This country-specific Q&A gives an overview of mergers and acquisition law, the transaction environment and process as well as any special situations that may occur in Sweden.
It also covers market sectors, regulatory authorities, due diligence, deal protection, public disclosure, governing law, director duties and key influencing factors influencing M&A activity over the next two years.
This Q&A is part of the global guide to Mergers & Acquisitions. For a full list of jurisdictional Mergers & Acquisitions Q&As visit http://www.inhouselawyer.co.uk/index.php/practice-areas/mergers-acquisitions/
What are the key rules/laws relevant to M&A and who are the key regulatory authorities?
The key laws relating to M&A in Sweden are the Swedish Companies Act setting out the rules for Swedish limited liability companies (the entity form used for the vast majority of enterprises) and the Swedish Competition Act. In addition thereto, legislation relating to contracts law, employees, securities and the relevant industry are naturally also of relevance (such as financial supervisory regulations for banks, insurance companies and other entities in the financial sector).
Further, with respect to transactions concerning a publicly listed company, the Swedish Stock Market (Takeover Bids) Act, the Swedish Financial Instruments Trading Act, the Swedish Securities Market Act and the Swedish Market Abuse Act constitute important legislation. In addition, the Swedish Takeover Rules set forth rules that must be complied with in the event of a takeover offer (it can be noted that the Takeover Rules also apply to mergers and quasi-mergers).
The Swedish Securities Council is one of the key regulatory authorities as concerns public deals. The Swedish Securities Council is a private body made up of representatives of various organisations with the main purpose of ensuring compliance with good practice on the Swedish securities market. Under the Swedish Takeover Rules, the Swedish Securities Council has been given the power to issue statements and rulings on points of interpretation and grant dispensation from compliance with the rules and, further, it is authorised to issue statements and rulings on matters arising under the Swedish Stock Market (Takeover Bids) Act. In addition to the Swedish Securities Council, the key regulatory authorities are the Swedish Financial Supervisory Authority, the Swedish Competition Authority and the Association for Generally Accepted Principles in the Securities Market.
What is the current state of the market?
The Nordic IPO market, and the Swedish in particular, has been notably strong in recent years and 2017 turned out to be a record year in terms of, inter alia, the number of listings.
The Swedish M&A market has recovered strongly after the global financial crisis and the level of M&A activity in Sweden has been relatively high during the last couple of years. Naturally, the majority of the transactions have been private deals, however, there have also been several public deals. As a consequence of the favourable market conditions of the Swedish securities markets, IPOs have played an important role with respect to exit strategies of e.g. private equity companies. This has naturally to some extent reduced the number of private deals (especially in large cap). In the most recent time, we have however seen a significant number of “dual tracks” processed where the choice between a private transaction and an IPO has been kept open until quite late in the process. This trend is accountable to the uncertainty on whether the current quite high valuations on the Swedish stock market will apply also going forward. If there is a shift in stock market valuations, a further increase of private M&A is to be expected as well as an increased number of public takeover offers.
Which market sectors have been particularly active recently?
With respect to M&A activity there has been significant activity in nearly all market sectors when it comes to target companies. On the buyer side, there has been significant activity from venture capital, private equity sponsors as well as industrial buyers. There is also a fairly even mix between Swedish and international buyers.
The sectors with the most listings during 2017 were healthcare, technology and industrials.
What do you believe will be the three most significant factors influencing M&A activity over the next 2 years?
The three most significant factors driving M&A activity in the Swedish market over the next two years are likely to be (i) the value of the Swedish currency in relation to foreign currencies, (ii) securities market valuations and the general state of the financial markets, and (iii) eventual changes with respect to capital accessibility or the overall risk willingness.
What are the key means of effecting the acquisition of a publicly traded company?
An acquisition of a publicly listed company is normally effected by means of a takeover offer to the shareholders of the target company. The consideration of such offer normally consists of cash or shares in the offeror company, or a combination thereof. A transaction can however also for example be effected through a merger where the receiving entity gives own shares and/or cash as merger consideration, in which case more than 50 per cent of the value of the consideration must consist of shares.
What information relating to a target company will be publicly available and to what extent is a target company obliged to disclose diligence related information to a potential acquirer?
With respect to private companies, all information registered with the Swedish Companies Registration Office is publicly available. This information includes, e.g., the members of the Board of Directors, the Managing Director, other signatories, share capital, number of shares and warrants issued. Also, the annual financial statements become available through the Swedish Companies Registration Office’s register after they have been adopted and filed. There are separate public registers for ownership of and encumbrances over real estate and business mortgages. Further, information on companies with Swedish authorities is generally available under the Swedish Public Access to Information and Secrecy Act. In addition to the above, publicly listed companies are also subject to an ongoing disclosure obligation pursuant to the relevant securities law and stock exchange regulations.
With respect to publicly listed companies, the Board of Directors of the target company is to resolve whether they consider an offer to be of serious nature, and, if so, whether the Board of Directors should allow a potential offeror to receive detailed information for due diligence purposes. However, it can be noted that the target Board of Directors is in all situations obligated to act in the best interest of the shareholders of the target company. The Swedish Takeover Rules require that the due diligence exercise is equally applied among potential offerors. As a result, the target Board of Directors would normally have to disclose the same information to competing offerors, with the exemption of e.g. the case where an offeror is a competitor to the target company.
To what level of detail is due diligence customarily undertaken?
For private deals in Sweden due diligence reviews are regularly conducted by the buyer and its advisors on all relevant matters. A typical “Swedish” due diligence is in our experience in line with the scope and level of corresponding reviews in other highly developed transaction countries if not even more detailed. The need for a buyer to be thorough when conducting its due diligence review is further underlined by the fact that it is market practice in Swedish private M&A share sale and purchase agreements that all information included in the due diligence data room in reasonable detail and context is considered “disclosed” to the buyer in a way that excludes seller liability in case of breach of a seller’s warranties based on such disclosed information.
A pre-takeover due diligence in a public offer is usually more limited in scope than in the case of a private acquisition.
What are the key decision-making organs of a target company and what approval rights do shareholders have?
The key decision-making organs of a limited liability company are the Board of Directors and the shareholders’ meeting. The Board of Directors is in charge of the company and runs its business while certain issues, such as issuing of equity instruments and appointment of the board members require resolutions from the shareholders’ meeting. In a private Swedish share transfer transaction it is the shareholders of the target company that makes the transaction related decisions while the Board of Directors of the target company normally only is involved in the due diligence exercise. In an asset deal, the Board of Directors of the selling company will be the decision making body (although the final decision may sometimes be referred to a shareholders’ meeting if the assets sold are considered material to the selling company’s operations).
In furtherance of the above, a public takeover offer is by its nature directed towards the shareholders of the target company and each shareholder will have to decide whether to accept the offer. However, the Board of Directors is normally obliged to, inter alia, announce its opinion regarding the offer.
What are the duties of the directors and controlling shareholders of a target company?
The role of the Board of Directors of the target company is usually quite limited in a private share transfer transaction. With respect to publicly listed companies, the Board of Directors has a duty to evaluate the seriousness of an approach for a potential offer. The Board of Directors may, depending on the merits of the offer, resolve to allow a potential offeror to conduct a due diligence on the target. Further, the Board of Directors is to announce its opinion regarding the offer and the reasons for this opinion no later than two weeks prior to the expiry of the acceptance period. Controlling shareholders of a target company do not have any duties.
Do employees/other stakeholders have any specific approval, consultation or other rights?
Under Swedish law the workers’ unions have certain rights to be informed/consulted in matters that may affect their rights or employment conditions. This does not include a blocking power for the unions/employees when it comes to M&A transactions. For a standard share transfer transaction, no union consultation is required (unless it is evident that there e.g. will be redundancies in either of the involved companies as a result of the transaction) while an asset deal involving transfer of employees generally triggers the obligation to consult with the unions prior to any decision being taken. The consultation process is normally quite straightforward and not that time consuming.
In the context of a public takeover, a Swedish offeror shall inform its employees about the takeover offer and the offer document as soon as they have been made public. The Board of Directors of the target company shall inform the employees of the target company about the takeover offer, the offer document and the Board of Director’s recommendation to the shareholders as soon as they have been made public. The same information shall also be given to employee organisations which represent employees of a Swedish offeror/target company.
To what degree is conditionality an accepted market feature on acquisitions?
For transactions involving private companies in Sweden it is standard to include conditions to closing for mandatory regulatory approvals such as competition authority clearance in the transaction documentation. Other than that it is normally quite unusual that the seller accepts deal conditionality such as the absence of “material adverse changes”, buyer’s financing and similar provisions that we know are common in other jurisdictions. This can however naturally change on a case by case basis depending on the negotiation powers of the parties and the nature of the transaction.
With respect to publicly listed companies, rules prohibiting offer-related arrangements, e.g. break fees, have relatively recently been implemented in the Takeover Rules. Consequently, a target company may normally not commit itself to any offer-related arrangements (any and every arrangement related to the offer which entails an obligation on the target company in relation to the offeror) vis-à-vis an offeror. However, confidentiality commitments or undertakings not to solicit the offeror’s employees, customers and suppliers are exempted from the prohibition.
With respect to voluntary takeover offers, it is common that the offer is conditional upon certain conditions. The specific offer conditions vary, but will usually include conditions such as e.g. the offeror receiving acceptances of the offer of more than a certain percentage of the shares (and possibly also voting rights) in the target company and obtaining of all necessary approvals and clearances, including any competition clearances, on terms acceptable to the offeror. Mandatory takeover offers cannot be made subject to conditions, other than a condition of obtaining requisite regulatory approvals.
What steps can an acquirer of a target company take to secure deal exclusivity?
It is up to the buyer and the seller to negotiate and agree on terms of exclusivity in a private Swedish transaction and terms of exclusivity are regularly discussed between the parties in negotiations of letters of intent and similar transaction documents.
With respect to publicly listed companies, offer-related arrangements in public transactions are normally not permissible in Sweden, with the exemption of confidentiality commitments or undertakings not to solicit the offeror’s employees, customers and suppliers. That said, in order to increase its chance of success, the offeror will often seek irrevocable undertakings from key shareholders of the target company before making an offer. Such irrevocable undertakings are usually discharged if there is a higher competing offer (the percentage increase may be specified), although they may also include a matching right for the offeror. The announcement of the offer must contain information about the extent to which the offeror has received irrevocable undertakings from target shareholders.
What other deal protection and costs coverage mechanisms are most frequently used by acquirers?
In private transactions it is very uncommon (although not unheard of) that the transaction parties agree on break fees or other kinds of compensation in case of a broken deal. With respect to publicly listed companies, offer-related arrangements, e.g. break fees, are normally not permissible in Sweden.
Which forms of consideration are most commonly used?
In private transactions cash is used as consideration in the vast majority of transactions. Consideration shares are however frequently used as partial consideration in transactions where the seller is reinvesting (including any roll-over management investments) in the target company (primarily in private equity deals). With respect to publicly listed companies, the consideration in a takeover offer normally consists of cash or shares in the offeror company, or a combination thereof.
At what ownership levels by an acquirer is public disclosure required (whether acquiring a target company as a whole or a minority stake)?
With respect to publicly listed companies, an offeror (as well as anyone else) is required to notify the Swedish Financial Supervisory Authority and the target company as soon as possible, but at the latest three trading days following the day the change in shareholding occurred, when such change in shareholding entails that the offeror’s holding (including e.g. shares held in treasury and shares held by subsidiaries) reaches, exceeds or falls below any of the following percentages of the target’s total shares or voting rights:
- 5% and every subsequent 5%, up to and including 30%.
The disclosure requirement applies not only to shares, but also to depositary receipts entailing a right to vote for the shares which the depositary receipts relate to, financial instruments which entitle the holder to purchase already issued shares as well as financial instruments having an economic effect similar to that of financial instruments that entitle the holder to purchase already issued shares.
The Swedish Financial Supervisory Authority will make the relevant information public.
At what stage of negotiation is public disclosure required or customary?
For private companies, there is no general obligation to disclose any acquisition to the public (see however question 10 above regarding obligations to consult with trade unions). In transactions involving a publicly listed company, the relevant securities market legislation and stock exchange rules are applicable. Depending on the circumstances, disclosure may become required, e.g. when the Board of Directors of the offeror has resolved to make the public offer.
Is there any maximum time period for negotiations or due diligence?
Are there any circumstances where a minimum price may be set for the shares in a target company?
In private transactions it is up to the parties to agree on the transaction consideration. In case of an offer for a publicly listed company, the offer consideration may as a main principle not be less favourable than the highest price paid by the offeror for any target shares during the six months preceding the announcement of the offer. Further, if the offeror directly or indirectly acquires target shares after an offer has been announced on terms which are more favourable for the holder than the terms and conditions of the offer, the offeror is to adjust the terms and conditions of the offer to a corresponding extent. In addition, if the offeror directly or indirectly acquires target shares within a period of six months after the commencement of payment of the consideration on terms which are more favourable than the terms and conditions of the offer, the offeror is obliged to pay compensatory cash consideration to those who have accepted the offer (however this does not apply if a party other than the offeror has announced an offer to acquire shares in the target company on terms which are more favourable for the shareholders than the terms and conditions in the offer).
Is it possible for target companies to provide financial assistance?
The Swedish Companies Act prohibits Swedish limited liability companies from providing financial assistance for the acquisition of its own shares or shares of companies further up in the same group. The prohibition covers direct funding as well as any provision of security/collateral for such financing. In light hereof, transaction financing documentation normally includes limitation language whereby it is clear that the security provided by a Swedish limited liability company in the target group only refers to what is permissible under Swedish company law. It is also quite common to re-finance the acquisition group after 60 – 90 days after closing at which time it is generally considered that the prohibition for the “target companies” to participate in the financing no longer applies.
Which governing law is customarily used on acquisitions?
Private transactions where the ultimate target company is a Swedish entity will generally be carried out under Swedish law and in our experience this is accepted by international parties. There are, however, no legal requirements that would prevent the parties to use other governing laws if that is preferred.
The transaction documentation is normally drafted in the English language, at least when one of the parties (or the involved financing banks etc.) are non-Swedish and there are no requirements to provide translations of the transaction documentation into Swedish.
For Swedish law transaction documents the arbitration rules of the Arbitration Institute of the Stockholm Chamber of Commerce is normally used as dispute settlement venue.
Public transactions involving a target company listed on a Swedish exchange (or similar) are normally governed by Swedish law.
What public-facing documentation must a buyer produce in connection with the acquisition of a listed company?
Following the launch of an offer for a publicly listed company, the offeror must within four weeks of making the offer public through a press release (although in some cases, the Swedish Securities Council may grant an exemption from the four-week deadline if so requested by the offeror), and before the commencement of the acceptance period, prepare and publish an offer document. The offer document must be filed with the Swedish Financial Supervisory Authority. The Financial Instruments Trading Act and the Takeover Rules include detailed requirements on the contents of the offer document. Additionally, if the offer consideration consists of transferable securities issued or held by the offeror, the content of the EU Prospectus Regulation also needs to be adhered to.
What formalities are required in order to document a transfer of shares, including any local transfer taxes or duties?
A share transfer is normally carried out through a share sale and purchase agreement (long form or short form). The recording of the new owner in the target company’s share register and the physical transfer of the original share certificates (if such have been issued) to the purchaser are legal requirements for third party protection for a share transfer (and to ensure that the buyer gets to enjoy the rights as shareholder). There is no external registration process (notary public or similar for the transfer of shares or assets (other than real estate)) and there is no transfer tax levied on share transfers.
Are hostile acquisitions a common feature?
In Sweden, hostile takeover offers occur quite rarely, mainly as a consequence of the shareholder structure in Swedish publicly listed companies where institutional investors often hold significant stakes, thus the probability of any hostile offer being successful without the recommendation of the target company’s Board of Directors or the support of such institutions being low.
What protections do directors of a target company have against a hostile approach?
In general, it shall be noted that the target company may not without the approval of the general meeting take any measures that are intended to impair the preconditions for the submission or implementation of a takeover offer. However, the target company is always permitted to look for a “white knight”. In a hostile context (i.e. where the offeror is not seeking the recommendation of the target company’s Board of Directors), the process typically involves a significant public angle and may accordingly involve actions by the Board of Directors that relate to public communications and may be of a defensive nature. Furthermore, if the target Board of directors ensures that the stock market is well informed of e.g. the company’s business, financial conditions, result of operations and prospects, on a continuous basis, it somewhat reduces the likelihood of a hostile approach.
Are there circumstances where a buyer may have to make a mandatory or compulsory offer for a target company?
With respect to publicly listed companies, where the holdings of a shareholder (either alone or together with a close related party), as a consequence of a purchase of shares, reaches 30 per cent of the total voting rights in a publicly listed company, the shareholder is obliged to launch a mandatory offer to acquire the remaining securities in the company. However, the obligation to launch a mandatory offer is not triggered if the threshold has been exceeded as a result of a voluntary offer made for all shares and securities in the company. Further, a shareholder who becomes subject to the requirement to launch a mandatory offer may apply for a dispensation from the Swedish Securities Council. Such dispensation may be approved if there are specific reasons (e.g. dispensation has been approved in several cases where the threshold has been exceeded as a result of a subscription of shares in a rights issue). A dispensation by the Swedish Securities Council may be made subject to conditions.
If an acquirer does not obtain full control of a target company, what rights do minority shareholders enjoy?
The Swedish Companies Act entails several minority rights that depend on the minority shareholders’ ownership percentage in the company. Such rights include, inter alia, a right for the holders of ten per cent or more of all shares in the company, or one-third of the shares that are represented at the relevant shareholders’ meeting, to require a special audit. Further, holders of ten per cent or more of all shares in the company may e.g. require an extraordinary general meeting of shareholders to be convened, or a minimum dividend to be distributed (such dividend being equal to 50 per cent of the remaining profit for the year pursuant to the adopted balance sheet following certain deductions; however not in excess of five per cent of the company’s shareholders’ equity).
In addition to the aforementioned, there exists a general principle of equality and equal treatment entailing that all shareholders shall be treated equally and the general meeting may not adopt resolutions, nor may the Board of Directors or any other representative of the company perform legal acts or any other measures, which are likely to provide an undue advantage to a shareholder or another person to the disadvantage of the company or another shareholder.
Is a mechanism available to compulsorily acquire minority stakes?
The Swedish Companies Act provides for a squeeze-out mechanism including both a right for the minority owners to sell and the majority owner to purchase minority shares in a company in case one shareholder’s ownership exceeds 90 per cent of the shares in the company.