Regulation concerning Finnish public takeovers consists of the rules regarding public takeovers under the Finnish Securities Markets Act (Securities Market Act), the regulations and guidelines issued by the Finnish Financial Supervisory Authority (FIN-FSA), Directive 2004/25/EC of the European Parliament and of the Council on takeover bids (Takeover Directive) and the revised Helsinki Takeover Code published by the Takeover Board of the Securities Market Association (Helsinki Takeover Code). The general fiduciary duties of boards of directors are provided in the Finnish Limited Liability Companies Act (Companies Act).
The Companies Act provides certain general duties to which the company facing a possible tender offer must adhere during the process. Under the Companies Act, the board of directors has general competence to act for the company. The board of directors must act with due care and promote the interests of the company and its shareholders, including the duty to act in accordance with the purpose of the company which typically is to generate profit. The target company’s board of directors has a duty to treat all shareholders equally.
Determination of the nature of a possible takeover bid
In general, legislation regarding public takeovers regulates situations where the offer forms a public offer. However, when the company’s board of directors receives a proposal relating to a takeover bid, the board of directors must consider whether such contact is serious in nature and what measures it should take. The target board of directors is considered to have received information when such information has been obtained by any one of the board members or the managing director of the company.
Under the Helsinki Takeover Code, the following factors, among others, should be taken into account by the board of directors assessing whether the takeover bid is serious in nature: (i) concreteness and credibility of the contact; (ii) amount and form of the consideration offered; (iii) prerequisites to complete the takeover bid; and (iv) other factors relating to each individual situation.
Duties of the board of directors when a serious bid has been received
If the contact is determined to be of a serious nature, the board of directors must examine the matter, evaluate the proposed takeover bid and acquire sufficient and appropriate information to support its evaluation.
The board of directors must seek the best outcome for the shareholders, which requires that the board of directors evaluates the takeover bid and its consequences and compares it with the company’s other alternatives. The board of directors must consider whether it is in the best interests of the shareholders to pursue the takeover bid or to seek other alternatives, i.e., continuing the company’s operations as an independent company in accordance with its predetermined strategy, or implementing reorganisation processes.
If the board of directors decides that it should explore the strategy of the company being taken over, it means that the board of directors considers that it may provide a better return to the shareholders that the existing strategy the company has implemented so far.
This stage is often called putting the company ‘in play.’ In this situation, it is advisable to consult the company’s financial adviser to seek what other offeror candidates the company may have. This is often carried out through a limited controlled auction between the most potential bidders. However, it is good to note that under the current Finnish takeover rules, the board of directors is not under a firm duty to seek competing takeover bids in such a manner.
Nonetheless, if the company is aware of a competing takeover bid it should consider whether approaching such offeror would be in the interest of the shareholders. If the board of directors decides to take measures in the matter, it must treat all shareholders equally. In evaluating the takeover bid and alternatives the board should use external experts, such as an experienced investment bank as its financial adviser and a reputable law firm as its legal adviser.
It may often be advisable for the board of directors to contact the biggest shareholders (at least the ones owning more than 10 percent of the shares) of the company before putting the company ‘in play’. This is due to the fact that the biggest shareholders could easily frustrate the offer by making it impossible for the bidder to reach 90 percent of the shares and votes (the squeeze-out threshold).
If the board of directors concludes in its evaluation that the takeover bid is the most beneficial alternative for the shareholders, the board of directors must aim to achieve as good a takeover bid as possible. This means that the duty of the board of directors shifts from preservation of the target company as an individual corporate entity to the maximisation of the company’s value at a sale for the shareholders’ benefit. This might mean that the target company’s board of directors should at this point initiate negotiations with the offeror.
Juha Koponen is a partner and Jari Vikiö a senior partner at Borenius. Mr Koponen can be contacted on +358 20 713 3285 or by email: email@example.com. Mr Vikiö can be contacted on +358 20 713 3503 or by email: firstname.lastname@example.org.
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Juha Koponen and Jari Vikiö