In a bid situation, the company’s board of directors and management have an independent responsibility to help ensure that shareholders are treated equally, and that the company’s business activities are not disrupted unnecessarily. The board has a particular responsibility to ensure that shareholders are given sufficient information and time to form a view of the offer.
The board of directors should not seek to hinder or obstruct take-over bids for the company’s activities or shares unless there are particular reasons for this.
In the event of a take-over bid for the company’s shares, the company’s board of directors should not exercise mandates or pass any resolutions with the intention of obstructing the take-over bid unless this is approved by the general meeting following announcement of the bid.
If an offer is made for a company’s shares, the company’s board of directors should issue a statement making a recommendation as to whether shareholders should or should not accept the offer. The board’s statement on the offer should make it clear whether the views expressed are unanimous, and if this is not the case it should explain the basis on which specific members of the board have excluded themselves from the board’s statement. The board should arrange a valuation from an independent expert. The valuation should include an explanation, and should be made public no later than at the time of the public disclosure of the board’s statement.
Any transaction that is in effect a disposal of the company’s activities should be decided by a general meeting, except in cases where such decisions are required by law to be decided by the corporate assembly.
Commentary:
Fundamental considerations and responsibilities
The stock market plays an important commercial role for society as a whole, and so helps to ensure the efficient allocation of society’s resources. Corporate take-overs contribute to improving the efficiency of price quotation for shares, and can serve to impose a discipline on corporate management. However, the bidding process and corporate take-overs must be carried out in a manner that maintains respect for the stock market, and that does not unnecessarily disrupt the business activities of the target company.
A take-over bid is a contractually binding action that has major consequences for the employees, board of directors and shareholders of both the bidder and the target company. All the parties involved must therefore conduct themselves in such a manner as to maintain public confidence in the stock market. For the target company, it is therefore important that the board has previously thought through some of the guiding principles as to how it will behave in the event of receiving a bid, for example whether it will seek to encourage competing bids and how it will ensure equal treatment of the company’s shareholders. There is, however, no requirement for a company to disclose the stance it has taken on these principles.
A bid must only be made when the bidder has carried out sufficient preparations to demonstrate its ability to carry through the bid, including access to sufficient financing for the terms of the bid.
Relationship between this section of the Code of Practice and legislation 4
The Securities Trading Act only regulates situations where a mandatory bid is made, or where a voluntary bid will cause the bidder’s shareholding to pass the threshold for a mandatory bid if it is accepted by the parties to whom it is made. The Code of Practice also applies to situations where the bidder already has a shareholding in excess of the threshold for a mandatory bid, and it then makes an offer to buy the shares of all remaining shareholders.
The requirement that the board of directors should not seek to hinder or obstruct any take-over bid unless there are particular reasons for this also supplements the provisions of the legislation in that it applies to bids not regulated by the Act and also applies to the situation before a bid is made.
Take-over situations are not frequent occurrences for the majority of companies. It may therefore be difficult to provide a precise statement pursuant to the first item of this section. In this particular respect, it should therefore be permissible to provide a somewhat less detailed statement.
Equal treatment and openness
It is a fundamental principle of the Code of Practice that all shareholders in the target company should be treated equally5. Openness in respect of take-over situations will help to ensure equal treatment of all shareholders.
The board of directors and the executive management are expected to refrain from implementing any measures intended to protect their personal interests at the expense of the interests of shareholders. The Code of Practice supplements the provisions in the Securities Trading Act on the limitation of the company’s freedom of action once it is aware that an offer is to be made.6
For the company, a take-over process gives rise to a particular duty of care to disclose information as required by Chapter 5 of the Securities Trading Act.7 The company must strive to ensure that neither inside information about the company, nor any other information about the company that must be assumed to be relevant for shareholders in a bidding process, remains unpublished. If the target company has planned in accordance with its financial calendar to publish an interim report after an offer is expected to be made, the company should use its best endeavours to publish the report before the expiry of the acceptance period for the offer.8
Evaluation of a bid9
Once a company has received an offer, the board of directors is required in the situations stipulated in the Securities Trading Act to provide a statement on the offer prior to the expiry of the offer period. Such a statement should also be provided in the bid situations covered by the Code of Practice. Shareholders will find it particularly useful if the board uses its insight into the company’s future to produce estimates of the discounted current value of the company’s expected future earnings and compares this to the bid received. Such an evaluation should be the main item in the board’s statement. This Section of the Code of Practice imposes requirements that go beyond the requirements of the Securities Trading Act by recommending that the board should recommend whether shareholders should or should not accept the bid.
The board’s statement on a bid should make it clear that the evaluation presented is the unanimous view of the board, and where this is not the case it should explain the basis on which specific members of the board have excluded themselves from the board’s statement. The board should also consider whether there are any conflicts of interest between minority shareholders and major shareholders. The board’s evaluation should be based on generally recognized valuation principles. The statement should also follow the guidelines set out in the Securities Trading Act in all other relevant respects.
This Section of the Code of Practice imposes requirements that supplement the requirements of the Securities Trading Act by recommending that the board should obtain a valuation from an independent expert.
In a situation where a competing bid is made and the bidder has no connection to any members of the board of directors or executive personnel or a main shareholder, the board will normally not need to seek an independent valuation. An independent competing bid will also normally provide sufficient basis for the board’s evaluation in situations where members of the board of directors or executive personnel or a main shareholder do have a particular interest.
An independent expert is understood to mean an individual or company that has no personal interest in the bid such as a results-based fee payable by the bidder, the target company or any major shareholder. If such an independent valuation is not included in full in the board’s statement or appended thereto, it must be referred to in the statement in such a manner that will not mislead shareholders.
If any of the executive personnel or any member of the board of directors of the target company, or a major shareholder, participates in a bid for the company, an account shall be provided of the role the person or persons in question are playing in the bid. In cases where members of the company’s board or management have been in contact with the bidder in advance of the bid, the board must exercise particular care to comply with the requirement for equal treatment of shareholders and to ensure that it achieves the best possible bid terms for shareholders. The board must exercise caution in agreeing to any commitments by the company that may make it more difficult for competing bids to be made or that may hinder any such bids. Such commitments, including commitments in respect of exclusivity (“no-shop”) and commitments in respect of financial compensation if the bid does not proceed (“break fee”) should be clearly and evidently based on the shared interests of the company and its shareholders. Any agreement for financial compensation to be paid to the bidder should, in principle, be limited to compensation for the costs the bidder has incurred in making a bid.
Disposal of a company’s activities
The question of whether a resolution to dispose of a company’s activities should be decided by a general meeting of the company depends on how the company’s business is defined in its articles of association. However, even if the articles of association do not require a decision by the general meeting, see also Section 2 of the Code of Practice, such a decision should in any case be made by the general meeting. This should also apply to any significant disposal of the company’s assets that may be said to change the character of the company.
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4 Vphl. Chapter 6 sets out the rules for mandatory and voluntary offers. Any party that through acquisition becomes the owner of shares representing more than 1/3 of the voting rights in a Norwegian company whose shares are quoted on a Norwegian regulated market is required to either make an offer to purchase the remaining shares in the company (duty to make a mandatory offer), or to reduce its shareholding to below this threshold. This also applies when the number of voting rights held passes 40% and 50%, (repeated duty to make a mandatory offer). Such a party must immediately notify the stock exchange and the company when it enters into an agreement to acquire shares that will trigger the duty to make a mandatory offer. The offer price must be at least as high as the highest price the party making the offer has paid or agreed during the last six months prior to the duty to make a mandatory offer being triggered, cf. Vphl. § 6-10. The offer must also be unconditional, with settlement in cash, and the period for acceptance must be between 4 and 6 weeks. A voluntary offer becomes subject to statutory regulation if the offer will cause the threshold for a mandatory offer to be exceeded if the offer is accepted by the parties to whom it is available, cf. Vphl. § 6-19. 5 In the case of both mandatory and voluntary offers, there are statutory requirements on the equal treatment of shareholders and on the information to be provided in the offer document, cf. Vphl. § 6-10, final paragraph and § 6-13. Asal. § 6-28 stipulates that neither the board of directors nor any other parties who represent the company may take any action which may confer on certain shareholders or other parties an unfair advantage at the expense of other shareholders or the company. This restriction also applies to the general meeting by virtue of Asal. § 5-21. The principle of equal treatment is also a requirement of Vphl. § 5-14. 6 In the case of an offer regulated by Vphl. Chapter 6, neither the board of directors nor the management of the target company may pass resolutions in respect of any matters outside the company’s normal day-to-day business operations in respect of the issue of shares, merger, purchase or sale of significant business areas or the purchase or sale of the company’s own shares, cf. Vphl. § 6-17. The restrictions in the Securities Trading Act do not apply if the general meeting has granted mandates for the board to make such decisions in anticipation of a take-over situation. 7 Vphl § 5-2 requires that a company shall on its own initiative promptly publish inside information which directly concerns the company. Vphl. § 5-3 permits a company to delay the publication of such information on particular terms in order not to harm its own legitimate business interests, subject to such delay not misleading the public and the information being kept confidential. 8 Section 4.5 of the Oslo Børs «Continuing obligations of stock exchange listed companies (Continuing obligations)» stipulates that listed companies must publish the planned timetable for publishing interim reports. 9 Vphl. § 6-16 stipulates that the company’s board of directors must issue a statement on an offer and that the statement shall include information on the board of directors’ considered view of the implications of the offer in relation to the company’s interests, including what effect the offeror’s strategic plans may have for the company’s employees and for the location of the company’s activities, together with the view expressed by the company’s employees, and other matters material to evaluating whether the offer should be accepted by shareholders. If the board finds itself unable to give a recommendation to shareholders on whether or not to accept the offer, it should explain the background for not making such a recommendation. The statement must also provide information on the view, if any, expressed on the offer by members of the board of directors and the chief executive in their role as shareholders in the company. If the offer is made by anyone who is a member of the board of the company, or if the offer is made with the agreement of the company’s board, the stock exchange shall decide who shall issue the statement. The established practice of Oslo Børs is that the members of the board who are not disqualified by conflict of interest, even if they do not represent a quorum for decisions by the board, may normally issue such a statement. In the absence of such persons, and in certain cases where the current board is considered not be sufficiently independent, Oslo Børs will require that the statement be issued by an independent expert. |