Proposed Amendment to Legislation on Voluntary and Mandatory Offers - International Law Office

Application and Scope
Provisions on Voluntary Offers
Provisions on Mandatory Offers
Squeeze-Out and Sell-Out Rights
Comment

The Committee on Markets in Financial Instruments has proposed legislative amendments in order to implement, among other things, the EU Takeover Directive (2004/25/EC).

The main takeover legislation for Norwegian limited companies can be found in the Public Limited Companies Act (45/1997) and the Private Limited Companies Act (44/1997). In addition, the Securities Trading Act (79/1997) - as well as rules created pursuant to the act - and the Stock Exchange Regulations regulate various aspects of the acquisition of listed companies. The committee's proposal mainly involves changes to the provisions on mandatory and voluntary offers for shares set out in Chapter 4 of the Securities Trading Act.

This update reviews a few selected topics of the proposal.

Application and Scope

The present provisions on takeover bids in the Securities Trading Act apply only to Norwegian companies listed on a Norwegian stock exchange.

The committee has proposed that the scope of the legislation and regulations on takeover bids should be extended to include the following:

• companies which have their registered office in a European Economic Area (EEA) country other than Norway, provided that they are listed on a regulated market in Norway, but not in their home state;
  
  
• companies which have their registered office in Norway and are listed on a regulated market in another EEA country, but not in Norway; and
  
  
• companies which have their registered office in a non-EEA country, provided that they are listed on a regulated market in Norway, but not in their home state.

Moreover, the committee has proposed amendments whereby exemptions from the legislation and regulations - in whole or in part - may be granted, where necessary, to avoid conflict between different national legislation and regulations. The competent authority to supervise and make decisions in respect of takeover bids in Norway will be authorized to exempt, on a case-by-case basis, companies with registered offices in Norway which are listed only on a regulated market in another EEA country, and companies with registered offices in a non-EEA country which are listed only on a regulated market in Norway.

The committee has also proposed that the following should be determined by new regulations with respect to takeover bids involving more than one country:

• the application of Chapter 4 of the Securities Trading Act;
  
  
• the nomination of a competent authority; and
  
  
• the choice of national law.

Furthermore, the committee has proposed that the authority competent to supervise and make decisions in respect of takeover bids should continue to be the regulated market on which the shares in question are listed. The Oslo Stock Exchange is at present the only regulated market in Norway for shares.

Provisions on Voluntary Offers

Under the current provisions, there is no general requirement to prepare a prospectus or other offer document for a voluntary offer. However, if an offer with a proposed settlement in the form of shares is directed at more than 50 persons in the Norwegian securities market, it will usually trigger an obligation to prepare a prospectus pursuant to other regulations in the Securities Trading Act. Further, if, following the voluntary offer, the offeror holds shares representing more than 40% of the voting rights in the company, the obligation to make a mandatory offer is triggered. Some provisions on mandatory offers will thus apply, which include the obligation to prepare an offer document.

The committee also suggested that voluntary offers should be subject to more extensive regulation. Among other things, a party willing to make a voluntary offer will be required to give immediate notice of its intention to the takeover supervisory authority and the target company. The authority will be required to publish the notification, and both the offeror and the target company will be required to inform their employees of the situation immediately. The committee also proposed the introduction of a new rule, under which voluntary offers should specify that the time allowed for shareholders to accept the offer must be no less than two weeks and no more than 10 weeks.

As under the present system, certain provisions of the Securities Trading Act on mandatory offers shall apply to voluntary offers that trigger a mandatory offer obligation under Section 4-1 of the Securities Trading Act, should the voluntary offer be accepted. Consequently, voluntary offers will have to comply with the following rules, among other things:

• the prohibition against differential treatment of shareholders;
  
  
• the requirement to produce an offer document; and
  
  
• the requirement to obtain approval with respect to the offer and the offer document.

At present, a provision of the Securities Trading Act limits the freedom of manoeuvre of the company's board and management during the offer period of a mandatory offer. The committee suggested that this provision should apply to both mandatory and voluntary offers under the Securities Trading Act.

Provisions on Mandatory Offers

Under the current provisions, any party which, through acquisition, becomes the owner of shares representing more than 40% of the voting rights in a Norwegian company listed on a Norwegian stock exchange must make an offer for the purchase of the remaining shares.

The majority of the committee has proposed two material amendments to the rules on mandatory offer obligation. First, the threshold for triggering the mandatory offer requirement should be reduced from the current level to more than one-third of the shares carrying voting rights. Second, a threshold for the acquisition of shares representing more than 50% of voting rights should be introduced.

Under the present rules, mandatory offers must be made unconditionally. The majority of the committee proposed that mandatory offers may be made on condition that any necessary official approvals have been granted or that the authorities do not intervene or forbid the acquisition.

With respect to the offer price, no amendments to the rules concerning its calculation were proposed. Consequently, the offer price shall continue to be the higher of either (i) the market price at the time when the offer obligation was triggered, or (ii) the highest payment made or agreed by the offeror in the six months preceding the triggering of the mandatory offer obligation. However, the committee has recommended the introduction of a provision whereby, if an offeror subsequently agrees to pay (or pays) certain shareholders more than the offer price within six months of the expiry of the offer period, it must pay the difference between the offer price and the higher price to all the shareholders that accepted the offer.

Moreover, the committee has proposed that an offer document approved by the takeover supervisory authority in another EEA country should automatically be approved in Norway (as of the date on which the EEA country in question announced that the document has been approved). However, the Norwegian takeover supervisory authority may require that offer documents be translated into Norwegian.

Squeeze-Out and Sell-Out Rights

The committee suggested that a separate provision on squeeze-out and sell-out rights be included in the Securities Trading Act. At present, Section 4-25 of the Public Limited Companies Act includes a provision on forced transfer of shares.

Under the committee's proposal, where shares representing more than nine-tenths of shares carrying voting rights and the votes that can be cast at a general meeting are acquired following either a voluntary offer or a mandatory offer, the acquirer may force the transfer of the remaining shares under Section 4(25) of the Securities Trading Act.

Comment

The Finance Ministry has initiated a hearing process with respect to the proposal. The deadline for submitting comments is December 5 2005.

Based on the committee's proposal and the comments made during the hearing process, the ministry will submit a proposal for amendment to Parliament. Both the ministry and Parliament may suggest amendments to the proposal. It is too early to speculate on the exact nature of the amendments or the time of their implementation.

For further information on this topic please contact Peter Hammerich or Vibeke Svendsby at Bugge, Arentz-Hansen & Rasmussen by telephone (+47 22 83 02 70) or by fax (+47 22 83 07 95) or by email (ph@bahr.no or vks@bahr.no).