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Estonia adopts takeover law

11.02.2000

Estonia has taken a giant step closer to the standards of Western corporate and securities law by introducing takeover rules into Estonian law. The amendments to the Estonian Securities Market Act are generally in line with the principles of the EU draft directive on company law concerning takeover bids.

Equal Treatment Guaranteed

The new law states that all holders of shares in the target company of the same class are to be given equivalent treatment. For example, under the stock exchange rules and regulations in the case of allotment, if shareholders offer more shares than the offeror is willing to purchase, then the offeror will have to acquire the shares, that are objects of the takeover bid, by kind and in proportional stakes in relation to the number of the respective securities that are for sale during the period of acceptance. This does not apply in the case of mandatory bids, where the offeror has the duty to buy all shares offered.

Duty to Launch Mandatory Bid Introduced

The new law states that where the person who, as a result of his or her own acquisition or the acquisition by parties acting in concert with him, acquires shares of a listed company which added to any existing holdings and the holdings of persons acting in concert with him directly or indirectly give him a 50 per cent of the total voting rights (controlling interest) in the listed company, is obliged to make the mandatory takeover bid to all remaining shareholders of the listed company to buy all remaining shares.

In the case of mandatory bid the stock exchange involved has the right and duty to determine in cooperation with the offeror an equitable price to be paid for the shares. The rules and regulations of the stock exchange specify several tests to be the basis for determining equitable price, though one may argue the stock exchange is able to exercise some discretion here. On the other hand, the offeror in his or her turn has the right to appeal against the resolution of the stock exchange.

Types of Consideration Payable for the Shares

The new law states that the consideration offered by the offeror should consist of cash or securities. The rules and regulations of the stock exchange specify that securities offered as a consideration should be liquid shares listed in the stock exchange, convertible bonds, bonds and other instruments that are comparable to shares or bonds. In addition, such securities could be offered as a consideration only in cases where the stock exchange finds equal treatment of shareholders ensured and that such securities will be transferred to the shareholders after acceptance of the offers by the offeror.

Obligation on Sufficient Time and Information Imposed

The new law states that shareholders of the target company should have sufficient time and information to enable them to reach properly informed decision on the bid. The minimum period of the bid is 28 days. Under the rules and regulations, the offeror and the target company must give necessary, relevant, correct, precise, complete and identical information to all shareholders for making a decision on the takeover bid. The offeror should give notice of a bid via the information channel of the stock exchange and in national newspapers. In addition, the offeror has to make available the offer document. The offer document, generally speaking, should state the terms of the bid, name of the offeror, specify the shares and consideration to be paid, quantity of shares the offeror would like to acquire, intention with regard to future business of the target company, etc.

Duties of the Board of the Target Company

The new law states that the members of the management board and council of the target company should act in the interests of the company as a whole, and should not deny the shareholders the opportunity to decide on the merits of the offer. The rules and regulations of the stock exchange describe certain activities as improper/unlawful defence measures.

The target company has to issue and disclose a reasoned, written opinion on the takeover bid within fourteen days following the disclosure of the takeover bid. The target company is obliged to ensure access to its written opinion to everybody at no cost.

False Markets to be Avoided

Generally, the notion of the new law is that false markets should not be created in the shares of the target company during the period of takeover bid.

Unreasonable Hindrance in the Activities of Target Companies Prohibited

The rules and regulations of the stock exchange state the maximum validity period for the takeover bid. In addition, separate and longer total time is fixed in case of competing bids.

The new law states that the offeror and parties acting in concert with him should not carry out new takeover bid during one year calculated from the lapse of the takeover bid period.

Supervision, Injunctions and Fines

The new law prescribes that Estonian securities and exchange commission Väärtpaberiinspektsioon has the right and duty to exercise supervision over the due performance under the Securities Market Act. In addition, the stock exchange that lists the shares of the target company has limited power to exercise supervision over the parties and procedure of takeover bid. The stock exchange has the ultimate supervisory power in respect of the control procedure to be carried out before the launch of the takeover bid.

The holder of the controlling interest cannot temporarily exercise his/her voting rights in the listed company, in case that person who acquired the controlling interest in the listed company does not launch mandatory takeover bid as set forth in the statute and rules and regulations of the respective stock exchange. Temporary inability to exercise the voting rights will last until proper mandatory bid is made. Transactions made in connection with unlawful takeover bid are considered void.

In addition to that, Väärtpaberiinspektsioon may request the keeper of the central register of securities to temporarily block the shares of the person who violated the takeover rules of the law. The securities account of the alleged violator should be blocked until violation has been cured. Quite substantial fines could be imposed on the person who breached the takeover rules of the Securities Market Act and/or the rules and regulations of the stock exchange.

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