Public takeovers – key considera­tions

Mandatory and voluntary takeovers 

Danish law distinguishes between two takeover situations:

i) where an investor has already obtained a certain control over the target company, or

ii) where an investor wants to obtain control over a company but has not yet achieved such control.

In the first scenario, the investor is required to present an offer to the remaining shareholders of the target company to acquire their shares. In general, control is deemed to exist when a shareholder, directly or indirectly, holds at least one third of the voting rights (unless the shareholder can prove that such holding does not constitute control) or otherwise has control over the target company.  

The second scenario arises when an acquirer wants to obtain control over a company and as a result presents an offer to the shareholders to acquire their shares. 

Some of the key distinctions between a mandatory and a voluntary offer are that in a mandatory scenario the offeror must offer a fixed price, which under normal circumstances must be equal to the highest price paid by the investor for shares in the target company in the last 6 months. Additionally, the consideration can only consist of cash or shares, and the investor is not allowed to attach any conditions to the offer. 

A voluntary offeror, on the other hand, can set the offer price freely and pay in whatever way the offeror chooses (except that all shareholders must be treated equally) and decide to make the offer subject to certain conditions (typically minimum acceptance threshold, anti-trust approval and MAC).  

Irrespective of the type of takeover situation, the offeror must before presenting the offer to the shareholders be certain to have the consideration ready, which normally implies that cash must be ready/drawable and that offer shares have already been issued or can be issued immediately; typically the board of directors of the offeror will need to have a standing authorisation to issue any shares to be used in the offer.  

Offer document

In either scenario the offeror must present to the shareholders an offer document, which has to be approved by the Danish Financial Supervisory Authority (FSA) prior to the release. The offer document must include a series of information and is usually prepared by the legal counsel of the offeror in cooperation with the offeror. In case shares are used as consideration, the offeror may have to prepare a prospectus.

Typical agreements between the target company and an offeror 

Hostile takeovers are rare in Denmark and as such the voluntary takeover process is normally coordinated with the target's board of directors in the form of a corporation and announcement agreement. Such agreement could include stand-still and exclusivity provisions and further set out the launch procedure. 

It should be noted that the board of directors of the target company will have to prepare a statement in which they decide whether or not to recommend the offer. In their assessment the board of directors must take all of the shareholders' interests into consideration as well as certain other interests, such as the interests of the employees.

Timing

An offer must be open for acceptance for a period of not less than 4 weeks and not more than 10 weeks from the date of the publication of the offer document, unless it is necessary to obtain a public approval that cannot be obtained within the said time period (typically antitrust approval). Additionally, an offeror needs to consider that the offer document and any improvement/amendments will have to be approved by the Danish FSA.

Compulsory acquisition, squeeze-out and delisting

The offeror will usually wish to delist the target company following completion of a takeover offer, and to squeeze out the remaining shareholders. The Danish Companies Act provides that a (single) shareholder holding more than 9/10 of the shares in a limited liability company and a corresponding share of the votes may demand that the other shareholders offer their shares to be redeemed by that majority shareholder by way of a compulsory acquisition or a ‘squeeze-out’. 

Where the offeror has received acceptance by at least 90% of the voting share capital (excluding treasury shares), Nasdaq Copenhagen’s issuer rules provide that a target company may be granted a delisting from Nasdaq Copenhagen following the initiation of a compulsory acquisition. On the other hand, if the offeror has received acceptance by less than 90% of the voting capital and completes the offer, delisting will not be granted if it is likely to prejudice the interests of the shareholders or the proper functioning of the market. In such a scenario, delistings must be assessed on a case-by-case basis, but based on the limited practice available, relevant factors will include for example minority shareholders’ ability to rely on the minority protection rights afforded by Danish law, minority shareholders’ ability to sell their shares prior to delisting, the information on the consequences of delisting provided to shareholders, etc.

The article is part of our Investor Update 2018 Q4. Read the issue here.