adding a fourth major revenue and profit generator in Europe, supplementing its existing positions in the UK, France and the Netherlands, and has created one of the largest listed European IT services companies by market capitalisation.
Structuring the offer and consideration
WM-data’s share capital consisted of A shares carrying 10 votes per share held by Thord Wilkne, one of the company’s founders, and Investor AB, a Nordic based industrial holding company, and B shares carrying one vote per share held by institutional investors and the public. In total, WM-data had some 41,000 shareholders across Sweden, Finland and Denmark of whom approximately 15,000 held individual holdings of 1,000 or fewer B shares. In addition, WM-data had outstanding debentures convertible into B shares.
In structuring the terms of its offer, it was key for LogicaCMG to acquire all outstanding shares and convertible debentures and, as the consideration would include new LogicaCMG shares, to do so in a way that provided liquidity for those Nordic investors accepting the offer and acquiring new LogicaCMG shares, while at the same time limiting the overall size of its post-completion shareholder base.
The offer was structured as an offer of new LogicaCMG shares and cash for both WM-data shareholders and debenture holders, with a guaranteed cash alternative for those shareholders holding 500 or fewer shares and those debenture holders entitled to 500 or fewer shares on conversion of their debentures. On announcement, the offer valued WM-data at approximately SEK11.9 billion (£882 million) and each share at approximately SEK27.75 (£2.05). The guaranteed cash alternative gave smaller investors an immediate exit and limited the potential growth in the size of LogicaCMG’s shareholder register on completion of the deal.
In order to provide sufficient liquidity for those Nordic investors accepting the offer, LogicaCMG arranged for the new consideration shares to be traded on the Xternal list of the Nordic Exchange. The new shares were issued to a nominee account in CREST, the UK’s electronic trading and settlement system, in the name of VPC, the Swedish trading and settlement system, to hold on behalf of the underlying shareholders. The shares can be traded by shareholders within the VPC system or they can be removed from the VPC system, deposited in a shareholder’s CREST account and traded through CREST.
UK stamp duty reserve tax of 1.5% was payable by LogicaCMG on the issue of the shares into VPC’s CREST account as it involved an issue of shares to a person whose business includes the provision of clearance services. Subsequent transfers of the LogicaCMG shares within the VPC system will generally be free of UK stamp duty.
Arrangements with WM-data and its major shareholders
Prior to announcement of the offer, LogicaCMG and WM-data entered into an agreement governing the payment of certain costs by the parties in connection with the offer. In particular, WM-data agreed to reimburse LogicaCMG for costs incurred in connection with the offer of up to £2.9 million in the event that the WM-data Board recommended a competing bidder whose offer was subsequently successful.
Irrevocable undertakings to accept the offer were received from WM-data’s two largest shareholders, Investor AB and Thord Wilkne, and certain of WM-data’s senior managers in respect of approximately 23.2% of the issued share capital of WM-data and 53.2% of the voting rights attaching to such capital.
Under the terms of the irrevocable undertakings, management agreed to accept LogicaCMG’s offer within the initial acceptance period and the two largest shareholders upon the offer being declared unconditional. The irrevocable undertakings lapsed in certain circumstances, including, where the offer was not declared unconditional within a fixed period of time, in the event of a higher competing offer equal to or higher than SEK30 per share or in the event of the overall value of the offer dropping by 12% or more, ie, as a result of a decrease in the value of the share element of the consideration following a decrease in LogicaCMG’s share price.
Investor AB and Thord Wilkne also entered into lock up agreements with LogicaCMG in which they agreed to restrictions on the disposal of the consideration shares to be received by them under the terms of the offer.
As the proposed offer for WM-data constituted a “Class 1” acquisition for LogicaCMG, it was required to comply with the requirements of UK Listing Rules 10 and 13 to publish a Class 1 circular and convene a shareholder meeting to seek consent for the transaction. In addition, as LogicaCMG intended to offer new shares (to be admitted to trading on the FSA’s Official List) under the terms of the offer, it was subject to the obligation in the UK Prospectus Rules (implementing the EU Prospectus Directive in the UK) to prepare a prospectus where there is an offer of transferable securities to the public or such securities are being admitted to trading on a regulated market (eg, the FSA’s Official List).
Notwithstanding this, where securities are offered, allotted or to be allotted in connection with a merger or takeover, a prospectus is not required if a document is available containing information that is regarded by the UK’s FSA as being “equivalent” to that of a prospectus.
An equivalent document offers two key legal advantages over a prospectus:
- a company and its directors do not have statutory liability to investors for its contents under section 90 FSMA.
- investors that are being offered securities do not have withdrawal rights under section 87Q FSMA in the event that new information is published (a situation which could, in the context of an M&A transaction, pose a problem for a bidder attempting to reach a set acceptance level).
Following implementation of the EU Prospectus Directive in the UK on 1 July 2005, in order to take advantage of these benefits, issuers have generally chosen to prepare equivalent documents rather than prospectuses in connection with a domestic M&A related issue of listed securities. However, an equivalent document cannot be “passported” into any other EEA state, meaning that it does not suffice for the purposes of offering shares to the public at large in other EEA states.
In light of the number, nature and location of WM-data investors, the decision was taken to prepare a prospectus. The prospectus was approved by the UK’s FSA on 12 September 2006 and passported into Sweden, Finland, Denmark and Ireland, thus enabling LogicaCMG to extend its offer – and importantly the share element of the consideration – to investors in all four jurisdictions.
Whilst technically withdrawal rights could have arisen and proven to be problematic for LogicaCMG in reaching required acceptance levels with certainty, a Swedish takeover offer, the offer is regularly closed off and acceptances locked in. In practice, this would have mitigated the effect of any withdrawal rights had they arisen.
The takeover offer was made in accordance with Swedish law and, following implementation of the EU Takeover Directive in Sweden on 1 July 2006, was the first voluntary takeover offer in Sweden to be subject to the new Swedish Takeover Code. The Swedish regulatory authorities took a co-operative and pragmatic approach throughout the transaction, agreeing ultimately that for consistency of presentation of information to investors and provided that the UK prospectus broadly met the content requirements of an offer document under the new Swedish Takeover Code, the Swedish takeover offer document could comprise a short form Swedish offer document with the UK prospectus (containing all substantive disclosure required by the rules) attached as an annexure. In order to satisfy the Swedish takeover regulator that the UK prospectus broadly met the content requirements of an offer document under the new Swedish Takeover Code, LogicaCMG was required to include a pro forma statement of profit and loss for the enlarged LogicaCMG group in the UK prospectus (a form of pro forma financial information that is not commonly seen in the UK where a statement of net assets normally suffices for the purposes of providing investors with a view of the likely shape of the enlarged group).