Corporate M&A 2019 Comparisons

Last Updated April 16, 2019

Law and Practice

Authors



Cirio Advokatbyrå AB (previously Lindahl Stockholm) has full capacity in terms of manpower and competence to serve clients in all aspects of business law, with around 100 fee-earners. Cirio has a transactional focus and also has industry competence in progressive areas such as renewable energy, life sciences and digitalisation. The firm offer advice in M&A, corporate law, banking, capital markets, business strategy and operations. The firm acts for corporates, sponsors, funds, investment banks and other financial institutions. Recent notable transactions include advice to ABB regarding the sale of Power Grids to Hitachi, advice to AstraZeneca in its sale of US rights to the drug Synagis to Swedish Orphan Biovitrum , advice to CapMan Infra and others in the investment in one of the largest wind farms in Scandinavia, advice to ICA on its complex investment in the digital primary care services, amongst others and acting for Acando in the public offer for all shares in Acando.

The Swedish economy is doing well but has naturally been affected by the global markets and in particular by the USA and China relationship.

The M&A market in 2017 was very good but was still outperformed by 2018. The total deal value increased from EUR30,764 million in 2017 to EUR42,622 million in 2018.

According to MergerMarket’s reports, 414 M&A transactions were recorded in 2018, compared to 359 M&A transactions in 2017. Of the 414 M&A transactions in 2018, 220 were domestic transactions (43 were private equity transactions) and 192 were inbound transactions (41 were private equity transactions). As regards outbound deals, 292 transactions were made in 2018 and private equity accounted for 41 of these.

The decline of the Swedish krona has in general lowered Swedes' purchasing power abroad, while large international companies potentially can reap the benefits of this decline.

Certain trends can be identified in the market:

  • The IPO market was very strong in 2018. Dual-track processes were a viable alternative and a number of sellers seemed to favour the IPO market. With the currently more volatile capital markets, we should see a more cautious approach to listing assets and, on balance, trade sales should become more attractive.
  • More uncertain capital markets could potentially trigger an appetite for public takeovers.
  • The Nordic region has seen a number of announced and potential mega carve-outs/spin-offs in 2018 and 2019, initiated for potential value creation and meeting (revised) strategic objectives. For instance, Swedish consumer appliance maker Electrolux announced that it has initiated a process to spin off its laundry and professional kitchen gear unit to shareholders. ABB, after a long discussion about its strategic position, has decided to sell its Power Grid Division to Hitachi. According to MergerMarket data, the Nordics has become one of Europe’s spin-off hot spots. These spin-offs are in some cases the result of increased shareholder activism.
  • Sustainability aspects of investments are increasingly seen as a value-generating business development and a response to public policy as well as consumer and investor demands. More and more investors in the M&A market are developing a systematic approach towards sustainability.
  • The use of warranty and indemnity (W&I) insurance is now the normal way of facilitating a quicker and more transparent process, creating a level playing field among investors.
  • The sales processes are highly competitive, with little room for changes of the transaction parameters after submission of final bids.
  • The renewables energy market had a boom in 2018 that seems set to continue during 2019, attracting investors such as infrastructure funds, private equity, insurance companies, buffer funds and the like from various countries.

In 2018, the interest in tech remained high and dominated the Swedish activity, according to data from MergerMarket. The industrial products and services sector had the largest transaction activity in Sweden, both in value and number of deals. The number of transactions within such sector reached 58, with a total value of EUR12,648 million. The telecoms sector was the second largest sector. Even though only two transactions were made within this sector, these two transactions reached a total value of EUR3,714 million. The third largest sector was the computer software sector, with 39 transactions valued at EUR3,398 million. Furthermore, energy assets, both renewable energy and other energy-related assets, such as grids and suppliers to such businesses are attractive even though there is still regulatory uncertainty in some areas.

There are four types of business entities recognised under Swedish law but the most prevalent type in M&A deals is the limited company, which is mainly regulated by the Swedish Companies Act (Aktiebolagslagen (2005:551)) and divided into two types: private and public. Shares in a private limited company cannot be offered to the general public, unlike shares in a public limited company.

There are basically two ways to buy a limited company. One is to buy the shares, which is the common route, the other is to buy the limited company's assets or business. If shares are purchased, the buyer assumes all the company's rights and obligations unless specifically carved out or subject to indemnification. The acquirer should therefore carefully examine the company's assets and liabilities through a due diligence process. In the case of an asset transfer, the buyer acquires specific assets and liabilities that are expressly set out in the transaction documents. There are, however, exceptions to this; eg, the transfer of employment liabilities (see 2.5 Labour Law Regulations, below). The mechanism used to implement such transfers largely depends on whether the deal is a private M&A transaction or a public takeover, with the latter governed by the Takeover Rules (see 2.2 Private Regulators, below).

Although there is a well-developed market practice for private deals, they are not supervised by authorities to the same degree as public takeovers. A private limited company transaction may, however, be supervised by, or have to be notified to, The Financial Supervisory Authority (Finansinspektionen, or SFSA), if the transaction affects regulated entities such as a bank; insurance company; credit market company, including mortgage institutions; or payment service company. The SFSA’s role is to promote stability and efficiency in the financial system in general as well as to ensure effective consumer protection.

In relation to public takeovers, Directive 2004/25/EC (the Takeover Directive) has been implemented in Sweden through a combination of self-regulation and legislation. The Stock Market (Takeover Bids) Act (Lag (2006:451) om offentliga uppköpserbjudanden på aktiemarknaden, or the Takeover Act) provides the legal framework for takeovers in relation to shares traded on a regulated market, together with a few specific rules on, eg, mandatory offers. Self-regulatory takeover rules for the regulated markets are issued by Nasdaq Stockholm and NGM Equity (the Takeover Rules). Although less comprehensive, these rules are similar to the UK Takeover Code. The Swedish Corporate Governance Board also issues similar rules applicable for multilateral trading facilities (such as Nasdaq First North, Nordic MTF and Spotlight). Nasdaq Stockholm is responsible for the supervision of the Takeover Rules and monitors market activity in general.

In accordance with the Takeover Act, the SFSA is appointed as the regulatory authority. The SFSA also supervises the implementation of Directive 2003/71/EC (the Prospectus Directive) and Commission Regulation 809/2004/EC (the EU Prospectus Regulation). Important legislation regarding takeovers is also found in the Financial Instruments Trading Act (lagen (1991:980) om handel med finansiella instrument).

The Swedish Securities Council (Aktiemarknadsnämnden, or the Securities Council), a non-statutory private body, is authorised by way of delegation from the SFSA, Nasdaq Stockholm and NGM to interpret the Takeover Act and the Takeover Rules, and to grant exemptions from certain requirements. Further, the Securities Council’s mission is to promote good practice on the Swedish stock market through rulings, advice and information.

The Swedish Competition Authority (SCA) is a government agency ensuring compliance with competition law and reviews all M&A concerning companies above certain turnover thresholds. Merger control applies to acquisitions of public and private companies as well as business transfers (see 2.4 Antitrust Regulations, below).

There are no general restrictions. Some business sectors are subject to a licence; eg, when establishing a bank according to the Banking and Financing Business Act (Lag (2004:297) om bank- och finansieringsrörelse). A licence can impose restrictions on foreign (non-Swedish entities) ownership. Certain other sector-specific restrictions may apply, such as in relation to manufacturers of military equipment and air traffic operators.

Legal entities are required to submit information about the ultimate beneficial owner of the business to the Companies Registration Office.

Swedish merger control is governed by the Swedish Competition Act. The Swedish merger control rules are largely based on the EU's corresponding rules. A concentration within the meaning of the Competition Act arises when two or more previously independent undertakings merge, or either one or more persons, already controlling at least one undertaking, or one or more undertakings acquire whether by purchase of securities or assets, by contract or by any other means, direct or indirect control of the whole or parts of one or more undertakings. Also, the creation of a joint venture that on a lasting basis fulfils all the functions of an autonomous economic entity constitutes a concentration.

A concentration between undertakings must be notified to the SCA if (i) the combined aggregate turnover in Sweden of the undertakings concerned in the preceding financial year exceeded SEK1 billion and (ii) at least two of the undertakings concerned had a turnover in Sweden the preceding financial year that exceeded SEK200 million for each of the undertakings.

If the aggregate turnover requirement according to (i) is fulfilled, but the individual turnover does not exceed what is laid down in (ii), the SCA may require a party to a concentration to notify the concentration where particular grounds exist for doing so. A party and other participants in a concentration always have the right to notify a concentration voluntarily where the turnover requirement as laid down in (i) is fulfilled.

From the date of receipt of a complete notification, the SCA has 25 working days in which to decide whether to clear the merger or initiate a special investigation. If an undertaking offers commitments during this period with a view to having the merger cleared by the SCA, the time limit is increased to 35 working days. After a decision to carry out a special investigation, the SCA has a further three months to decide if the concentration shall be prohibited. The three-month limit may be extended by the SCA, provided the notifying parties give their consent or there are special reasons for doing so. During the investigation of the intended concentration, no action may be taken to put it into effect.

Sweden has always had a very active M&A market and labour laws, and the unions do not normally interfere in the processes. Swedish labour law is characterised by statutory law and/or collective bargaining agreements. The collective agreements with the unions have a strong position in Sweden.

When planning a transaction, the parties may be required to enter into and finalise consultations with relevant unions before a decision concerning the transaction is taken. The unions do not have the right to stop a transaction. 

The EC Directive on transfer of undertakings, business or parts of business has been adopted by Sweden. In the event of a business transfer, whereby a company acquires all, or virtually all, of a business, the employees of the transferred entity are entitled – at their own discretion – to remain with the selling entity or transfer their employment (on unchanged, or better, terms) to the buying entity.

See 2.2 Primary Regulators, above.

In Sweden, court decisions are unusual when it comes to disputes related to M&A. Arbitration is a more common dispute resolution set up among transaction parties. In general, arbitration over court processes is to be recommended for various reasons; often the procedure is shorter than offered by the court system and the parties can agree on the procedure to a greater extent and influence who to appoint as arbitrators.

New Legislation

In February 2016, revised disclosure rules under the Financial Instruments Trading Act entered into force as a result of the revised Transparency Directive 2013/50/EU (Transparency Directive); eg, including additional types of derivatives.

Also, Sweden’s revised Arbitration Act entered into force on 1 March 2019, after a nearly five-year legislative process to update the Arbitration Act of 1999. However, the revisions are relatively minor and aim at making Swedish arbitration law more easily accessible, especially for non-Swedish parties, and to ensure that Stockholm continues to be an attractive venue for international dispute resolution.

The Takeover Rules were amended twice during 2017 and 2018. The first revised Takeover Rules entered into force on 1 November 2017 with the following main changes in brief.

  • Indirect acquisitions – if the bidder acquires control of a holding company that, in turn, owns shares in the target company, the terms of the indirect acquisition will need to be taken into account when determining the minimum offer price. The bidder is also obliged to disclose how the purchase price has been allocated.
  • Payment of the offer consideration– the prerequisites for submitting a public offer were made stricter. Any regulatory approval required for the bidder to pay the consideration in the offer must have been secured before the offer is announced.
  • Sanctions – the maximum fine for breach of the Takeover Rules was raised from a maximum amount of SEK100 million to a maximum amount of SEK500 million. 

The second revised Takeover Rules entered into force on 1 April 2018 with the following main changes in brief.

  • New procedural rules regarding regulatory approvals – the bidder is required to withdraw an offer as soon as possible or apply for a dispensation from the Securities Council if it becomes evident that the required regulatory approvals are not going to be received within the maximum acceptance period of nine months. 
  • Right to return with a new offer – a bidder that has withdrawn its offer due to the rules governing the maximum acceptance period and that subsequently receives the required regulatory approval is permitted to return with a renewed offer, without prejudice to the general rule that a new offer may not be submitted within twelve months of the previous offer. 

Stakebuilding is possible under Swedish takeover regulation and is used to some extent. Stakebuilding can be achieved by making acquisitions through the relevant market or through privately negotiated transactions. However, under the Financial Instruments Trading Act, a bidder and any related parties are subject to disclosure obligations in relation to acquisitions of shares admitted to trading on a regulated market when certain thresholds are met or surpassed (see 4.2 Material Shareholding Disclosure Thresholds, below). Further, stakebuilding is only possible up to acquiring 30 per cent of the voting rights, as a bidder will then be obliged under the Takeover Act and the Takeover Rules to launch a mandatory offer (see 6.2 Mandatory Offer Threshold, below).

If a company’s shares are admitted to trading on a regulated market, shareholders are subject to certain disclosure obligations under the Financial Instruments Trading Act. The disclosure thresholds are 5, 10, 15, 20, 25, 30, 50, 66⅔ and 90% of the shares or votes; ie, if the shareholding (including the related party’s shareholdings) reaches, exceeds or falls below any of the aforementioned percentages. The rules are applicable in relation to transactions in shares or depository receipts, financial instruments giving the holder the right to acquire already issued shares and other financial instruments attributable to such shares, and with a similar financial effect irrespective of if they confer a right to physical or cash settlement.

The disclosure must be made to the SFSA through its website and in writing to the company as soon as possible but no later than three business days after the day of the transaction that triggered the disclosure requirement. Failing to comply with the disclosure thresholds is penalised with a fine.

The disclosure thresholds in the Financial Instruments Trading Act are mandatory for holders of shares admitted to trading on a regulated market.

There are also a number of other hurdles to stakebuilding. Regulation (EU) No 596/2014 on market abuse (MAR) restricts when holders of inside information may trade in shares. Should the bidder possess any inside information relating to the target company (eg, as a result of a due diligence), the bidder is prohibited from acquiring shares unless the information is made public. However, the bidder’s knowledge of its own intention to launch an offer is not considered inside information.

Furthermore, the previously mentioned rules on mandatory offers may also implicate complications when building a stake in a target company; these rules are further developed 6.2 Mandatory Offer Threshold, below.

It should also be noted that under the Takeover Rules, a bidder is prevented from, directly or indirectly, acquiring shares in the target company six months before, during or six months following the offer on terms more favourable than in the offer (unless the bidder tops up the offer). Hence, any consideration paid for shares under the stakebuilding may affect the consideration that must be offered to the remaining shareholders. 

Further, it could be noted that according to current Swedish law it is possible to acquire shares through intermediaries to stay anonymous in the target company’s share ledger. However, following implementation of Directive 2017/828/EU (the Shareholder Directive), new regulations implementing the directive are proposed to enter into force on 1 September 2020 requiring intermediaries to report underlying shareholders to Euroclear Sweden.

Dealings in derivatives are allowed.

Derivatives and all other financial instruments with underlying shares are subject to the same disclosure obligations as shares. Additionally, the European Market Infrastructure Regulation (EMIR) requires that all dealings in OTC and exchange-traded derivatives are cleared and reported to ESMA’s register in accordance with the EMIR regulation.

A bidder building a stake in a target company does not have to make known the purpose of the acquisition or the future intentions regarding control of the company.

Under the Takeover Rules, the offer announcement shall include a brief summary of the reasons for the offer and the following offer document shall include information on the bidder's intentions with respect to the company's employees and management, including each material modification of the employment terms and conditions. Further, information should be included about the strategic plans for the target company and the effects that these may have on the business and the places in which the company conducts business.

A key obligation for listed companies in Sweden is to make accurate and timely disclosures of information to the market. To comply with the disclosure provisions of Nasdaq Stockholm, the issuer shall disclose inside information in accordance with MAR. Under Article 17 of MAR, an issuer is obliged to disclose any inside information that directly concerns that issuer to the public as soon as possible. The issuer may, however, decide to postpone the disclosure of such inside information if immediate disclosure is likely to prejudice the legitimate interests of the issuer, the delay is not likely to mislead the public and the issuer is able to ensure the confidentiality of such information. Hence, a target company approached by a bidder may decide to disclose the inside information. However, under the rules of Nasdaq Stockholm, the target company must inform Nasdaq Stockholm of any potential non-disclosed offers.

The target board must make a public statement regarding its opinion of the offer, including the reasons for the opinion. The statement must be made public no later than two weeks before the expiration of the acceptance period. If the offer is recommended, it is common practice that the target board announces its opinion directly following the bidder's offer announcement.

Normally the bidder and the target company will structure the transaction in a manner that avoids early disclosure and maintains confidentiality as long as legally possible. The market has aligned its practice on timing of disclosure with the Takeover Rules and MAR. However, the regulation allows for delayed disclosures under certain circumstances. The disclosure requirements for when the offer is made public are further developed in 7.1 Making a Bid Public, below.

It is common that a bidder in the case of a public takeover asks the target company for permission to conduct a due diligence investigation to obtain more information about the company. The target board is not required to consent to a bidder's due diligence request, but is responsible for determining the extent to which such a request can and will be complied with based on the circumstances of the individual case. The target board may consent to the participation of the target company in a due diligence investigation only if the board considers that the potential offer will be of interest for the shareholders and if the bidder has submitted a written request for permission to conduct the investigation in question as a condition to making the offer. The target board should ensure that the investigation is not more extensive than necessary and that it is conducted as quickly as possible, to avoid disrupting the target company's operations. However, it is not considered to contravene good stock market practice to refuse co-operation with the bidder if the target board wants to retain maximum flexibility in allowing it to act in the best interest of the shareholders and the company.

In the event of competing bidders, the Takeover Rules require that the target company provides all bidders with the same information, although the target company has the right, in certain limited circumstances, to restrict information that is given; eg, to a competitor.

If in the course of the due diligence investigation the target company provides the bidder with inside information, the target company is to ensure that this imbalance in the provision of information is rectified as soon as possible by making the information public, normally in connection with the announcement of the offer. The information is also to be included in the offer document.

If the bidder is offering shares as consideration, the target would normally conduct due diligence on the bidder to verify the assumptions underlying the valuation of the bidder’s shares.

In general, there are very few agreements made between the bidder and the target company. Under the Takeover Rules, the target company may not commit itself to any offer-related arrangements. The term 'offer-related arrangement' refers to any arrangement related to the offer that entails an obligation on the target company vis-à-vis the bidder. This may, for example, involve an agreement to restrict the right for the target company to pursue other potential offers for a certain period or to notify the bidder in the event that the target company receives proposals from a competing bidder. A further example is an agreement whereby, on certain conditions, the target company is to compensate the bidder wholly or partly for costs incurred if the deal fails to materialise. However, this does not include confidentiality clauses or undertakings not to solicit the bidder’s employees, customers, or suppliers. The Securities Council may grant exemptions from this provision. In individual cases the circumstances may imply that an exemption from the rule can be granted. This may, for example, be the case where reciprocal undertakings are involved in amalgamation agreements between parties of equal strength, a 'merger of equals'. An exemption might also be granted regarding an arrangement with a competing bidder if the target board does not recommend the first bidder’s offer. Reasons for an exemption may also conceivably exist in other cases where a particular arrangement improves rather than reduces the prospects of a competitive bidding situation.

Under the Takeover Rules, the main terms and conditions of the offer – including the price, any premium and the basis for calculating the premium – should be included in the bidder's press release and be further elaborated on in the offer document.

Private transactions not involving a public takeover are not bound to follow any specific rules regarding the deal structure but there is a well-developed market practice that follows what can be experienced in other well-developed M&A markets. A sales process takes, in general, six to ten months. An ordinary transaction process in an M&A deal in Sweden is normally structured as an auction process and can briefly be described as having the following steps:

  • seller analysis and preparation, including seller due diligence and procurement of W&I insurance;
  • potential bidders are provided with teaser material (this is more or less common practice in auction procedures);
  • potential bidders sign a non-disclosure agreement;
  • the seller distributes the information memorandum;
  • the potential buyers deliver a non-binding indicative bid;
  • the seller selects a number of preferred potential buyers;
  • the potential buyers are invited to a management presentation and to perform a due diligence (the data room is normally a virtual data room);
  • the potential buyers procure, if needed, acquisition financing;
  • the potential bidders are asked to provide comments on the transactional documents, it being noted that there is little room for extensive negotiations;
  • the buyer submits a final bid;
  • the seller selects its preferred buyer(s);
  • negotiations in order to reach a share purchase agreement start;
  • finalising and signing of the share purchase agreement;
  • if required, filing with the relevant competition authorities and/or any other relevant authorities; and
  • closing of the transaction, payment of purchase price and actual transfer of the shares.

The above steps may, of course, not always take place in the sequence set forth above.

In light of the increasing use of M&A insurance, especially in auction processes, it is very important for the potential buyer to scope and conduct the due diligence in a manner sufficient for insurance purposes.

As regards public takeovers, the timetable of the process is more regulated and usually takes about twelve weeks from initiation by the bidder to the completion of the offer. Subsequently, in order to acquire all shares, a squeeze-out procedure must be initiated (see 6.10 Squeeze-out Mechanisms, below). The process of a public takeover in Sweden can briefly be described with the following steps:

  • the bidder initiates the process by contacting major shareholders and the target company;
  • due diligence is conducted on the target company;
  • the offer is announced;
  • antitrust filings;
  • the offer document is filed with the SFSA for approval and registration;
  • the offer document is made public;
  • the acceptance period begins (three to ten weeks);
  • the acceptance period ends;
  • the outcome of the offer is announced, and possibly extension of the acceptance period;
  • settlement of consideration begins; and
  • squeeze-out procedure and delisting of the target company is initiated.

Under the Takeover Act and the Takeover Rules, a party, alone or in concert with related parties, reaching or exceeding a shareholding representing 30% of the votes is obliged to make public the extent of his or her shareholding in the company immediately and within four weeks thereafter launch a takeover offer in respect of the remaining shares in the company. Related parties include all companies within the bidder's group, parties with whom the bidder is assumed to be acting in concert in relation to the exercise of voting rights and, if the bidder is an individual, his or her spouse, co-habitee and children.

The acquirer can avoid the obligation to launch a mandatory offer by reducing its shareholding below 30% of the votes in the target company within four weeks of the day on which the acquisitions that triggered the mandatory offer obligation was made. Further, the Securities Council may grant exemptions from the mandatory offer obligation in certain situations.

Once the mandatory offer threshold has been exceeded, and a mandatory offer has been launched, there are no restrictions on future acquisitions of shares.

The consideration in a public offer may be in cash, shares or a combination of both and over recent years most offers have been made in cash. A mandatory offer must always contain the alternative to receive payment in cash. As a main rule the bidder shall offer all shareholders with identical rights the same value as well as form of consideration, other than in exceptional circumstances, such as when the shareholder in a certain jurisdiction would be restricted by law to accept certain types of consideration.

If the bidder acquires more than 10% of the shares in the target company for a cash consideration during a six-month period preceding the announcement of a voluntary offer, a cash alternative must be included in the offer. The same applies if the bidder acquires more than 10% of the shares in the target company for any other form of consideration, such as shares or other financial instruments, during the six-month period preceding the announcement of the offer.

A voluntary offer may be subject to conditions, but such conditions must be worded in such manner that it is possible to determine objectively whether they have been fulfilled. They cannot be dependent on any actions that are at the discretion of the bidder. Regulatory clearances are exempt from this rule and the bidder has the right to determine whether a regulatory clearance condition is fulfilled. The conditions for the offer shall be clearly stated in the offer announcement press release.

Although there are no limitations on the number of conditions that may be imposed, the takeover rules stress that bidders should be restrictive with conditions. An offer can only be withdrawn if it is clear that a condition has not been, or cannot be, fulfilled and the condition is of material significance to the bidder's acquisition of the target company. The material significance criteria do not, however, apply to conditions regarding the acceptance level of the offer.

Bidders generally condition a voluntary offer of receiving more than 90% of the shares in the target company. It is also common to make a reservation to reduce the purchase price in the event that the target company carries out a value transfer from the company. If the completion of the offer is dependent on external financing, the bidder may make the offer conditional on a lender disbursing the acquisition loan (see 6.6 Requirement to Obtain Funding, below).

A mandatory offer may only be conditional upon requisite regulatory approvals being obtained.

Bidders generally condition a voluntary offer of receiving more than 90% of the shares in the target company, which is the limit to invoke a squeeze-out procedure.

A takeover offer may only be made after preparations have been made that demonstrate that the bidder is capable of implementing the offer, including ensuring it has the appropriate financial resources.

Under the Takeover Rules, the offeror may make the offer conditional on a lender disbursing the acquisition loan. A completion condition of this nature gives the bidder an opportunity not to complete the offer in the event that the lender fails to disburse the loan in breach of the loan agreement; eg, due to insolvency on the part of the lender. Conditions for disbursement of the loan contained in the acquisition loan agreement may not be invoked as grounds for not completing the offer. In order for the offeror to be able to invoke such conditions, they are to be stipulated as conditions for completion of the offer itself (see 6.4 Common Conditions for a Takeover Offer, above). However, notwithstanding the aforementioned, the bidder may accept that the lender stipulates conditions for disbursement of the loan that are not included as conditions to completion of the offer. However, in order to ensure that such conditions do not conflict with the requirement that the bidder is to have ensured that it has sufficient financial resources to implement the offer, the conditions must be of such a nature that the bidder is personally able to ensure in practice that the conditions can be met.

Under the Takeover Rules, the target company may, as mentioned above, not commit itself to any offer-related arrangement vis-à-vis the bidder. Accordingly, the provision does not apply to arrangements under which the target company has no such obligations.

There are very limited means to obtain additional governance rights in excess of voting rights attached to the shareholding in a Swedish listed company.

A shareholder can appoint a proxy to vote on its behalf using a power of attorney. 

When a shareholder, alone or together with its subsidiaries, holds more than nine tenths of the shares in a company, the shareholder is, according to the Swedish Companies Act, entitled to acquire the remaining shares of the minority shareholders. On the other hand, this also constitutes a right for the minority to be bought out by the bidder. If the majority shareholder wishes to exercise its right to squeeze out the minority shareholders and the parties cannot agree on the conditions for their transfer, the majority shareholder must submit a written demand to the target board stating that the dispute should be referred to arbitration.

The majority shareholder may obtain ownership of the minority shares in advance of completion of the arbitration proceedings by providing security for the price of the minority shares. In normal circumstances, obtaining such advance access takes no longer than three to seven months from the time the arbitration is initiated, depending on whether the minority shareholders agree to such advance access. The arbitration proceedings normally last one to two years after the initial demand for arbitration has been lodged.

Where the majority shareholder has acquired more than nine tenths of the shares in the target company through an offer, the compulsory purchase price shall, as a main rule, correspond to the offer price.

Since an irrevocable commitment does not need to be disclosed when it is entered into, but only when the offer is announced and in the following offer document, it is often the preferred means of enhancing the chances of a successful offer. Accordingly, it is standard practice in Sweden to obtain irrevocables from the larger shareholders before an offer is announced. However, irrevocables from institutional shareholders are less common. Most common on the Swedish market are irrevocables providing an opportunity to accept a higher competing offer.

If a shareholding board member or managing director enters into an irrevocable undertaking, it will cause a conflict of interest and consequently he or she may not participate in discussions on matters related to the offer.

A bidder must announce an offer as soon as the bidder has formally decided to make the offer. Such an announcement is made in a press release issued by the bidder and must, as far as possible, present facts relevant to the share price and certain information about the bidder and the offer. The announcement must also be sent to Nasdaq Stockholm, the SFSA and the Securities Council.

Following an offer announcement, the bidder shall prepare and file an offer document with the SFSA within four weeks of the offer announcement. After approval from the SFSA, a public announcement regarding the availability of the offer document is made and the offer document is distributed or otherwise made available to the target company’s shareholders. The offer document must also be published on the bidder’s and the target company's websites.

When the consideration under a public offer consists of shares, the offer document must contain information comparable to the information that is required in a prospectus pursuant to the Prospectus Regulation. Further, a description of the new group of companies that the offer aims to create should be provided in the offer document. Pro forma income statements and pro forma balance sheets, supplemented by an independent auditor report, must also be included in the offer document when required under the Prospectus Regulation. As far as possible, planned changes in operations and the new group’s market position, as well as planned co-ordination measures and their financial impact are also to be presented. If possible, plans regarding composition of the board, the executive management and auditors should be described.

The bidder needs to include summarised consolidated income statements and balance sheets, and relevant key ratios and data on a per-share basis in the offer document. The consolidated accounts must be prepared in accordance with International Financial Reporting Standards. The summary is to cover at least the previous three financial years. This information can normally be taken directly from the target company’s published reports. If information from the income statement for an interim report is presented, the corresponding information for the same period in the previous year is also to be reported.

If the bidder offers consideration in the form of shares in the bidder, the bidder should be described in a manner that enables shareholders of the target company to make a well-informed decision regarding the offer and the offer document is to contain information regarding the bidder equivalent to that required under the Prospectus Regulation. Further, pro forma income statements and pro forma balance sheets are to be included in the offer document, as well as an independent auditor report, to the extent and in the manner required by the Prospectus Regulation.

Additionally, information on how the offer is financed must be provided in the offer document. This means that it is to be stated to what extent the offer is financed with own and borrowed funds respectively. If relevant financial information about the bidder is not already publicly available, financial key ratios relevant for assessment of the bidder’s ability to pay should be included.

Agreements between the bidder and the target company regarding the offer must be included in their entirety in the offer document. This does not apply to agreements that are no longer in force and are manifestly irrelevant to the assessment of the offer.

Although a takeover offer is formally addressed to the target company’s shareholders, the target board is highly involved in the takeover process. The board is to act in the interests of all shareholders through the entire process and may not act in its own interests or allow itself to be directed by the interests of only one or a limited group of shareholders. If there is more than one bidder, the board may not promote a particular bidder without valid reason.

The Takeovers Act contains provisions that prohibit the target board from taking any action intended to impair the conditions for submitting or implementing an offer without the approval of the shareholders. The provisions of the Takeovers Act do not prevent the board from providing information about alternative offers or from entering into discussions with other potential bidders when it is in the interests of the shareholders. This rule therefore implies that the board is not only permitted, but also required to consider other alternatives when the board considers it to be in the interests of all the shareholders.

The target board is to announce its opinion regarding the offer no later than two weeks prior to the expiry of the acceptance period. If the board is not quorate, due to conflicted board members, the other directors are entitled, but not obliged, to announce their opinion regarding the offer and normally an independent bid committee is established. In such a case, a valuation opinion should be obtained and published, irrespective of whether the other directors choose to express their views on the offer.

Under the Takeover Rules, the target board is to act in the interest of the shareholders in matters relating to the offer. A board member or a managing director may only be liable to pay damages to the company under the Swedish Companies Act if he or she, in the performance of his or her duties, intentionally or negligently causes damage to the company. This also applies when damage is caused to a shareholder or other person as a consequence of a violation of the Swedish Companies Act, the applicable annual reports legislation, or the articles of association. Where the company has prepared a prospectus or an offer document, this further applies to damage caused by means of a breach of the Prospectus Regulation.

A bidder may only launch a takeover offer after preparations have been made that demonstrate that the bidder is capable of implementing the offer. The requirement for preparation includes a requirement that the bidder is to have engaged expertise from parties familiar with the Swedish stock market and its rules and regulations. Hence, normally both legal and financial advisers are engaged by the bidder.

The board in the target company will normally also engage a legal adviser to fulfil its obligations under the Takeover Rules. In an MBO or if the board in the target company is not quorate, the target company is to obtain a valuation opinion from an independent expert regarding the shares in the target company; ie, an opinion regarding the financial reasonableness of an offer for the shareholders of the target company (fairness opinion).

Under the Takeover Rules, a director of the target company may not participate in discussions on a matter related to the offer if, as a result of a shared interest with the bidder or for any other reason, the director may have an interest in the matter that conflicts with the interests of shareholders. This also applies to the chief executive officer of the target company. The fact that a director of the target company is also a shareholder in the target company does not normally entail a conflict of interest. However, if the director has entered into an agreement in connection with the offer to sell shares to the bidder or provided an undertaking to accept the offer, the director must be regarded as having a conflict of interest.

Hostile tender offers are permitted, but are relatively rare, even though there have been a few in recent years.

The Takeovers Act contains provisions that prohibit the target board and the managing director from taking any action intended to impair the conditions for submitting or implementing the offer without the approval of the shareholders.

Information measures taken by the target board will rarely be contrary to the rules on defensive measures, even if these measures clearly aim at stopping the offer. The target company is under no duty to take any active measures to help to implement the offer. However, the target board cannot use any previous shareholder authorisation to frustrate an offer; eg, by issuing new shares.

The provisions of the Takeovers Act do not prevent the board from considering or providing information about alternatives other than the offer that has been announced or from entering into discussions with other potential bidders if the board is of the opinion that this is in the interests of shareholders. Hence, the board is not only permitted, but also required to consider other alternatives where necessary for this purpose.

Under the Takeover Rules, the target board is to act in the interest of the shareholders in matters relating to the offer and maximise the value of the offer.

Under the Takeover Rules, the target board must issue a statement setting out its opinion of the offer and the reason for that opinion. Even if the board is neutral in relation to the offer, it must issue a statement to that effect. The statement must include a well-founded assessment of the offer, from the perspective of the target company and the holders of the shares subject to the offer, and of the strategic plans of the bidder presented in the offer document, and of their likely effects on the operations and employees of the target company.

Litigation is fairly unusual for transactions as the parties normally try to find an amicable solution. If the disputed issue is significant and the parties cannot find an acceptable solution, litigation would be considered as a last resort.

There are clear signs of a growing trend of shareholder activism in Sweden over the last few years and even though the discussion and measures are not as active or frequent as in the USA or UK, it is a force to be considered. There are a number of recent examples of activist interference and these are not limited to attempts to influence corporate events, such as the outcome of a takeover, but include, for instance, open letters about the alleged lack of transparency and attempts to influence the contents of the agenda of annual general meetings.

Activists vocalise their concerns by engaging in conversations with management and meeting the board directly. If consensus is not reached, they may make their demands public through open letters, reports and shareholder proposals. Their agenda typically involves issues related to corporate governance, such as dividend payouts and new director appointments. However, an increasing number of activist campaigns seek influence within the strategy domain, which was traditionally the prerogative of executives.

Activist strategies are tailor-made for a specific purpose and include measures such as:

  • purchasing shares in a company to build an influential stake that can be used to vote to influence decisions;
  • co-operating with other shareholders to raise concerns and obtain support for actions;
  • approaching the company's board to convey concerns and potentially bring about changes to strategy or management;
  • purchasing shares in a company to qualify for a seat on the company's nomination committee or board;
  • using public announcements, press articles, open letters or social media to voice concerns and propose actions that a company should take;
  • exercising minority rights, including asking for an extraordinary shareholders' meeting to consider resolutions to effect changes, such as changes to the composition of the board and the return of funds to the shareholders or preventing a squeeze-out, in connection with a public takeover;
  • threatening or taking legal action, or claiming unfair treatment of minority shareholders;
  • seeking to have the company taken over to realise a premium to the share price; and
  • taking action to have a company undertake a specific transaction such as a sale or spin-off.

See 11.1 for relevant information.

See 11.1 for relevant information.

Cirio Advokatbyrå AB

Mäster Samuelsgatan 20
Box 3294
103 65 Stockholm

+46 8 527 916 00

+46 8 667 73 80

contact@cirio.se www.cirio.se
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Cirio Advokatbyrå AB (previously Lindahl Stockholm) has full capacity in terms of manpower and competence to serve clients in all aspects of business law, with around 100 fee-earners. Cirio has a transactional focus and also has industry competence in progressive areas such as renewable energy, life sciences and digitalisation. The firm offer advice in M&A, corporate law, banking, capital markets, business strategy and operations. The firm acts for corporates, sponsors, funds, investment banks and other financial institutions. Recent notable transactions include advice to ABB regarding the sale of Power Grids to Hitachi, advice to AstraZeneca in its sale of US rights to the drug Synagis to Swedish Orphan Biovitrum , advice to CapMan Infra and others in the investment in one of the largest wind farms in Scandinavia, advice to ICA on its complex investment in the digital primary care services, amongst others and acting for Acando in the public offer for all shares in Acando.

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