Mergers & Acquisitions
Published by Getting The Deal Through in association with:
Aabø-Evensen & Co Advokatfirma AÉLEX Arendt & Medernach Arias, Fabrega & Fabrega Babic & Partners Baião, Castro & Associados | BCS Advogados Bianchi Rubino-Sammartano & Associati Biedecki, Biedecki & Ptak Bowman Gilfillan, Attorneys Brandão Teixeira Ricardo e Foz – Advogados Bruun & Hjejle Carey y Ciá Ltda Cheok Sankaran Halim Coulson Harney Darrois Villey Maillot Brochier Debarliev Dameski & Kelesoska Attorneys at law Egorov Puginsky Afanasiev & Partners ELIG, Attorneys-at-Law Estudio Trevisán Abogados SC Freshfields Bruckhaus Deringer LLP Gleiss Lutz Goodrich, Riquelme y Asociados, AC Herzog, Fox & Neeman Hoet Peláez Castillo & Duque Abogados Homburger AG Inyurpolis Law Firm José Lloreda Camacho & Co Kadir Andri & Partners Kim & Chang Klavins & Slaidins LAWIN Law Office Milovanovic ´ and Associates Law Office of Mohanned bin Saud Al-Rasheed in association with Baker Botts LLP Lideika, Petrauskas, Valiu ¯nas ir partneriai LAWIN Macleod Dixon LLP Mallesons Stephen Jaques McCann FitzGerald McMillan LLP Nagashima Ohno & Tsunematsu NautaDutilh Navarro Abogados Nishith Desai Associates Odvetniki Šelih & partnerji Pellerano & Herrera Pérez-Llorca Schönherr Siegler Law Office/Weil, Gotshal & Manges Simont Braun SCRL Simpson Thacher & Bartlett LLP Slaughter and May Thanathip & Partners Vlasova Mikhel & Partners Voicu & Filipescu Waselius & Wist Wolf Theiss WongPartnership LLP Wu & Partners, Attorneys-at-Law
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Contributing editor: Casey Cogut
in 58 jurisdictions worldwide
Mergers & Acquisitions 2009 Contributing editor Casey Cogut Simpson Thacher & Bartlett LLP Business development manager Joseph Samuel Marketing managers Alan Lee Dan Brennan George Ingledew Edward Perugia Robyn Hetherington Dan White Tamzin Mahmoud Marketing assistant Ellie Notley Subscriptions manager Nadine Radcliffe [email protected]
GettingTheDealThrough.com Assistant editor Adam Myers Editorial assistants Nick Drummond-Roe Charlotte North Senior production editor Jonathan Cowie Subeditors Jonathan Allen Kathryn Smuland Sara Davies Laura Zúñiga Ariana Frampton Sarah Dookhun Editor-in-chief Callum Campbell Publisher Richard Davey Mergers & Acquisitions 2009 Published by Law Business Research Ltd 87 Lancaster Road London, W11 1QQ, UK Tel: +44 20 7908 1188 Fax: +44 20 7229 6910 © Law Business Research Ltd 2009 No photocopying: copyright licences do not apply. ISSN 1476-8127 The information provided in this publication is general and may not apply in a specific situation. Legal advice should always be sought before taking any legal action based on the information provided. This information is not intended to create, nor does receipt of it constitute, a lawyer–client relationship. The publishers and authors accept no responsibility for any acts or omissions contained herein. Although the information provided is accurate as of June 2009, be advised that this is a developing area.
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Introduction Casey Cogut and Sean Rodgers Simpson Thacher & Bartlett LLP 3 European Overview Stephen Hewes and Tim Wilmot Freshfields Bruckhaus Deringer LLP 6 Argentina Pablo Trevisán, Claudia Delgado, Laura Bierzychudek and Agustina Andreoli Estudio Trevisán Abogados SC 10 Australia Nigel Hunt and Jason Watts Mallesons Stephen Jaques 17 Austria Christian Herbst Schönherr 24 Belarus Tatiana Emelianova and Elena Kumashova Vlasova Mikhel & Partners 30 Belgium Sandrine Hirsch and Vanessa Marquette Simont Braun SCRL 35 Brazil Maria PQ Brandão Teixeira Brandão Teixeira Ricardo e Foz – Advogados 41 Brunei Robin Cheok Van Kee Cheok Sankaran Halim 47 Bulgaria Kaloyan Todorov Wolf Theiss 52 Canada Sean Farrell and Robert McDermott McMillan LLP 57 Chile Pablo Iacobelli and Cristián Eyzaguirre Carey y Ciá Ltda 62 China Martyn Huckerby, Sharon Wong and Erik Leyssens Mallesons Stephen Jaques 67 Colombia Enrique Álvarez and Santiago Gutierrez José Lloreda Camacho & Co 74 Croatia Boris Babic, Marija Gregoric, Katarina Fulir and Boris Andrejas Babic & Partners 79 Czech Republic Paul Sestak and Michal Pravda Wolf Theiss 84 Denmark Christian Schow Madsen Bruun & Hjejle 89 Dominican Republic Marielle Garrigó and Juana Barceló Pellerano & Herrera 92 England & Wales Simon Robinson Slaughter and May 95 Finland Mikko Eerola, Mårten Knuts and Tom Fagernäs Waselius & Wist 103 France Olivier Diaz Darrois Villey Maillot Brochier 108 Germany Gerhard Wegen and Christian Cascante Gleiss Lutz 113 Hong Kong Larry Kwok and Cally Fang Mallesons Stephen Jaques 121 Hungary David Dederick, László Nagy and Eszter Katona Siegler Law Office/Weil, Gotshal & Manges 126 India Kartik Ganapathy and Amrita Singh Nishith Desai Associates 131 Ireland Barry Devereux and David Lydon McCann FitzGerald 139 Israel Maya Alcheh-Kaplan and Daniel Lipman Lowbeer Herzog, Fox & Neeman 145 Italy Mauro Rubino-Sammartano, Carlo Boggio, Simone Rizzi and Marina Rubini Bianchi Rubino-Sammartano & Associati 150 Japan Ryuji Sakai, Kayo Takigawa and Yushi Hegawa Nagashima Ohno & Tsunematsu 158 Kazakhstan Yerzhan Kumarov Macleod Dixon LLP 163 Kenya Richard Harney Coulson Harney 169 Korea Jong Koo Park, Michael H Yu and Kyung Min Koh Kim & Chang 175 Latvia Zane Bule and Reinis Pavars Klavins & Slaidins LAWIN 179 Lithuania Rolandas Valiu¯nas and Sergej Butov Lideika, Petrauskas, Valiu¯nas ir partneriai LAWIN 184 Luxembourg Guy Harles and Saskia Konsbruck Arendt & Medernach 191 Macedonia Emilija Kelesoska Sholjakovska, Dragan Dameski and Elena Miceva Debarliev Dameski & Kelesoska Attorneys at law 198 Malaysia E Sreesanthan Kadir Andri & Partners 204 Mexico Jorge A Sánchez Dávila Goodrich, Riquelme y Asociados, AC 209 Netherlands Willem Calkoen and Martin Grablowitz NautaDutilh 215 Nigeria Theophilus I Emuwa and Chinyerugo Ugoji AÉLEX 222 Norway Ole K Aabø-Evensen Aabø-Evensen & Co Advokatfirma 227 Panama Rogelio de la Guardia Arias, Fabrega & Fabrega 234 Poland Radoslaw Biedecki, Ludomir Biedecki and Michał Zołubak Biedecki, Biedecki & Ptak 238 Portugal Victor de Castro Nunes, Maria José Andrade Campos and Cláudia de Meneses Baião, Castro & Associados | BCS Advogados 244 Romania Simona Burghelea Voicu & Filipescu 250 Russia Elena Sokolova and Vladislav Arkhipov Egorov Puginsky Afanasiev & Partners 255 Saudi Arabia Babul Parikh and Rabie Masri Law Office of Mohanned bin Saud Al-Rasheed in association with Baker Botts LLP 262 Serbia Predrag Milovanovic´ and Milica Isakov Law Office Milovanovic´ and Associates 268 Singapore Wai King Ng and Fi Ling Quak WongPartnership LLP 273 Slovenia Nataša Pipan Nahtigal and Boštjan Kavšek Odvetniki Šelih & partnerji 281 South Africa Ezra Davids and David Yuill Bowman Gilfillan, Attorneys 287 Spain Pedro Pérez-Llorca, Vicente Conde and Fernando Quicios Pérez-Llorca 292 Switzerland Claude Lambert, Dieter Gericke, Dieter Grünblatt and Gerald Brei Homburger AG 298 Taiwan Jerry Chen Wu & Partners, Attorneys-at-Law 305 Thailand Thanathip Pichedvanichok and Chawaluck Sivayathorn Thanathip & Partners 310 Turkey Tunç Lokmanhekim and Ali Ulvi Arıkan ELIG, Attorneys-at-Law 315 Ukraine Olena Kibenko Inyurpolis Law Firm 322 United States Casey Cogut and Sean Rodgers Simpson Thacher & Bartlett LLP 328 Uruguay Alfredo Navarro Castex and Alfredo H Navarro Navarro Abogados 333 Venezuela Fernando Pelaez Pier and Jorge Acedo Hoet Peláez Castillo & Duque Abogados 337 Appendix: International merger control David E Vann Jr and Ellen L Frye Simpson Thacher & Bartlett LLP 341 www.gettingthedealthrough.com
Aabø-Evensen & Co Advokatfirma
Norway Ole K Aabø-Evensen Aabø-Evensen & Co Advokatfirma
1 Form How may businesses combine?
Under Norwegian law, business combinations may be structured by: • private purchase of target company’s assets or shares involving cash or stock consideration, or both; • legal mergers (essentially an amalgamation of two companies) of public or private limited liability companies which use stock or stock and cash consideration; • public tender offers, including exchange offers, for all or (rarely) part of the stock in a listed company; and • partnerships and joint venture structures. In transactions in which a legal entity divests part of its assets or liabilities to one or more acquiring entities, the parties may choose to effect the resulting business combination by way of a statutory demerger. The respective assets and liabilities of the divesting legal entity are transferred by operation of law to the acquiring company, and the shareholders of the divesting legal entity receive stocks or a combination of stocks and cash in the acquiring company as consideration. Based on the Council Regulation (EC) No. 2157/2001) which was implemented into Norwegian law in 2005, a business combination involving a European company (SE) may be formed in various ways, including by establishing a holding company (an SE) of a Norwegian limited liability company and another company incorporated in an EU jurisdiction. After Norway recently implemented Directive 2005/56/EC, it is further also possible to conduct a legal merger of a Norwegian company cross-border within the EU and European Economic Area (EEA). However, public tender offers and other offer structures are often used instead of a legal merger, which cannot be used by foreign companies (outside the EU or EAA); only allows 20 per cent of the consideration to be given in cash; requires more formalities and documentation; and normally takes longer to complete than a public offer. 2
Statutes and regulations What are the main laws and regulations governing business combinations?
The Limited Liability Companies Act, the Public Limited Liability Companies Act and the Partnership Act, provides the fundamental statutory framework and together with the law of contracts, and the Norwegian Sales of Goods Act, forms the legal basis for the purchase and sale of corporate entities. In addition: • the Competition Act gives the Norwegian Competition Authority (NCA) power to intervene against anti-competitive concentrations. Companies that are active in the Norwegian market must www.gettingthedealthrough.com
(generally in a large transaction) also consider and abide by the merger control provisions set out in the EEA Agreement. However, the so-called ‘one-stop shop’ principle prevents duplication of competence of the EU Commission, the EFTA Surveillance Authority (the ESA), and the NCA; • the Stock Exchange Act (SEA) and the Stock Exchange Regulation (SER) include the basic rules for listing on the Oslo Stock Exchange (OSE); • public companies whose securities are listed on the OSE or another regulated market in Norway, are regulated under the Securities Trading Act (STA) and the Securities Trading Regulation (STR). These rules regulate prospectus requirements, information requirements, and establish a regime to prevent market abuse and insider dealing, and sets out more detailed regulations with respect to tender offers involving listed shares under Norwegian law. These rules are supplemented by inter alia, guidelines, and recommendations issued by the OSE and the rules and regulations of the OSE. Mergers and takeovers of private companies and unlisted public companies have no equivalent regulations; • the tax legislation is normally crucial in deciding the alternative and optimal tax structure of a business combination; • the Accounting Act, national accounting rules and practices. Norwegian companies listed on the OSE will also have to publish their consolidated accounts in accordance with IFRS; • the Workers’ Protection Act sets out detailed rules with respect to workforce reductions, dismissals and redundancy notice, transfer and relocating employees, etc, which will have to be observed in particular in a business combination that takes place as an asset deal. These rules are supplemented by notification and discussion obligations in connection with a business combination, set out in collective bargaining agreements, if applicable, with some of the Norwegian labour unions; and • the Reorganisation Act of 2008 sets out detailed rules and imposes an obligation on the owner of a business if it is considered to conduct a workforce reduction which comprises more than 90 per cent of the company’s workforce or if the business activity is considered to be closed down. In addition, for some industries there are sector-specific requirements to consider, such as requirements for public permits and approvals. These industries are banking, insurance, petroleum, hydropower, media and fisheries, etc. One should also keep in mind that the Financial Institutions Act regulates the acquisitions of banks, insurance companies and other financial institutions. Mergers are dealt with under the Limited Liability Companies Act and the Public Limited Liability Companies Act.
Governing law What law typically governs the transaction agreements?
The purchase of shares and assets is most commonly based on a share purchase or asset sale agreement. If the target company is a Norwegian entity, the transaction agreement will normally be governed by Norwegian law, even though the parties may agree to have such agreements governed by another jurisdiction’s law. A merger plan between Norwegian companies will more or less with no exemption be governed by Norwegian law. Tender offers for shares listed on the OSE are effected through an offer document drafted in accordance with the Norwegian STA and will for all practical purposes be governed by Norwegian law. Norwegian law is based on the principle of freedom of contract, subject only to limited restrictions. According to the Contract Act of 1918, contracts, whether oral or written, are generally binding on the parties under Norwegian law. The parties may seek to enforce legally binding contracts before the courts of law pursuant to the general rules of civil procedure. While the parties are free to decide on the terms of the contract, the formation of contracts and the remedies available in the event of breach of contract, are largely regulated in statute and case law. The Contracts Act of 1918 largely regulates the formation of contracts, the validity of contracts and the authority to act on behalf of another. In addition the Norwegian Sales of Goods Act provides certain protection in law for a buyer, including the seller’s obligation to disclose information about the target company. The Norwegian Contracts Act and the Sales of Goods Act both apply insofar as it is not contrary to agreement between the parties, commercial practice or custom. Also the laws and regulations mentioned in question 2 may have an impact on the agreement depending on what form the business combination takes place. 4
Filings and fees Which government or stock exchange filings are necessary in connection with a business combination? Are there stamp taxes or other government fees in connection with completing a business combination?
In general, no governmental filings are required for private business combinations. However, filings are required for merger control purposes either to the Norwegian Competition Authority (NCA) or to the EU Commission, if the business combination meets the relevant turnover thresholds. Effective from 1 July 2008, mergers and acquisitions which meet the relevant turnover thresholds are prohibited from being implemented before they have been notified and reviewed by the NCA, unless an exemption is granted by such authority. In a tender offer, the offer document must be filed and published with the stock exchange. Norway has implemented the Prospectus Directive (Directive 2003/71/EC) and if the business combination involves a new share issue by a party listed on the OSE, there will generally be a requirement to publish a prospectus, if such offer is addressed to 100 or more persons in the Norwegian securities market, and involves an amount of at least e100,000 calculated over a 12 month period. There are some exceptions from this obligation. One should note that for business combinations in special sectors such as banking, insurance, shipping, mining, electricity, media, telecommunications, oil, gas and agricultural, additional sector specific legislation applies under Norwegian law. Some of these rules require mandatory filing and clearance before a transaction can be implemented. There are no stamp duties, share transfer taxes or other governmental fees in connection with a business combination structured as a share transfer or an asset transfer. There is further no filing fees required under the Norwegian merger control regime.
Aabø-Evensen & Co Advokatfirma However, the OSE levies a fee of 100,000 Norwegian kroner for the approval of the public tender document and if it is necessary to issue a prospectus, the OSE levies a fee of 50,000 kroner for such approval. Real property is transferred by a separate deed. It is recommended that the deed should be registered to perfect the purchaser’s ownership. This attracts a registration tax, which is currently 2.5 per cent of the value of the property. In the case of a legal merger or de-merger, registration of such deeds is exempted from registration tax and only a nominal government fee must be paid. In such cases a nominal registration fee to the Norwegian Registry of Business Enterprises also has to be paid. 5
Information to be disclosed What information needs to be made public in a business combination? Does this depend on what type of structure is used?
No general publication requirements apply to business combinations involving unlisted or private companies. However, a listed company must publish the fact that a business combination agreement has been entered into, to the extent that it is assumed to have an affect or influence on the value of such a company’s issued shares. Listed companies must also observe certain thresholds set out in the rules; ‘continuing obligations of stock exchange listed companies’ imposing a duty of detailed announcement for certain business combinations and transactions. If the business combination is structured as a tender offer, the information specified in the Norwegian STA must be included in the offer document, irrespective of whether the tender offer is voluntary or mandatory. The board of directors of a listed company must publish a statement evaluating the terms of the offer describing the board’s view on the advantages and disadvantages of the offer. The statement shall give information about the offer and must include information on the employee’s views and other factors of significance for assessing whether the offer should be accepted by the shareholders. If the board members and the manager effectively in charge have any views in their capacity as shareholders in the company, information regarding it must be given. If the business combination is structured as a legal merger, the board of directors will after signing a joint merger plan describing the general terms of the merger, have to issue a report to the shareholders explaining the reasoning behind the merger and how this may affect the company’s employees, etc. If a Norwegian public limited liability company (ASA) is involved in a legal merger, there are more detailed requirements for the content of such a report. In addition each of the participating entities’ boards shall ensure that a written statement, which contains a detailed review of the merger consideration payable to the shareholders of the participating companies, is issued, including an opinion of the fairness of such consideration, etc. Such statement is to be prepared and issued by an independent expert (such as an auditor). In cases where the participating entity is an ASA company, and in cases where the participating entity is a private limited company (AS) such statement may be issued by the board and confirmed by the company’s auditor. 6
Disclosure of substantial shareholdings What are the disclosure requirements for owners of large shareholdings in a company? Are the requirements affected if the company is a party to a business combination?
For unlisted companies there are no specific disclosure requirements for large shareholders under Norwegian law. However for private limited liability companies, the Private Limited Companies Act Getting the Deal Through – Mergers & Acquisitions 2009
Aabø-Evensen & Co Advokatfirma requires any person who acquires an interest in shares of a target company to immediately notify the company of such acquisition. For public limited liability companies, the Public Limited Companies Act requires any member of the board, accountant, general manager and other key employees of the company to immediately inform the company’s board of any purchase or sale of shares or other financial instruments of the company, including any such transaction conducted by persons from affiliated parties. The STA sets out rules on disclosure of significant shareholdings. The rules on disclosure apply to shareholdings in listed companies in Norway. Pursuant to the STA, a stockholder or other person (ie, an acquirer) of such company is required to notify the OSE of its holdings (taking into account holdings by controlled entities), when it reaches, exceeds, or falls below any of the following thresholds: 5 per cent, 10 per cent, 15 per cent, 20 per cent, 25 per cent, 1/3, 50 per cent, two-thirds or 90 per cent of the share capital, or corresponding proportion of the votes as a result of acquisitions, disposal or other circumstances. Specific rules apply with regard to the calculation of voting rights and share capital. Stocks held by various related parties are, for the purpose of the above calculation, deemed to be included in the shareholding of the disclosing party. The same notification requirements apply to the acquisition or disposal of subscription rights, options and similar rights.
Norway financial special interest in the matter. The directors and the general manager are further under an explicit duty set out in the company’s legislation not to undertake an act or measure which is likely to cause unjust enrichment to a stockholder or a third person at the cost of the company or another person. If a Norwegian listed company becomes the subject of a public takeover offer, the board of directors will be obliged to evaluate the terms of the offer and issue a statement to its stockholders describing the board’s view on the advantages and disadvantages of the offer. Should the board consider itself unable to make a recommendation to the stockholders on whether they should or should not accept the bid, it shall explain why this is so. In general, a controlling stockholder does not have any duty towards minority stockholders and is free to act in his or her own best interest. However, a controlling influence may not be exercised – at board or management level or at the company’s general meeting of stockholders – in a manner that is likely to cause unjust enrichment to a stockholder or a third party at the cost of the company or another person. 8
Approval and appraisal rights What approval rights do shareholders have over business combinations? Do shareholders have appraisal or similar rights in
Duties of directors and controlling shareholders What duties do the directors or managers of a company owe to the company’s shareholders, creditors and other stakeholders in connection with a business combination? Do controlling shareholders have similar duties?
Directors and managers of a Norwegian company all have a fiduciary duty to act in the best interest of the company, which is generally interpreted to mean that directors and managers should act in the joint interests of all stockholders and ensure that all holders of stocks of the same class are treated equally. It is assumed that the directors’ and managers’ fiduciary duty also implies an obligation to duly consider the interests of other stakeholders such as employees, the company’s creditors, etc (depending upon the company’s financial situation) as well as the stockholders’ joint interests. Such other stakeholders’ interests are under Norwegian law and primarily protected in rules of law set out in specific legislation, which the directors and managers have a general obligation to observe. The directors’ and managers’ fiduciary duty should be interpreted to include two elements, a duty of care and a duty of loyalty. The duty of care includes a duty of the board to inform itself, prior to making a business decision, of all material information reasonably available to it. It is, however, under Norwegian law currently not clear as to what extent this duty of care also includes a requirement that the board reasonably informs itself of alternatives or actively seeks alternative bidders in connection with a business combination transaction. The duty of loyalty, however, requires that any decision by the board must be made on a ‘disinterested’ basis and not with a view to obtaining any personal benefit from the business combination. It must further be assumed that this duty mandates that the best interests of the company and its stockholders take precedence over any interest possessed by any member of the board or any particular group of the company’s stockholders and not shared by stockholders generally. A director or general manager of a company may under Norwegian law not participate in the discussion or decision of issues which are of such special importance to the director or general manager in question, or to any closely related party of said director or general manager, where that the director must be regarded as having a major personal or
The articles of association and a shareholders agreement may contain provisions that give existing stockholders approval rights over a planned acquisition of stocks or assets in the target company. Asset transactions, especially if a substantial part of the target company’s business is disposed of, may require the approval of the general meeting of stockholders of the target company. If a business combination is effected using a voluntary tender offer, the approval rights of the stockholders will normally depend exclusively on the level of required acceptances set out by the bidder. A bidder seeking to obtain control over the board of directors will, from a legal perspective, require more than 50 per cent of the votes; to be in a position to amend the target’s articles of association which requires at least two-thirds of the votes and the capital; and to effect a squeeze-out and delist the target will require more than 90 per cent of the votes and share capital. Most takeover offers will include an acceptance condition of more than 90 per cent of the stocks, a condition which can be waived by the bidder. The stockholders’ meeting must approve mergers, demergers, issuing new stocks and instruments that grant the holder a right to subscribe for stocks in the company. Such resolutions will generally require a two-thirds majority of the votes cast and the capital present at the meeting. Through the stockholders’ meeting the stockholders may instruct the board of directors on specific issues. 9
Hostile transactions What are the special considerations for unsolicited (hostile) transactions?
Norwegian law does not distinguish between friendly and hostile public tender offers. A number of provisions in the Norwegian STA (while technically applying to both friendly and hostile offers) often need to be considered carefully in hostile transactions. The target company is allowed to take a more or less cooperative approach in a takeover situation. There are however, restrictions on the board of the target company taking actions which might frustrate the willingness or otherwise of an offeror to make an offer or complete an offer that has already been made. Such restrictions apply after the target has been informed that a mandatory or volun-
norway tary offer will be made. These restrictions do, however, not apply to disposals that are part of the target’s normal business operations or where a shareholders’ meeting authorises the board or the manager to take such actions with takeover situations in mind. As a result of this, a fairly large number of Norwegian listed companies have started to adopt defensive measures aimed at preventing a successful hostile bid. However advanced US-style poison pills are currently not common in the Norwegian market. If such measures do not apply – or can be overcome – the normal reaction pattern of a Norwegian hostile board would be to seek to optimise the position for its shareholders in other ways. In this regard it should be noted that despite the restrictions on frustrating actions, several options remain, including: persuading shareholders to reject the bid; making dividend payments or using the pac-man defence; or finding a white night or white squire. The standard approach would in any event be to contact the chairman of the target’s board prior to launching the offer. In a hostile transaction, it is of particular importance for a bidder to realise that the ‘effective control’ threshold lies at two-thirds of the voting rights, as this is the majority required at the shareholders’ general meeting for amending the target’s articles of associations etc, and to effect a squeeze-out of the minority shareholders will require more than 90 per cent of the votes and the share capital. 10 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 company’s ability to protect deals from thirdparty bidders?
No Norwegian regulation exists with respect to break-up fees and as such there are no general prohibitions against agreeing upon such a fee. Break-up fees have, however, generally been less common in M&A transactions in Norway compared to other jurisdictions and are unusual in public takeovers in particular, but have occurred also in some public transactions. The enforceability of a break-up fee arrangement under Norwegian law is however to some extent unclear. A break-up fee would have to be considered from the perspective of whether an agreement on such fee is in the best interests of the company and its shareholders. For listed companies this is issue is very difficult, but any break-up fees which can be justified by reference to external costs incurred as part of the transaction would probably be acceptable. Some external compensation for internal costs such as management resources and for damage to the company’s reputation would probably also be justifiable. If however, a breakup fee imposes limitations on the target company’s board’s ability to effectively fulfil their fiduciary duties towards the company and the stockholders in a takeover situation, or if payment of such fees (provided that it became effective) would put the target company into financial distress, it could be argued that the fee will not be enforceable and the target company’s directors will be at risk of personal liability they agree on such fees. In a private business combination, and provided that all parties agree, the scope for enforceable breakup fees would be wider. Norwegian company law prohibits that the funds of a target company be used to finance acquisitions of shares that are issued by itself or by its parent company. The rules imply that a target company may, inter alia, not provide security for any loans taken out by the purchaser in order to finance such business combinations. As a result of the rules, detailed consideration should be given to how an acquisition of a Norwegian company is financed. If certain conditions are fulfilled it would generally be possible for a Norwegian company to pay out excess funds as dividends to its shareholders following an acquisition.
Aabø-Evensen & Co Advokatfirma 11 Government influence Other than through relevant competition (antitrust) regulations, or in specific industries in which business combinations are regulated, may government agencies influence or restrict the completion of business combinations including for reasons of national security?
If the relevant legal requirements have been complied with, governmental agencies do not have general authority to restrict completion of business combinations, except through relevant competition regulations, or in specific industries (including the financial sector) in which restrictions on ownership apply to all stockholders, domestic or foreign. However, the Norwegian State owns stocks in many Norwegian companies, and the government therefore has influence as stockholder in such companies. 12 Conditional offers What conditions to a tender offer, exchange offer or other form of business combination are allowed? In a cash acquisition, may the financing be conditional?
In private company acquisitions under Norwegian law, the parties are in general free to contract on whatever terms they agree. In such transactions, financing can be, and often is, a condition to completion and will further ordinarily be conditional on Competition Authority, or other third-party consent, where applicable. In a public company takeover under Norwegian law, any person or company that acquires shares in a Norwegian company listed on the OSE, and as a result; owns shares representing more than one-third of the voting rights, must make a mandatory offer to buy the remaining shares. It should be observed that following the implementation of the Takeover Directive, Norwegian law now has rules regarding repeated offer obligations at 40 per cent and 50 per cent. Such mandatory offers must be unconditional, embrace all shares in the target company, and the offer settlement needs to be in cash. However, it is possible to also offer alternative forms of consideration under such a mandatory offer, (ie, such as shares in the offeror), provided an option to receive the total offer price in cash is made available and that this option is at least as favourable as the other alternative settlement. The settlement for such a mandatory offer must be unconditionally guaranteed by either a bank or insurance undertaking authorised to conduct business in Norway. In a voluntary tender offer or exchange offer for a listed company there is, however, in general no limitation under Norwegian law as to which conditions such an offer may contain. Conditions such as a certain level of acceptance from existing shareholders, (90 per cent or two-thirds of the shares and votes), regulatory or competition approvals, completion of a satisfactory due diligence investigation and no material adverse change would regularly be included in Norwegian voluntary tender offer documents. In some cases, the offeror may decide to include very few conditions in order to complete the transaction quickly or to avoid competing bids. In other cases, an offeror may decide to include more extensive conditions. In a voluntary offer, the offeror can offer consideration in shares or other non-cash forms or a combination, also with cash as an element. In principle it is also possible to make a voluntary offer conditional upon financing, but the offer document must include information on how the acquisition is to be financed. If such voluntary offer, if accepted, triggers an obligation to issue a subsequent mandatory offer, several of the obligations relating to mandatory offers will also apply with regard to a voluntary offer, including an obligation of equal treatment of shareholders. However, the offeror is still free to decide which conditions such voluntary offer may contain.
Getting the Deal Through – Mergers & Acquisitions 2009
Aabø-Evensen & Co Advokatfirma Business combinations taking the form of a legal merger under Norwegian law are in general not regulated by the public takeover rules, but the provisions under the securities regulations apply to mergers involving at least one listed company. Also in such cases it is possible to adopt a conditional resolution to merge.
Norway sions of EC merger regulations as well as national competition rules (see question 1). In addition there is a number of tax considerations in any crossborder transaction, in particular thin capitalisation issues and classification issues relating to hybrid financial instruments used in such transactions.
13 Minority squeeze-out May minority stockholders be squeezed out? If so, what steps must be taken and what is the time frame for the process?
Minority stockholders may under Norwegian law be subject to a squeeze out. The Limited Liability Companies Act and the Public Limited Liability Companies Act provide that, if a parent company, either solely or jointly with a subsidiary, owns or controls more than 90 per cent of another company’s stocks and voting rights, the board of directors of the parent company may, by resolution decide to squeeze out the remaining minority stockholders by a forced purchase at a redemption price. Minority stockholders have a corresponding right to demand the acquisition of their shares by a stockholder with a stake of more than 90 per cent of the company’s stocks. The resolution shall be notified to minority stockholders in writing, registered in the Norwegian Registry of Business Enterprises, and made public by an advertisement in a newspaper. A deadline may be fixed, which cannot be less than two months, within which the individual minority stockholders may make objections to or reject the offered price. The acquirer becomes the owner of (and assumes legal title to) the remaining stocks immediately following; a notice to the minority shareholders of the squeeze-out and the price offered; and the depositing of the aggregate consideration in a separate account with an appropriate financial institution. If any of the minority stockholders do not accept the redemption price per stock offered, they are protected by appraisal rights, which allow stockholders who do not consent, to seek judicially determined consideration for their shares, at the company’s expense. The courts decide the actual value of the stock. In determining the actual value, the starting point for the court will be to establish the underlying value of the company divided equally between all stocks. However, if the squeeze-out takes place within three months after expiry of the public tender offer period for a listed company, then the price is fixed on the basis of the price offered in such tender offer, unless special grounds call for another price. 14 Cross-border transactions How are cross-border transactions structured? Do specific laws and
15 Waiting or notification periods Other than competition laws, what are the relevant waiting or notification periods for completing business combinations? Are companies in specific industries subject to additional regulations and statutes?
Business combinations in general do not require consent from Norwegian authorities, consequently, no general waiting periods for completing business combinations apply except for the standard waiting periods applicable according to the relevant competition legislation. For asset purchases there may, depending on the circumstances, and notably on the collective agreements applicable to the target, be a need to incorporate notification procedures vis-à-vis the employees into the time schedule. At the very least there is an obligation to inform the employees as soon as possible of the transfer and its effects on the employees. Business combinations structured as tender offers include a minimum offer period. The minimum and maximum offer period for a voluntary tender offer is between two and 10 weeks, and between four and six weeks for a (subsequent) mandatory offer. A subsequent squeeze-out of minority stockholders will also involve a waiting period. A legal merger involves a process in which the stockholders have to be notified about the merger plan at least two weeks prior to the stockholders meeting for private limited liability companies. For a public limited liability company, the advanced notice period is one month prior to such stockholders meeting; and also involves a filing of the merger plan with the Register of Business Enterprises at least one month prior to such meeting. If approved by the shareholders meeting, the merger decision, subsequent thereafter, has to be filed with the Register of Business Enterprises, which will publicly announce its receipt of such decision. Then there is a creditor notification period of two months from the date of the announcement until the merger enters into force between the participating companies. Companies in certain specific industries, including industries based on concessions or other public approval, are generally subject to notification or approval procedures in connection with a business combination depending on the relevant regulation.
regulations apply to cross-border transactions?
Traditionally cross-border transactions have been structured as either an asset sale or a sale of stocks. A foreign buyer may prefer to establish one or more acquisition vehicles (SPVs) used to acquire different parts of the business in different jurisdictions in the most tax efficient or legally beneficial manner. In general, the buyer will for tax purposes seek to arrange that a Norwegian SPV assumes the financing costs in combination with establishing a principal equity investment vehicle in a tax friendly jurisdiction (perhaps Luxembourg in combination with the Netherlands). However, legal mergers can now, within the EU/EEA, also be completed cross-border under Norwegian law to the extent that the laws of both Norway and the other relevant jurisdictions so allow, but such mergers will require approval by the tax authorities in order to be tax exempted (see question 16). In general, the legal and regulatory framework is identical for internal Norwegian transactions and for cross-border transactions into Norway. Cross boarder transactions may be subject to the proviwww.gettingthedealthrough.com
16 Tax issues What are the basic tax issues involved in business combinations?
Norwegian companies have considerable flexibility in arranging their taxable income to reduce the tax impact by tax grouping, loss carryforward, and loss carry-backs. In addition to this the most basic tax issue involved in business combinations is, however, whether the transaction is taxable or tax-free to the acquirer, target and their respective stockholders. Acquisition of stocks
Norwegian stockholders who are limited liability companies and certain similar entities (corporate stockholders) are generally exempt from tax on dividends received from, and capital gains upon the realisation of, stocks in domestic or foreign companies domiciled within the EU/EEA states, and losses related to such realisation are not tax deductible. Consequently, Norwegian corporate stockhold-
norway ers may sell stocks in such companies without being taxed on capital gains derived from the sale. Costs incurred in connection with such sale of shares are not tax-deductible. Certain restrictions exists regarding foreign companies which are not located in EU/EEA states or which are located in low income tax states within the EU/EEA states and which are not conducting businesses out of such countries (Controlled Foreign Companies Rules). However, Norwegian corporate stockholders are subject to tax on 3 per cent of their annual net income derived from stocks (dividends/capital gains less capital losses) in companies resident within the EEA for tax purposes each fiscal year. Such income is subject to Norwegian taxation as ordinary income at a tax rate of 28 per cent. Dividends received from, or capital gains derived from realisations of, stocks by stockholders who are Norwegian private individuals (personal stockholders) are taxable as ordinary income at a tax rate of 28 per cent. Any losses are tax deductible against such personal stockholder’s ordinary income. Capital gains from realisation of stocks in Norwegian limited liability companies by a foreign shareholder are not subject to tax in Norway, unless certain special conditions apply. The extent of the tax liability of such foreign stockholders in their country of residence will depend on the tax rules applicable in such jurisdiction. Normally, an acquisition of stocks in a Norwegian target company will not affect the target’s tax positions, including losses carried-forward, and such attributes normally remain with the target, unless the tax authorities can demonstrate that the transfer of stocks is primarily tax motivated, or that the target had ceased its business prior to such transfer of shares. Acquisitions of assets
On the sale by contrast of the business assets, the tax treatment is quite different to the tax treatment of stocks. Capital gains derived on the disposal of business assets or a business as whole is subject to 28 per cent tax. Losses are deductible. A Norwegian seller can defer the taxation by gradually entering the gains as income according to a declining balance method. For most assets the yearly rate is a minimum of 20 per cent, and this includes goodwill. The acquirer will have to allocate the purchase price among the assets acquired for the purposes of future depreciation allowances. One should keep in mind that the acquirer will be allowed a steppedup tax basis of the target’s asset acquired. The part of the purchase price which exceeds the market value of the purchased assets will be regarded as goodwill. Recently, the tax authorities have, however, disputed the allocation to goodwill instead of other intangible assets with a considerable longer lifetime. As gains from the disposal of stocks in limited liability companies are generally exempt from tax for corporate stockholders, this will in many instances make the sellers favour a stock transaction over an asset transaction. However, this will not be the case in transactions that will involve a loss for the seller, as a loss will still be admitted for the sale of assets. Mergers
Under Norwegian law an enterprise can be acquired through a tax free legal merger in return for the stockholders in the transferor company receiving stocks as consideration. Such transaction will be tax exempted both for the stockholders and for the merging companies, provided the merger is executed in accordance with the Norwegian companies and accounting legislation as well as the Norwegian tax legislation. In order to qualify as a tax exempted merger, all companies involved in the merger need to be domiciled in Norway. To qualify as tax-free merger, all tax positions will have to be carried over without any changes, both at the company level and the stockholder level.
Aabø-Evensen & Co Advokatfirma A cash element may be used as consideration in addition to shares in the transferee company, but may not exceed 20 per cent of the total merger consideration. Such cash payments will be considered as dividend or as a capital gain, both of which will be taxable if the receiver is a personal stockholder. If such cash compensation shall be considered as dividends, it has to be divided between the stockholders in accordance with their ownership in the transferor company. Such dividend or gain will be tax exempt if the stockholder is a corporate stockholder, except for the tax on 3 per cent of their annual net income derived from stocks (dividends/capital gains less capital losses) in the merging companies, which is taxed at a tax rate of 28 per cent. Distribution of dividends and interests
A Norwegian subsidiary should be owned by a company resident within the EEA to avoid withholding tax on dividend distributions. Interest payments are not subject to withholding tax, even though payments are made outside the EEA. 17 Labour and employee benefits What is the basic regulatory framework governing labour and employee benefits in a business combination?
Under Norwegian law, employees are afforded protection through legislation, mainly the Workers’ Protection Act (the Act) which implements the Acquired Rights Directive (EC Directive No. 2001/23/EC), and collective bargaining agreements. The Act further includes protection against unlawful dismissals, mass layoffs, etc. Private acquisitions of, or public offers for, stocks in a target company will not generally affect the terms of the individual’s contract of employment with the target company. When a business (assets) is acquired, the employees, as a main rule, have, according to the Act, a right to have their respective employment contracts transferred to the purchaser of the business, and the purchaser therefore will assume all rights and obligations of the transferor relating to the transferred employees. The Act contains certain duties with respect to notification and consultations with employees and their representatives. Similar provisions are often provided for in collective bargaining agreements in Norway and the provisions in such agreements may also apply to stock transactions. The employees are protected against termination based upon a transfer of business, but terminations due to rationalisation measures may take place. Further, the new Reorganisation Act (see question 2) must be observed prior to plant closings and mass layoffs. 18 Restructuring, bankruptcy or receivership What are the special considerations for business combinations involving a target company that is in bankruptcy or receivership or engaged in a similar restructuring?
A business combination involving a target company which is unable to settle its debt when due, or which has opened bankruptcy proceedings, gives rise to special considerations. The acquisition of assets from an insolvent target company may be challenged and may be voidable in a subsequent bankruptcy on the grounds that the purchaser has not paid fair market value for the assets. The same may apply if the business combination is structured in a way which favours some creditors of the insolvent company over others. If a target company is unable to settle its debt when due, it may seek protection by the courts according to the rules on composition proceedings. These rules entail that creditors cannot execute Getting the Deal Through – Mergers & Acquisitions 2009
Aabø-Evensen & Co Advokatfirma
Update and trends It seems the large private equity driven leveraged buyouts of large
ability to transform into limited liability companies are expected.
Norwegian corporations have come to a halt for the moment due to
In addition the Norwegian Accounting Act is under evaluation and
the global financial crisis. Banks are likely to be reluctant to provide
certain amendments are expected in connection with Norway adopting
large leveraged acquisition finance and private equity institutions are
Directive 2006/46/EC on statutory audits of annual accounts and
finding it difficult to obtain financing on easy terms. However M&A
consolidated accounts (EuroSOX).
activity generally is still continuing at reasonable levels, especially within the oil and gas and IT industries. At the moment the Norwegian banking legislation regarding savings and loans institutions and the ownership of such institutions,
The government has issued a statement outlining reforms to prohibit or limit naked short-selling (shorting) for investors in the Norwegian market. This reform is currently under consideration by the ministry and changes are expected in the near future.
is being evaluated and certain changes regarding such institutions’
or enforce their claims against the target company. The suspension of payments entails that the court appoints a supervisor who must approve all material dispositions of the company, including the sale of its assets. In such instances, the supervisor normally will present a conditional business combination to the creditors to establish whether any creditors oppose the transaction. A business combination involving the assets of a target company in bankruptcy will be negotiated and agreed with the trustee appointed by the court. Normally none or very limited warranties will be available from any trustee, receiver, administrator or liquidator in an insolvency situation. The increased risks this brings to a
stock acquisition may be mitigated or offset by; paying less; conducting a rigorous investigation of the target in order to limit the scope for hidden liabilities; or retaining a part of the purchase price to be set off against any unexpected liability arising in a certain period. Sometimes an insolvent target company uses a hive-down to transfer assets into a newco, and then let the acquirer purchasing the stocks in the newco prior to bankruptcy. Certain tax issues will need to be carefully considered in such transactions, since it may alter the priority of the creditors in the insolvent company, exposing the seller’s board to potential liability.
Ole K Aabø-Evensen
PO Box 1789 Vika 0122 Oslo Norway
Tel: +47 2415 9000 Fax: +47 2415 9001 www.aaboevensen.com
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Mergers & Acquisitions 2009 ISSN 1476-8127