1. Legal Aspect of Finance
Slide Set 13
Tender Offers (Public Bids)
Mandatory Bids
Matti Rudanko

2. Legal Basis
DIRECTIVE 2004/25/EC OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL of 21 April 2004 on takeover bids (Takeover Directive)
SMA ch. 11
FSA Standard 5.2c: Takeover bids and mandatory bids
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3. Objectives of the Regulation
to promote and ensure investor protection in the bids (FSA Standard)
minority shareholders in the target (offeree) company
equal treatment of shareholders of the target company: SMA ch. 11 sect. 7
to support corporate acquisition markets in situations where the offeree company is listed (FSA Standard)
competing bids facilitated by the publicity of the bid
problems of contested (”hostile”) takeovers
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4. published after approval by the Financial Supervision
Tender document
contents: essential and sufficient information enabling an informed assessment of the merits of the tender
published after approval by the Financial Supervision
submitted to the target company, its employees and the party in charge of the public trade in question.
at the close of the tender period, the tenderer shall without delay publish the portion of ownership and voting rights that he may acquire in the target company by acquiring the securities offered for sale on the basis of the tender offer
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5. Duty of Redemption (Mandatory Bid)
The shareholder shall immediately publish the circumstance giving raise to the duty of redemption.
When calculating the voting rights of the shareholder referred to in paragraph 1, the voting rights shall include i.a.:
1) the shares held by the shareholder and by organizations and foundations controlled by the shareholder as well as shares held by their pension foundations and pension funds and
3) the shares held by those who act together (in concert) with the shareholder in order to exercise control of the company.
The duty not triggered when the above thresholds are exdeeded due to a mandatory bid)
Exceeding 50 per cent also triggers the mandatory bid duty
A tenderer whose portion exceeds three tenths (3/10) of the voting rights of the shares of a company (the threshold; determined by national law) shall be under a duty to redeem the remaining shares of the company (mandatory bid)
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6. Right / Duty of Redemption
Redemption not related to public bids / public trade
Companies Act 2006 ch. 18 sect. 1 (Redemption of minority shares):
A shareholder holding more than nine-tenths of the shares of a company and the votes attaching to all the shares (the redeemer) shall have the right to redeem the shares held by other shareholders at the market price. A shareholder whose share can be redeemed shall have the right to demand that his share be redeemed.
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7. The redemption price (Takeover Directive)
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8. The redemption price, cont.
The redemption price shall be the going price
Highest price paid by the offeror during 6 months - - (see directive)
If the above not applicable, in determining the going price, attention shall be had to the average price paid for the security in public trade during the 3 months preceding the arising of the redemption duty weighted by the volume of the trade
as well as to any higher price paid by the party under the duty of redemption or another person, organization or foundation referred to in section 6 as well as any special circumstances.
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9. General Principles in Public Bids and Mandatory Bids
The bidder may not put the shareholder of the target company in an unequal position (equal treatment of shareholders, SMA ch. 11 sect. 6)
The squeeze-out of minority shareholders: If the securities exceeding the threshold have been acquired through a tender offer, the duty of redemption shall not arise before the end of the tender period.
If the consideration tendered is lower than the redemption price, those accepting the tender offer shall be paid the difference between the consideration and the said price before the end of the redemption procedure.
The bidder may not by its own measures prevent or materially impede the materialization of the public bid and the conditions set for carrying out it (SMA ch. 11 sect. 7)
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10. Contested (”Hostile”) Takeovers
Opposed by the management of the target company (afraid of losing their positions)
Defensive measures may not be in line with the interests of the target company (its shareholders)
”poison pills”, ”golden parachutes”, ”crown jewels” etc.
cf. the possible raise of value of an underperformer company after the takeover
A principal – agent -question
Legal sanctions (company law damages)
Directive: board shall seek consent of the general meeting to any action frustrating the bid
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