The working group appointed by the Finnish Ministry of Finance to prepare the implementation of the directive of the European Parliament and the Council on takeover bids (the "Directive") into Finnish law (the "Working Group") published its report on 10 May 2005. The amendments contained in the report are proposed to enter into force as of 1 January 2006 (provided that the reform of the Finnish Companies Act will also enter into force as of said date) or alternatively as of 20 May 2006. The Directive is proposed to be implemented mainly through revised provisions of the Finnish Securities Market Act and through self-regulation. The principal amendments would be introduced through revised or new regulations in particular regarding the requirement to make a mandatory offer, the offer consideration, the role of the target board and competing offers, which are briefly described below.
Although the Directive permits the Member States to define "control" triggering a mandatory offer, market practice and international trends have imposed a need to review the Finnish definition existing today. Consequently, the Working Group proposes in its report said threshold to be reduced from the current 2/3 to 30% of the votes in a target company, or where the offeror already holds more than 30% of the votes, to 50%. A voluntary offer would, however, no longer need to be followed by a mandatory offer under the Securities Market Act, where the relevant threshold had been exceeded by means of the initial voluntary offer, provided that the initial voluntary offer had been made for all securities that are entitled to voting rights in the target company. While the current obligations to proceed through a number of different, partly parallel, redemption procedures when acquiring control are thus proposed to be simplified, squeeze-out proceedings under the Companies Act, would, however, still need to be initiated in order to acquire 100% of the shares of a target company.
The Working Group has also reassessed the concept of equitable price to be offered in mandatory offers. The current Finnish rule refers to the market value of the share, defined generally as the volume-weighted average price paid for the shares in public trading during the 12 months preceding the triggering of the redemption obligation or any higher price paid by the offeror during such 12 month period. The Directive determines the equitable price as the highest price paid by the offeror during not less than six and not more than 12 months before the offer, subject to possible adjustment by the national supervisory authority pursuant to defined principles. In accordance with the Directive’s requirements, the proposal of the Working Group refers in this respect to the highest price paid by the offeror during the six months preceding the date when the obligation to make a mandatory offer was triggered. In the absence of such purchases, the offer price would need to correspond at least to the volume-weighted average price paid for the securities in question in public trading during the three months preceding said date.
Although not required by the Directive, also a new provision with respect to the offer consideration in voluntary offers for all shares (and securities which are entitled to shares) is proposed to be introduced. Such price would need to correspond at least to the highest price paid by the offeror during the six months immediately preceding the announcement of the offer. Further, the requirement to offer a cash alternative (as currently required in connection with mandatory offers) would be extended also to voluntary offers under certain circumstances.
In addition to the above, one further obligation deriving from the concept of equal treatment of all addressees of the offer is proposed to be introduced with respect to the offer price: a statutory top-up obligation (as already in force to a certain extent) would be supplemented by an obligation to adjust the offer terms during the offer period if securities are acquired by the offeror during such period for a higher price than the initial offer price after the announcement of the respective voluntary offer or after triggering the obligation to launch a mandatory offer and prior to the expiry of the offer period. The adjustment would need to reflect such higher price paid.
The Working Group proposal also includes a new statutory minimum duration of three weeks and maximum duration of ten weeks in respect of the offer period. The Financial Supervision Authority would be vested with powers to grant on special grounds permission for the offer period to exceed the maximum duration of ten weeks. The grounds for extending the offer period are proposed to be determined by law. Further, it is proposed that, at the target company’s request, the Financial Supervision Authority could decide to extend the offer period in order for the target company to convene a general meeting of shareholders to assess the offer.
As a further variation, the Working Group also proposes specific provisions with respect to competing offers. Where a competing offer is launched, the initial offeror would be entitled to amend the terms and conditions of its offer and to extend the offer period (irrespective of the above maximum duration). Investors that have accepted the initial offer would be entitled to cancel their acceptance. Also, the initial offeror would have a right to cancel its offer.
As regards the obligations of the target company board, the Working Group proposes, in line with the Directive, a statutory requirement of a statement by the target board regarding the offer. Based on the currently applicable recommendation by the Financial Supervision Authority, a similar statement has been the market practice so far. However, the proposed requirement for the target board to specifically instruct the relevant shareholders (and holders of other securities) and to assess the impact of the offer on the operations and employees of the company would be an addition to the current regulations. Also a specific obligation to inform employees of the target company in connection with the offer is proposed to be imposed on the target board.
Finally, implementation of the extensively debated breakthrough rule and board passivity rule found in Articles 9 and 11, respectively, of the Directive is subject to the discretion of the Member States according to the opt-in and opt-out system applied by the Directive. Irrespective of the fact that the Working Group does not support an opt-in solution with respect of said rules (except for partial opt-in regarding Article 9), it seems that a target company may nevertheless opt in, as said rules are proposed to be introduced in Finland through self-regulation and voluntary incorporation in target companies’ Articles of Association. For such purposes a new "takeover panel" (to be operating in connection with the Central Chamber of Commerce) is proposed to be introduced.
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