The Swedish Takeover Code

An annotated commentary

Rolf Skog, Erik Sjöman, Göran Nyström, Robert Ohlsson

• Publisher: Informa Law from Routledge
• Year: 2016
• ISBN:
  9781317269212
• Edition: 1
• Topic: Law
• Subtopic: Financial Law
• Index: Law

The Swedish Takeover Code was first published in the 1970s, with the UK City Code serving as a model. However, the 2011 overhaul of the City Code implemented changes in the UK which brought the City Code closer to the Swedish approach, particularly in regards to procedures surrounding the announcement of offers and possible offers.

Available for the first time in English, this book is the leading commentary on the Swedish Takeover Code. Written by members of the Swedish Takeover Panel, who have been directly involved in the recent overhauls of the code, it is a vital reference for any companies, lawyers, bankers, financial regulators or policy makers participating in mergers and acquisitions involving Swedish stakeholders.

1. Introduction

I Overview of contents

This chapter provides an introduction to the Swedish stock market and the regulation of takeovers in Sweden, including the role of the Takeover Panel. Chapter 2 provides an overview of legal issues typically associated with public takeovers in Sweden. Chapter 3 is a commentary on the Takeovers Act, while in Chapter 4 a commentary is presented on the Takeover Code. Finally, Chapter 5 contains a brief overview of the Takeover Rules applicable to the MTF trading platforms in Sweden, namely Nasdaq First North, AktieTorget and Nordic MTF (the NBK Rules).

It is important to note that the “Commentaries” on the rules in the Swedish Code correspond to the “Notes” on the rules in the UK Takeover Code. Accordingly, in this book the authors’ commentaries on the Code comprise numbered “Notes”.

II The Swedish stock market

The shares of some 300 Swedish companies are currently traded on Swedish regulated markets (namely the main markets of Nasdaq Stockholm AB and NGM). Fewer than 60 large-cap companies account for approximately 90 per cent of the total market capitalisation on Nasdaq Stockholm, with the mid-cap and small-cap companies accounting for the remaining 10 per cent.¹

Historically, private owners have dominated the ownership of Swedish listed companies. In the early 1950s, nearly 75 per cent of the market capitalisation of the Stockholm Stock Exchange (now Nasdaq Stockholm) was directly in the hands of individual investors. The remaining 25 per cent or so was owned by family-controlled foundations, holding companies and (closed end) investment companies, as well as by listed companies themselves, which had significant holdings in other companies. Institutional portfolio investors were practically non-existent at the time.

Two decades later, in the mid-1970s, direct holdings by individual investors had declined to around 50 per cent of total market capitalisation, with that figure dropping to 25 per cent by the mid-1980s. Nowadays, direct shareholdings by individuals account for less than 15 per cent of the total market capitalisation on Nasdaq Stockholm, while institutional investors account for more than 85 per cent.

The institutionalisation of shareholder structures has been due to a number of well-known factors, including collectivisation of capital accumulation (increasingly channelled through institutional investors) resulting from changes in savings, pension and tax legislation. These institutions have, in turn, invested more of their assets in equities. Over a number of years, pension funds, insurance companies, unit trusts and other institutional portfolio investors have been net buyers of shares, while private individuals have been net sellers. In addition, institutions have been over-represented in new share issues, whereas individuals have been correspondingly underrepresented.

Despite this institutionalisation of the ownership structure, most listed companies still have one or more major shareholders. Recent data shows that approximately two-thirds of Swedish listed companies had one shareholder holding at least 20 per cent of the total voting rights in the company. Furthermore, in more than one-sixth of listed companies the blockholder held at least 50 per cent of the votes. These large shareholders are usually actively involved in, and take particular responsibility for, governance of the company, including, importantly, through board membership. This, of course, is an entirely different landscape compared to the United Kingdom and the United States. It is also worth noting that Swedish institutional investors are reasonably active in the governance of the companies in which they have significant investments. However, this is usually not through board representation but, rather, through active involvement in nomination committees and participation at general meetings, etc. Swedish institutions are also often actively involved in rule-making in corporate governance matters. They are, for example, represented on the Swedish Corporate Governance Board and the Takeover Panel. They also frequently publish ownership policies and similar policy documents.

The ownership structure is fully transparent. All Swedish companies must maintain a register of their shares and shareholders. Share registers are maintained by a central securities depository, the only Swedish one being Euroclear Sweden. Since the register is public record (with the exception only of insignificant holdings), information on the ownership structure of a specific company is available to one and all.

Foreign ownership in Swedish listed companies was on a small scale up until the mid-1990s, when Sweden joined the European Union and abolished all restrictions on acquisitions of shares in Swedish companies. Today, more than 40 per cent of the total capitalisation of Swedish listed shares is attributable to foreign ownership. Not surprisingly, the increase in foreign ownership of Swedish listed shares is mainly due to foreign institutional investors having included Swedish equities in their global portfolios. Similarly, due to more liberal investment regulations, during the same period Swedish institutions have reduced the proportion of Swedish shares in their portfolios.

Takeover bids for listed companies, particularly cash offers, are common on the Swedish market.

III The regulation of takeovers in Sweden

In 1971, the Swedish Commerce and Industry Stock Exchange Committee (the NBK) issued a Recommendation on Public Offers for the Acquisition of Shares. NBK’s 1971 Recommendation was based on the UK City Code on Takeovers and Mergers, which thereafter continued to serve as a model and source of inspiration for the NBK in its rule-making work. The 1971 Recommendation was brief, containing three pages of rules and nine pages of explanatory text. The explanatory part emphasised the fact that the chief purpose of the Recommendation was to improve the decision-making basis for shareholders of offeree companies. The Recommendation contained practically no provisions regarding the substance and structure of offers. For example, there were no rules regarding conditions to completion. Other than a provision on defensive measures, the Recommendation contained no rules pertaining to the role of the board of directors of an offeree company.

The 1971 Takeover Recommendation was replaced by a revised version in 1988 which represented a radical overhaul and modernisation. With the 1988 version, the Takeover Recommendation obtained the structure that continues to characterise the principal features of the current rules. The Recommendation still lacked rules regarding conditions to completion. Furthermore, other than the aforementioned defensive measures provision and a suggestion that it might be “appropriate” for the board of an offeree company to issue a statement regarding the offer, there were no rules regarding the role of the board of directors of an offeree company.

Addenda to the 1988 Recommendation were added in 1991 (regarding management buyouts, corresponding to the current Part III of the Takeover Code) and in 1996 (supplementing the existing provisions regarding permissible differentiation in the consideration offered for class A and class B shares).

A new Takeover Recommendation containing rules regarding mandatory bids entered into force in 1999. A provision was also included pertaining to the statement (recommendation) to be made by the board of the offeree company.

Following new revision work, revised rules entered into force in March and September 2003. Provisions regarding conditions to completion were introduced and changes and clarifications were made regarding the binding nature of the rules and offers made under them, and in the rules governing mandatory bids. Provisions were also introduced regarding the offeree company’s involvement in due diligence investigations. The Recommendation underwent a change to name to the Takeover Rules, or (which is the term normally used in this book) the Takeover Code.

On 1 January 2006, the Takeover Code was adapted to the new Swedish Companies Act and the new rules and regulations governing prospectuses which were promulgated in response to the EU Prospectus Directive.

On 1 July 2006, a new Swedish Takeovers Act entered into force together with other regulations cumulatively intended to transpose the EU Takeovers Directive into Swedish law. In connection therewith, the two Swedish stock exchanges, Nasdaq Stockholm AB and NGM, adopted an adapted version of the Takeover Code drafted by NBK.²

The next major overhaul, which was also carried out by NBK, resulted in the exchanges adopting a revised Takeover Code, which entered into force on 1 October 2009.

A minor revision of the Takeover Code was subsequently carried out and entered into force in 2012. Among other things, consideration was given to the relationship between the Swedish rules and the recently implemented prohibition in London against break fees and other deal-protection arrangements (so-called offer-related arrangements). In 2014, yet another revised version of the Takeover Code entered into force containing new provisions governing takeovers structured as statutory mergers, schemes of arrangement, etc. Finally, a further revised version of the Code that entered into force on 1 February 2015 introduced a London-style prohibition on offer-related arrangements as well as a general provision on the binding nature of statements made by the offeror in the context of an offer (no increase statements, no extension statements, etc.). The February 2015 version of the Code, which applies identically on the main market respectively of Nasdaq Stockholm and NGM, is the current version and the one commented on in this book.

Alongside the Takeover Code, equivalent Takeover Rules apply on the MTF trading platforms Nasdaq First North, AktieTorget and Nordic MTF. The latest version of such Rules, the official title of which is the Takeover Rules for Certain Trading Platforms (sometimes also referred to as the NBK Rules or the MTF Rules), also came into force on 1 February 2015. However, those rules do not have the same statutory footing as the Takeover Code and, instead, constitute pure self-regulation.³ In May 2010, NBK’s duties were assumed by the Swedish Corporate Governance Board and, since then, the Board is responsible for the issuance of the NBK Rules. The Board also administers the Takeover Code, although any amendments to the Code must be formally adopted by the stock exchanges.⁴

IV The role of the Takeover Panel

The Swedish securities market has long been known for its prominent self-regulation. The Swedish Securities Council (referred to in this book as the Takeover Panel) was created against the backdrop of an intense public debate on unethical conduct in the stock market in the mid-1980s. The Panel was established in the autumn of 1986. Twenty-five years later, it is a well-established and well-reputed institution in the Swedish stock market. In 2006, certain statutory functions were delegated to the Panel when the regulation of takeover bids was placed on a statutory footing in connection with the implementation of the EU Takeovers Directive. Although, importantly, the work of the Panel covers conduct on the securities market in general and not only takeover bids, the Panel is best described to an international audience as the Swedish equivalent of the UK Panel on Takeovers and Mergers.

The Swedish Panel’s overall mission is to promote best practices on the Swedish stock market. This mission is performed through statements (rulings), advice and information. In this regard, the Panel’s work has no statutory footing but is performed purely on a self-regulatory basis. The Panel may issue statements on its own initiative or at the instigation of third parties. A petition to the Panel may be submitted by any party, for example a listed company or a shareholder. The Panel may examine any action by a Swedish limited company with shares admitted, or awaiting admission, to trading on any of the regulated markets of Nasdaq Stockholm or NGM or by a shareholder of such a company, if the action relates to, or may be of relevance to, a share in such a company. The Panel may also examine such actions by foreign companies with shares admitted, or awaiting admission, to trading on any of the above-mentioned exchanges, insofar as such actions are governed by Swedish rules. Finally, the Panel may try matters relating to companies listed on a multilateral trading facility (MTF) in Sweden.

The Panel may examine planned actions, as well as actions already taken, with a view to determining whether such actions conform to best practices on the stock market. The Panel enjoys complete discretion in determining what constitutes best practice and, in the absence of instructions prescribing factors to be taken into account, the Panel takes into ...

Table of contents

• Cover
• Half Title
• Title Page
• Copyright Page
• Table of Contents
• Preface
• Authors
• Abbreviations and definitions
• Table of legislative history, etc.
• Table of literature
• Table of case law, etc.
• 1 Introduction
• 2 Overview of legal issues associated with public takeovers in Sweden
• 3 Commentary on the Takeovers Act
• 4 Commentary on the Takeover Code
• 5 Takeover Rules for Certain Trading Platforms
• Appendices
• Index