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The occurrence of “inside information” related to a company with listed securities triggers a wide range of duties and prohibitions, including not only a prohibition on insider dealing, but also a duty on listed issuers to disclose inside information to the market. Recent precedents confirm that inside information may occur at a very early stage of a takeover process.

Inside information

Inside information is defined as precise information relating to financial instruments, the issuer of such instruments or other circumstances that may noticeably influence the price of such financial instruments, or related financial instruments, and that is not publicly available or generally known in the market. Two essential criteria must be met in order for non-public information to fall within the scope of the definition: the information must be of a precise nature; and the information must be likely to influence the price of the instruments noticeably.

The requirement that non-public information must be likely to noticeably influence the price of the relevant instruments refers to the so-called “reasonable investor test” – non-public information that a reasonable investor would be expected to take into account in making his investment decisions should be regarded as inside information.

This precise requirement is meant to exclude rumours and speculation, but may include a broad variety of circumstances that may already have occurred, or that may reasonably be expected to occur, and that are sufficiently specific in order to draw a conclusion about the possible effect on the price. The information does, however, not need to be complete, clear, final or unconditional in order to fall within the scope of the definition and be regarded as inside information. Information about planned and ongoing takeover processes, or relating to ongoing merger negotiations, may constitute inside information.

Territorial scope

The territorial scope of Norwegian insider legislation covers behaviour occurring anywhere in the world relating to financial instruments that are listed, or are pending listing, on a regulated market in Norway, including both to on- and off-exchange trading. The prohibition also covers insider dealing occurring in Norway relating to instruments listed on regulated markets within another European Economic Area member state.

Criminal insider dealing

Prosecutions on insider dealing have in past years resulted in convictions of individuals that have engaged in insider dealing prior to, or during the course of, takeovers. Case law suggests that insider dealing is becoming more heavily punished. Inside information relating to planned takeovers is, according to case law, deemed to exist at an early stage of such processes, which in turn triggers early dealing restrictions.

A conviction for insider dealing illustrates that even plans to present a takeover bid that have not yet been adopted by the offeror may be regarded as sufficiently specific and precise information, and constitute inside information if such plans are being supported by a director or member of management with influence in the company.

Disclosure obligations

The board of the Oslo Stock Exchange announced on 24 May 2007 a decision relating to handling of inside information with respect to the Hydro/Statoil merger process (both listed offshore operating companies). Hydro and Statoil had on 18 December 2006 disclosed to the market that their boards of directors had agreed to recommend to their shareholders a merger of Hydro’s oil and gas activities with Statoil.

The companies were criticised by the Oslo Stock Exchange for not having informed the exchange of their delayed disclosure of inside information relating to the ongoing merger process. The two companies claimed that information relating to the process did not constitute inside information before 16-17 December, and that no breach of the companies’ duty to disclose inside information to the market, or to inform the exchange of their decision to delay disclosure of such information with reference to their legitimate interests, had occurred.

The exchange disagreed and said the two companies had been in contact and explored the possibilities of a merger over a long period of time. Meetings had taken place between the management of both companies, and the chairmen of the boards of directors of both companies had been informed about the talks.

Inside information was therefore deemed by Oslo Stock Exchange to have existed no later than 14 December 2006. At this stage, both boards of directors had approved entering into merger negotiations. The exchange said information relating to the process at this stage was sufficiently specific in order to draw a conclusion on the potential effect of a possible merger on the price of the shares of both involved companies, and constituted inside information. The exchange also said that previous unsuccessful merger talks between the same companies in 2004, and market speculation of merger talks being reinitiated, indicated that specific information about contact between the companies was likely to be highly price-sensitive.

Shareholdings

If a person, entity or group agrees to acquire or dispose of shares or rights to shares – including voting rights and lending of shares – of a listed public company with Norway as its home member state, and this results in its aggregated ownership exceeding – or falling below – 5%, 10%, 15%, 20%, 25%, one-third, 50%, two-thirds or 90% of the voting rights or total number of shares outstanding in the company, the regulated market must be notified immediately. The same applies when the shareholder becomes aware of other circumstances that result in passing any of the above thresholds.

Primary insiders

Members, deputy members and observers to the board, senior employees, members of the control committee, the company secretary and the company’s auditor must notify the regulated market immediately of any purchase, sale, exchange or subscription by them, or by any connected persons, of shares or certain other financial instruments in the company or in its group, to which they are related. This also applies to the listed company’s trade in its own shares and shares of group companies, as well as to senior employees and members of the board in group companies that normally have access to inside information related to the listed company. Companies that because of their ownership of shares in a listed company are represented on the board of that company are also subject to the notification requirements.

Geir Sviggum is a partner at Wikborg Rein in Shanghai and Arne Didrik Kjørnæs is a senior partner at Wikborg Rein in Oslo. Tormod Ludvik Nilsen, a senior associate at Wikborg Rein in Shanghai, also contributed to this article