Corporate M&A 2020

Last Updated April 20, 2020

Finland

Law and Practice

Authors



Procopé & Hornborg Attorneys Ltd is based in Helsinki, and has been recognised as one of Finland’s premier law firms for decades. The corporate advisory/M&A teams are recognised for their efficient execution of assignments within Finland and on an international scale. The practice works closely together with the other teams of the firm – eg, the competition, energy, IPR and dispute resolution teams – providing consistent legal solutions to the client and managing the client’s legal risks and problems. The teams’ members are experienced in providing high-quality strategic and corporate advice concerning, for example, financing, capital markets and commercial agreements, and in serving clients across a wide spectrum of transactions, such as in private and public M&A, private equity and venture capital, real estate and joint ventures. Some of the firm’s key clients are in the energy, mining, automotive, retail and technology sectors.

M&A activity in Finland has remained on a good level. The low interest rates and companies implementing their strategies, whether by consolidation or by seeking a more competitive edge by acquisitions of targets operating in a new technological or competitive landscape, seem to back up the continuance of the active M&A pace in Finland, as well.

The M&A activity outlook for 2020 looks promising and, especially due to the level of capital available, private equity sponsors are expected to continue to be active in seeking exits and new investment opportunities. Any changes in the global environment may have implications on the activity though, especially the COVID-19 crisis, the effects of which are already visible in the global economy – including Finland. The ultimate effects are yet to be seen but it can already be stated that the COVID-19 crisis will have unprecedented effects on the global economy and M&A activity in 2020.

One of the themes in the Finnish M&A market in 2019 was a higher than usual public-to-private activity. These public offers included transactions such as the merger of Metso Corporation and Outotec Plc, Telenor’s acquisition of the local telecommunications operator DNA, Aedifica’s offer for the healthcare company Hoivatilat Plc, the healthcare corporation Pihlajalinna’s takeover by Mehiläinen, the construction machine leasing company Cramo Plc’s takeover by Dutch Boels Rental, Ramirent Plc’s takeover by Loxam, and the merger between ICT corporations Tieto and EVRY.

Sectors that have faced significant activity lately in terms of M&A in Finland have been the energy, financial services, fintech, healthcare, life sciences, infrastructure, real estate and technology sectors.

The primary techniques to execute a transaction usually depend on the nature of the target and how the transaction is structured. The primary techniques are a purchase of shares and a purchase of business. It is also quite common that the target is first carved out into a newly established limited liability company (SPV) and the deal is thereafter executed by means of a share purchase. Using a merger or demerger as an acquiring technique is rather uncommon in Finland – these are seen more as pre-transaction carve-out measures or post-closing measures for tax or structuring purposes.

Private M&A transactions do not usually fall under the scope of any specific regulators unless the size of the deal exceeds the thresholds which trigger the Finnish or EU Merger Control procedure (see 2.4 Antitrust Regulations, or unless the target company’s activities are subject to a specific regulatory supervision – eg, financial services or otherwise (see 2.5 Labour Law Regulations and 3.2 Significant Changes to Takeover Law).

A positive attitude towards foreign investments is the guiding principle in Finland, and promoting foreign investments is one of the tasks of the Finnish Ministry of Economic Affairs and Employment and Business. Foreign natural and legal persons may generally purchase a Finnish company without restrictions. However, this is not without exceptions, as foreign investments in target companies operating in certain sectors may be subject to restrictions (see 2.6 National Security Review and 3.2 Significant Changes to Takeover Law).

The relevant antitrust regulations in Finland consist of the Finnish Competition Act and the EU Merger Control Regulation. Business combinations exceeding a certain turnover threshold shall be notified to the Finnish Competition and Consumer Authority (FCCA) under the Competition Act, and the transaction shall not be completed before the FCCA has accepted the transaction.

According to the Finnish Competition Act, a business combination shall be notified to the FCCA prior to the completion or implementation, if:

  • the combined turnover of the parties to the combination exceeds EUR350 million; and
  • the turnover of at least two of the parties resulting from Finland exceeds EUR20 million for both.

The FCCA may approve the transaction as such or with conditions. The FCCA shall negotiate and order conditions to be followed, but it cannot impose conditions which are not approved by the notifier of the combination. If the FCCA deems the transaction unacceptable because of the impediment of competition, or because the harmful effects of the combination cannot be avoided by attaching conditions on the implementation of the combination, the FCCA can also make a proposal to the Finnish Market Court to prohibit the transaction. The Market Court may, upon the proposal of the FCCA, prohibit or order the combination to be dissolved, or attach conditions on its implementation.

If the business combination exceeds certain higher thresholds for turnover defined in the EU Merger Control Regulation, the acquisition shall be notified to the European Commission which has an exclusive right to investigate these so-called community-wide transactions.

The Finnish labour law regulations consist of statutory laws and unions’ collective agreements, which have a considerable place in the field of Finnish labour legislation. Due to this, each acquisition requires a case-by-case assessment of the applicable collective agreement(s), if any. For the most part, the collective agreements do not hinder the acquisition process and unions may not prevent the transaction.

The EU directive relating to the safeguarding of employees’ rights in the event of transfers of undertakings or businesses or parts thereof is implemented also in Finland and is relevant especially if the target business is acquired by way of a purchase of a business and assets (APA). From the buyer’s perspective, other relevant labour laws in acquisitions relate usually to areas such as working hours, workforce reductions, work safety and privacy in working life.

There may be sector-specific regulations that could be applicable depending on the nature and activities of the target company. In addition, the Act on the Monitoring of Foreigners’ Corporate Acquisitions in Finland may become applicable. The purpose of the Act is to monitor and, if the key national interests so require, restrict the transfer of voting rights or control in a company to foreign persons, organisations or foundations. For the most part, the term “key national interest” refers to national defence, security of supply and other functions which are deemed fundamental to the society.

The transaction falling under this Act is handled by the Finnish Ministry of Economic Affairs and Employment and cannot be completed before the approval from the ministry. The ministry must, however, approve the corporate acquisition unless it potentially conflicts with any key national interest. Under the Act, a non-Finnish buyer is considered foreign if the buyer is domiciled outside the EU or the European Free Trade Association (EFTA), or more than 10% of the acquirer’s shares (or equivalent control) is held by a person outside the EU or the EFTA. However, even EU and EFTA buyers are considered foreign, if the acquisition concerns a target operating in the defence or dual-use goods sector. Acquisitions in the defence or dual-use sector must always be notified and approved beforehand by the authorities.

Disputes regarding M&A transactions are rarely seen in Finnish civil courts, as arbitration is the most favoured dispute resolution method in M&A transaction agreements.

Recently, on 18 November 2019, the Finnish Competition and Consumer Authority (FCCA) made a proposal to the Market Court to prohibit the proposed acquisition of Heinon Tukku, a daily consumer wholesaler by Kesko, a major Finnish retailing conglomerate. The FCCA opined that the merged entity would have gained a dominant position and, thus, impeded significantly effective competition in the market. The FCCA’s proposal was upheld by the Market Court. This was the first ever merger control prohibition decision issued by the authorities in the Merger Control proceedings in Finland.

On a European level, the Court of Justice of the European Union (CJEU) gave a decision, C-724/17, in March 2019 regarding economic continuity in private enforcement in a matter related to a major Finnish cartel case. In the case the CJEU determined that a company which had merely acquired the business of a cartel-participant, not participating in any competition law breaching activities itself, was liable for paying compensation for the activities of its predecessor. The decision was justified by the need to ensure infringed entities’ rights to compensation and the effectiveness of EU competition law.

During the summer of 2019, Finland implemented the EU directive on the exercise of certain rights of shareholders in listed companies (2017/828/EC). The implementation was executed by amendments in the Finnish Companies Act and the Securities Markets Act (SMA). The directive 2017/828/EC defines and changes the directive 2007/36/EC by establishing rules promoting the exercise of shareholder rights at general meetings of companies with registered offices in the EU and the shares of which are admitted to trading on a regulated market in the EU. The aim is to encourage long-term shareholder engagement to ensure that decisions are made for the long-term stability of a company while taking into account environmental and social issues.

In connection to the above, the revised new Corporate Governance Code, prepared by the Securities Market Association in Finland, entered into force on 1 January 2020. Companies must publish the first new remuneration report in line with the revised code for the financial year beginning on or after 1 January 2020. The Corporate Governance Code is applicable to all companies that are listed on Nasdaq Helsinki Ltd (Helsinki Stock Exchange). According to the Rules of the Helsinki Stock Exchange, all issuers of shares that are traded on the official list must comply with the Corporate Governance Code.

Further, as of 1 January 2020, some cross-border transactions concerning real estate transactions with foreign buyers have faced a new legislation. If a corporate transaction involves the purchase of real estate, buyers from outside the EU and the EFTA will have to apply for a permit with the Finnish Ministry of Defence for the acquisition. The state also has pre-emption and redemption rights in some specific geographical areas that are deemed important to national security (see 2.6 National Security Review).

Prior to launching a public bid for the shares of a company whose shares are traded on the regulated market, a bidder can seek to acquire securities of the target company directly from the relevant market or by private negotiations – eg, by contacting the major shareholders of the target company (stakebuilding). With the stakebuilding, the bidder may pursue to secure and promote the forthcoming public bid. In the stakebuilding, the bidder must not hold any insider information of the company. Furthermore, the bidder must also bear in mind the thresholds for making the share acquisitions public in accordance with the flagging provisions under Chapter 9 of the SMA (see 4.2 Material Shareholding Disclosure Threshold and 6.2Mandatory Offer Threshold).

According to the SMA, the shareholder has the obligation to notify the company and the Finnish Financial Supervisory Authority (FFSA) of its holdings and proportion of voting rights (notification of major shareholding) when the proportion reaches, exceeds or falls below 5%, 10%, 15%, 20%, 25%, 30%, 50%, 66.66% or 90% of the voting rights, or the number of shares in the company.

The shareholder shall submit the flagging information to the FSSA without any delay and at the latest on the following official trading day after the shareholder became aware or should have become aware that any of the above-mentioned thresholds are exceeded.

The disclosure thresholds set out in the SMA are mandatory for the holders of the securities on the relevant market. In addition, the SMA also imposes a general prohibition to use insider information in securities trading. If the bidder is the holder of the insider information, it may not acquire the shares of the target company until the information has been made public.

Dealings in derivatives are allowed under Finnish laws. The obligations described in 4.1 Principal Stakebuilding Strategies, 4.2 Material Shareholding Disclosure Threshold, 4.3 Hurdles to Stakebuilding and 6.2 Mandatory Offer Threshold should, however, be considered.

The same disclosure obligations apply to dealings with derivatives as with the publicly traded shares. In addition, trading with the derivatives shall be informed to the register of the European Securities and Markets Authority (ESMA) as set out in the European Market Infrastructure Regulation (EMIR).

The party planning to make a takeover bid has to note that a decision to make a public takeover bid shall be made public and communicated to the target company as set out in the SMA.

According to the SMA, the bidder shall make public: the volume of the securities subject to the bid; the validity period of the bid and the offered consideration; any other material terms for the completion of the acquisition; procedure to be applied if acceptances cover a greater volume of securities than that subject to the bid; and whether the bidder has committed itself to comply with the recommendations of the SMA and, if not, explanations for that. It is also recommended that the bidder discloses the reasons for the bid.

The negotiations are usually conducted on a confidential basis. Non-listed targets do not have any common duties to disclose the deal, whereas the disclosure obligations of listed companies are regulated by the SMA, the EU Market Abuse Regulation (MAR) and the rules of the trading venue.

According to the MAR, the standpoint is that a listed company shall disclose to the market any inside information which directly concerns the company as soon as possible. However, the company may, on its own responsibility, delay the public disclosure of inside information, provided that certain MAR conditions are met, and a documented decision of the delay has been made and submitted to the FSSA. There are, however, no restrictions regarding discussions with the target shareholders provided that no insider information is shared in breach of MAR rules.

It is not possible for the target company to disregard legal disclosure obligations in Finland. However, often the target company and the bidder try to avoid early disclosure and maintain confidentiality as long as legally possible. According to the Helsinki Takeover Code, the deal will be disclosed after the definitive agreement has been signed by the bidder and the target company.

The scope of due diligence varies depending on the type of transaction, the business area in which the target company operates and the time available for the inspection. Typically, the scope of due diligence covers legal, financial, commercial and tax matters. Depending on the target company, environmental or technical due diligence may also be recommendable to be carried out. Acquisition of a target conducting data intensive business usually require that also IPR and GDPR matters are included in the due diligence scope.

When a listed company enters into discussions on the potential offer for all the target company’s shares, the target company may enter into a standstill agreement preventing the bidder to acquire the target’s shares directly or indirectly from the market during the agreed period (see also 6.7 Types of Deal Security Measures).

In a public offer, the bidder and the target company usually enter into a combination agreement where the main terms for issuance of the public offer by the bidder will be agreed. In the combination agreement, the target company may commit to continue to support the bidder’s offer as long as target’s board deems it able to do so without violating its fiduciary duties towards the target and its shareholders. In such situation, the bidder may be granted the possibility to revise its offer – eg, to meet the competing offer. In addition, the target may commit to not actively soliciting competing offers from third parties.

Concerning private acquisition, it is common that the buyer requests the sell-side to commit to negotiate with the buyer exclusively and not to solicit competing offers during the agreed exclusivity period, especially if the buyer is a private equity sponsor or a foreign acquirer.

It is permissible and common to document the public offer terms into a definitive agreement, frequently called a “combination agreement”. Please see 5.4 Standstills or Exclusivity and 6.1 Length of Process for Acquisition/Sale.

As regard to private acquisitions (not public takeovers), there are no specific rules how the acquisition process should be structured. However, there is well established practice for the acquisition process, and it follows the M&A process common in many other jurisdictions. The process can take from a few months to a year, or even longer, the median process period ranging between five months and 12 months.

With public takeovers the process is more regulated. According to the SMA, the offer period shall be at least three weeks but no more than ten weeks, so the overall process can take approximately 12 weeks from the date of the publication of the offer until the completion of the offer. Usually the transaction is also followed by the squeeze-out process.

The process of a (friendly) public takeover is usually as follows:

  • the bidder contacts the major shareholders of the target company and the target company (usually the chairman of the board of directors);
  • the due diligence process is started;
  • the offer is disclosed;
  • the merger control process is started;
  • the offer document is filed with Finnish Financial Supervisory Authority (FFSA);
  • the offer document is publicly disclosed after it has been approved by FFSA;
  • the acceptance period starts (three to ten weeks) – however, there is a possibility to extend the offer period;
  • after the end of the acceptance period the result of the offer is announced;
  • settlement of the consideration begins; and
  • the squeeze-out process and the delisting of the company are started.

According to the SMA, if a bidder alone or together with his or her related parties acquires at least 30% of the shares or 50% of the total voting rights of the target company, it will trigger the mandatory obligation to make a public offer for all the shares of the target company. The disclosure shall be made without any undue delay and no later than four weeks from the date when the obligation arose.

In certain situations, the supervisory body FFSA may grant exemptions from the mandatory offer obligation.

In private acquisitions, cash is the most common consideration. If the transaction is structured as a merger or a share exchange, the consideration can also be the shares of the buyer.

As regard to public bids, cash is the commonly used consideration. However, the consideration can also be securities or the combination of cash and securities. Further, in public voluntary bids for all shares of the target company, the consideration shall be in cash, at least as an alternative, in the event:

  • the consideration consists of securities that are not traded on a regulated market in a member state of the European Economic Area (EEA), and an application for admission to trading is not sought in connection with the bid; and
  • if the bidder or the related party acting in concert with the bidder has purchased shares of the target company representing 5% or more of the total voting rights in the target company for cash during the period beginning six months before the publication of the bid and ending at the expiry of the offer period.

As regard to the mandatory public bids, the consideration shall be in cash or accompanied by a cash alternative.

A voluntary bid can contain reasonable conditions. The conditions shall be such that their fulfilment can be objectively determined. Typical conditions are the receipt of applicable regulatory approvals, obtaining necessary financing for the acquisition of the shares, obtaining a certain number of acceptances from the shareholders (typically more than 90% of all shares and votes in order to perform the squeeze-out), absence of material adverse changes in the target company and the combination agreement remaining in full force and effect.

The bidder usually reserves the right to waive any of the conditions in the event they are not fulfilled.

Mandatory bid can only be subject to obtaining the applicable regulatory approvals. In the event the regulatory approvals are not obtained, the FFSA will grant an exemption from the duty to make a mandatory offer by the bidder, provided that the bidder reduces its ownership in the target company below the threshold for the mandatory offer (ie, 30% of the shares or 50% of the total votes).

With public takeovers the usual minimum acceptance condition is obtaining 90% of the shares and the votes of the target company (which enables the buyer to acquire ultimately 100% of the target shares by the squeeze-out procedure) and the fulfilment of the merger control procedure, if applicable.

According to the SMA, in public takeovers the bidder shall ensure that it has sufficient means (cash or other types of consideration) to complete the transaction before the offer can be made public. According to the FFSA, ensuring the financing means that the offeror has sufficient cash funds or has agreed on the financing arrangements with sufficient certainty. This means that at the time of the offer the bidder needs to have either cash available or sufficient arrangements in place to settle the consideration at the completion of the transaction.

In a private acquisition the completion may be conditional on the buyer obtaining financing. This is often seen as a condition especially when the buyer is a private equity investor who typically is in need to call the funds for the fund investors at closing. Otherwise the conditions to close the deal are commercial issues and thus dependent on the buyer’s bargaining power in the transaction.

There are no general rules for the bidder to seek for deal security measures – the matter is always dependent on case-by-case circumstances. However, in public takeovers it is quite common that the target company’s board of directors agree to commit not to solicit actively competing offers and to grant the bidder the possibility to revise its offer to match the competing offer if such case arises.

According to the Helsinki Takeover Code, the target company may also consider limiting trading by the bidder by signing an agreement with the bidder whereby the bidder undertakes not to trade the shares in the target company during a certain time period (“standstill agreement”).

It is also customary in Finland for the bidder and the target company to conclude a combination agreement or transaction agreement prior to making the bid public. In the combination agreement the parties usually agree on the terms and conditions of the bid to be made to the shareholders. The combination agreement may serve both the interests of the bidder as well as the interests of the target company and its shareholders. The combination agreement can also contain a provision of break-up fees. However, the board of directors must be careful in fulfilling their fiduciary duties when entering into any commitments that would limit the ability of the shareholders to consider freely whether they want to accept the bid or decide on possible measures for frustrating the bid in a general meeting convened for this purpose.

In private acquisitions, break-up fees are not particularly common in Finland, whereas the exclusivity to negotiate the deal with the buyer or provisions on compensating the buyer’s due diligence costs if the sell-side pulls out from the process are fairly common, especially when the buyer is a private equity or venture capital investor.

In public takeovers, there are not as many options to obtain additional governance rights in the listed company except for the voting rights associated with the shareholding. Usually the bidders seek for at least a 90% ownership entitling them to acquire a 100% ownership through the squeeze-out process.

Other relevant ownership thresholds usually are over 50% of the shares and votes granting a majority control position among shareholders’ decisions, (eg, in nominating of the company’s board of directors and the distribution of the dividend). A majority of 66.66% of the shares and votes enable some further rights to the shareholder, such as the possibility to decide on a directed share issue.

The shareholders are entitled to vote by proxy in both private and public limited liability companies in Finland.

Usually the bidder aims to obtain 100% of the securities of the target company. In accordance with the Finnish Limited Liability Companies Act, a shareholder owning more than 90% of the shares in the target company and voting rights relating to the shares, has the right to redeem the remaining shares of the other shareholders for fair price. The remaining shareholders shall also have the right to demand the bidder to redeem their shares. The squeeze-out concerns only the shares, not the other securities of the company. Usually the fair price corresponds to the share price originally offered by the bidder.

After the expiration of the offer period, the bidder shall without delay publish the result of the bid. The bidder can also extend the offer period in order to obtain more shares on the market. Furthermore, the bidder can also obtain more shares and securities of the target company on the market in order to increase its share ownership.

If the bidder has obtained more than 90% of the shares of the target company, the press release relating to the result of the bid shall include notice of the coming squeeze-out process.

The squeeze-out is performed by the arbitration proceedings initiated by the majority shareholder against the remaining minority shareholders. The arbitrators are nominated by the Arbitration Institute of the Finland Chamber of Commerce. In addition, a trustee to supervise the minority shareholders’ rights is nominated. The majority shareholder shall also place a security for the payment of the redemption price. The arbitrators usually issue an interim decision confirming that the title to the shares subject to the redemption is transferred to the majority shareholder and ultimately the majority shareholder will pay the redemption price set by the arbitrators. The squeeze-out process usually takes between three and seven months.

It is common in Finnish public takeovers to obtain the irrevocable undertakings of the major shareholders before the publication of the bid. The negotiations with the major shareholders are usually conducted at the same time as the bidder contacts chairman of the board of the target company and expresses its interest in the company before making the actual bid. The irrevocable undertakings can be very important for the success of the bid if the target company has only a few major shareholders, who could alone or together prevent the completion of the bid.

According to the SMA, the bidder must make the public takeover bid public via a press release immediately after reaching a decision on the matter, as well as communicate it to the target company. Employee representatives must also be immediately informed.

According to the SMA, a number of matters has to be disclosed. These include standard information on the bid – ie, the volume of the securities in question, details on the consideration, the validity period of the bid, and any other material terms. In addition, it must state what kind of procedure is followed if the bid is approved to cover a greater extent of the securities in question than was disclosed to be subject to it. It must also state if the bidder shall comply with the recommendation for conduct in the takeover process published by the Finnish Securities Markets Association. If the document in question (the Helsinki Takeover Code) is not complied with, an explanation for this is required by law.

The above-mentioned recommendation also lists numerous items that are not required by law to be disclosed but the disclosure of which is nonetheless recommended. These include information on the financing of the bid, the amount and quality of committed shareholders and the duration and course of the bidding and takeover process.

If a consideration is offered in the form of shares of the bidder, the bidder needs to be prepared to present documents that allow the shareholders of the target company to make an informed decision on the offer. According to the Helsinki Takeover Code, these documents need to contain information on the business operations, profit and financial position of the bidder and the effect the bid and the consideration given out has on them. If possible, the data has to be provided on the effects calculated per share.

A summary of the main terms and conditions of the combination agreement shall be published in the offer document.

According to the Finnish Limited Liability Companies Act, the management of the company and, in essence, the target’s board of directors shall act with due care and promote the interests of the company. This contains two obligations: the duty of care and the obligation to promote the interests of the company, and these are directed essentially towards the target’s shareholders.

In a business combination, the target’s board needs to ensure that the contractual commitments with the bidder do not unduly prevent the board from acting in the shareholders' best interests, especially in the event of a competing bid. Usually the target's board can agree to a non-soliciting undertaking with the bidder provided that the board is free to take appropriate actions in the event of a competing bid, such as the possibility to withdraw its recommendation of the bid or to enter into discussions with another bidder if a more favourable bid is received.

In Finland, companies do not have an obligation to establish special or ad hoc committees in business combinations. However, the board of directors can set up ad hoc committees – for example, for the purpose of preparing a major business transaction or in the event of a conflict of interest. Establishment of a committee often enables more extensive preparation and concentration on certain matters. Nevertheless, it is not very common in Finland to establish such committees.

According to the Finnish Limited Liability Companies Act, the management of the company shall act with due care and promote the interests of the company (“duty of care”). A member of the board, a member of the supervisory board and the managing director shall in principle be liable for damages for the loss that he or she, in violation of the duty of care in office, has deliberately or negligently caused to the company.

However, it has been acknowledged that risk-taking is a typical and often necessary part of doing business and decisions are often made under uncertain circumstances. The manner in which the directors’ performance is judged in Finland is very similar to the so-called "business judgement rule" in the USA and the director would usually not be deemed to be liable for a business decision that turns out to be negative to the company if:

  • the director has no conflict of interest with the matter;
  • the board makes a decision regarding the matter (the passivity of the board of directors is not protected);
  • the members of the board of directors have acquired all essential information regarding the matter before the decision is made; and
  • the board of directors does not act unjustifiably or irrationally.

Although the legislation in Finland does not oblige the management of the company to use external advisors in business combinations, the business judgement rule will only apply if the decisions are based on appropriate information and this may require consulting external advisors. In Finland parties are often advised by, for example, financial, legal and tax advisers. In some occasions the board may acquire fairness or legal opinions from outside advisors to complement the otherwise acquired information for the decision making. The target’s board usually acquires a fairness opinion from a financial institution for the issuance of the board’s statement on the mandatory public takeover bid as required by the SMA.

According to the Finnish Limited Liability Companies Act, a member of the board of directors shall be disqualified from the consideration of a matter pertaining to a contract between the member and the company. The member shall likewise be disqualified from the consideration of a matter pertaining to a contract between the company and a third party if the member is to derive an essential benefit in the matter and that benefit may be contrary to the interests of the company. These provisions apply correspondingly to other transactions and court proceedings.

That is to say, a member of the board of directors must refrain from taking part in the consideration of a business combination where he or she has a material interest which may conflict with the interests of the limited liability company. However, there is no case law dealing with conflicts of interests in takeover situations.

Hostile bids are allowed in Finland, although they are not very frequent.

According to the Finnish Limited Liability Companies Act, the board of directors has the general duty to promote the interests of the company. If the company has received information on a public takeover bid, its task is to evaluate and seek the best possible outcome for its shareholders. This means that the board of directors shall seek for the best possible bid, bearing in mind that the bid at hand may not be the best possible solution for the shareholders. The company can also seek for other alternatives. Evaluation of these different solutions is part of the evaluation of the bid.

A public takeover bid without the support of the board of directors or the management may be considered hostile and the board or the management of the target company may attempt to frustrate such bid. The board may, however, have a duty to call a general shareholders’ meeting to convene to decide on matter and further measures.

The board of directors or the management can seek other alternatives which would be more beneficial for the shareholders. Measures in order to frustrate a bid can require that a general meeting of the shareholders must be convened. The SMA imposes on the board of directors the duty to convene the general meeting in certain situations where the board of directors, after having received knowledge of a public takeover bid made public, intends to use its authority to issue shares or decide on other measures and arrangements falling within the scope of its general competence in such a manner that these prevent (or may prevent) or materially hamper the completion of the bid or the fulfilment of its material conditions.

The board of directors has the general responsibility to act in the best interest of the company and the shareholders. This may include seeking for alternative solutions for the shareholders and the board of directors can also transfer the matter to the general meeting of the shareholders for a decision.

The board of directors is not obliged to co-operate with the bidder if the board of directors deems that the bid is not serious enough and in the best interest of the shareholders.

According to the Helsinki Takeover Code, the board of directors has to prepare and publish a statement regarding the public takeover bid. The statement shall provide a well-founded assessment of the takeover bid for the decision-making of the shareholders and shall include an evaluation on the strategic plans presented by the bidder in the offer document and their likely effects on the operations and employment of the target company. In its statement, the board of directors shall recommend either acceptance or refusal of the bid.

Litigation is fairly unusual in connection with M&A deals in Finland. Instead, a typical solution is to agree to settle all potential disputes in arbitration under the arbitration rules of the Finland Chamber of Commerce. Another option is to agree upon an ad hoc arbitration based on the stipulations of the Finnish Arbitration Act. In case the parties have not agreed on arbitration or settlement procedures, disputes shall be resolved through litigation and general court proceedings. However, arbitration is often faster and more flexible than litigation in civil courts, which makes arbitration a preferable alternative to the parties. Another big advantage is the confidentiality, as arbitration proceedings are not public compared to litigation in the civil courts, where the standpoint is that the proceedings are public unless ruled otherwise.

Most of the disputes in connection with M&A deals arise after closing the deal and are commonly related to price adjustments, earn-out clauses or seller’s liability.

The role of shareholder activism in corporate decision-making in Finland has remained quite limited, but some examples have recently surfaced on the Finnish market. Activism is usually conducted by foreign hedge funds, with only a few notable Finnish private investor associations being the domestic exception.

Shareholder activism has recently been considered by legislators in connection with changes made to the SMA regarding management remuneration practices in public companies. The attitude demonstrated towards activism is mixed: on one hand, it is viewed as a force that increases openness and makes for a better possibility for shareholders to influence companies; on the other hand, it is considered to create risks and unpredictability in the field of M&A. However, Finnish institutional shareholders are most often prone to adopt a communicative, non-activist standpoint regarding the influencing of corporate decision-making.

It is not common in Finland that activists would seek to encourage companies to enter into M&A transactions, spin-offs or major divestures. The activism relates mainly to demand of higher consideration in connection with the public takeover bids (see 11.3 Interference with Completion).

Within last 12 months, there have been two cases in the Finnish market in which shareholder activists have managed to increase purchase prices in connection to a public takeover bid. Activists’ demands caused of some 8% increase in the consideration offered in a public takeover bid for the real estate company Hoivatilat Oyj in 2019. Later in the same year, a similar purchase price increase, some 4% in volume, was seen in a public takeover bid for the construction machine leasing company Cramo Oyj. However, interference in public bids is generally rare in Finland.

Another notable case of recent shareholder activism is a demand made by a consortium of shareholders in Adapteo Oyj, a Finnish public company created recently by a demerger of Cramo Oyj and listed in the Stockholm Stock Exchange. The activists demand a secondary listing for the shares of Adapteo Oyj in the Helsinki Stock Exchange in order to enhance the trading possibilities of the company’s many Finnish shareholders.

Procopé & Hornborg Attorneys Ltd

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P.O. Box 1077
FI-00101 Helsinki
Finland

+358 10 3090 300

+358 10 3090 333

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Law and Practice

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Procopé & Hornborg Attorneys Ltd is based in Helsinki, and has been recognised as one of Finland’s premier law firms for decades. The corporate advisory/M&A teams are recognised for their efficient execution of assignments within Finland and on an international scale. The practice works closely together with the other teams of the firm – eg, the competition, energy, IPR and dispute resolution teams – providing consistent legal solutions to the client and managing the client’s legal risks and problems. The teams’ members are experienced in providing high-quality strategic and corporate advice concerning, for example, financing, capital markets and commercial agreements, and in serving clients across a wide spectrum of transactions, such as in private and public M&A, private equity and venture capital, real estate and joint ventures. Some of the firm’s key clients are in the energy, mining, automotive, retail and technology sectors.

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