The volume of M&A deals in 2011 was on a par with 2010, but the deal value increased sharply in the second quarter due to a handful of large transactions. Over the summer, the M&A activity slowed, almost disappearing in the final quarter. However, there are indicators that the market will gain momentum in 2012.
In private M&A, some of the most significant deals were TPG Capital’s acquisition of a 30% stake in Saxo Bank A/S, a leading online trading and investment specialist, for €389m and the acquisition of a 55% stake in Falck A/S, the Denmark-based provider of rescue and safety services, by a consortium of Danish institutional investors, for €584m.
Few public tender offers for companies listed on NASDAQ OMX Copenhagen were launched in 2011, the most noteworthy being DuPont’s acquisition of Danisco, a global enzyme and specialty food ingredients company, for US$6.3bn and Airbus’s acquisition of Satair, a premier independent distributor of aircraft parts and services, for US$504m.
The legal M&A framework
Private M&A is largely unregulated under Danish law and is therefore based on general contract and corporate law. Due to the market’s limited size, Danish companies and professionals are accustomed to working with foreign buyers and have generally adopted the principles applied in Anglo-Saxon M&A. However, differences in tradition exist.
Public tender offers are regulated by the Danish Securities Trading Act, which implements the EU Takeover Directive. The Danish Financial Supervisory Authority (FSA) is the supervisory authority in respect of such offers. Within four weeks from the public announcement of an offer, the bidder must publish the offer document, which must be approved by the FSA in advance. It is necessary for the bidder to arrange committed financing before a bid is launched. The offer period is four to 10 weeks.
In a voluntary offer, the offeror has a high degree of flexibility in determining the conditions, provided that equal treatment is offered to all shareholders belonging to the same class of shares. More restrictions apply to mandatory tender offers. Objective offer conditions are permitted and typical conditions include:
- Antitrust clearances and other regulatory approvals
- Acceptances in excess of 9/10 of the shares and votes
- The absence of (i) changes in the company’s capital structure and articles of association; (ii) new legislation or court orders obstructing the offer; and (iii) a material adverse change
Deal protection agreements are permissible, but break fees are uncommon although not prohibited. A supportive target board is key to initiate negotiations with larger shareholders for their acceptance of the offer. There are no examples of a public tender offer being completed successfully without support from the target board. Support from the board is also necessary for the offeror to conduct a due diligence investigation of the target.
In order to squeeze out minority shareholders and gain 100% control, the offeror must obtain more than 9/10 of the shares and votes. A delisting of the company can take place once the squeeze-out procedures have been initiated. The squeeze-out process takes about four months to complete.
Apart from foreign ownership restrictions that may apply to certain industries, there are no special rules applicable to foreign buyers, and no restrictions apply to foreign investment. Danish law is very flexible with respect to financing options that are available.
The Danish financial assistance regime is restrictive compared to many other jurisdictions. The main rule is that a target is generally prohibited from providing funds or security for the acquisition financing.
Post-closing distributions are permitted allowing for debt push-downs after completion of the acquisition.
The new Companies Act in 2009 made it possible for the target to provide financial assistance, but due to the onerous legal requirements, this change has been of no importance. With public takeovers, any contemplated post-acquisition distributions must be described in the offer document. Otherwise, with a few exceptions, no distributions can take place during the first 12 months following completion of the offer.
Danish law does generally not require any notarisation, public registration or similar formal requirements to be observed regarding private share transfers. Certain company law actions require filing with the Danish Business Authority, but online filing systems make filing and registration easy.
Employment. In general, the Danish labour market provides a high degree of flexibility, which also applies to takeovers. Notification or consultation procedures may have to be observed, but will not block or postpone a transaction. In an asset deal, the employees will automatically transfer.
In companies with 35 or more employees for the past three years, the employees are entitled to representation on the board of directors corresponding to up to half of the members elected by the shareholders. The overall experience is that employee representation does not present a problem.
Merger control. Danish merger control rules are parallel to the EU merger control rules. When assessing whether a transaction must be notified, it must first be determined whether the transaction constitutes a merger under Danish law.
Second, it must be determined whether the transaction meets the applicable turnover thresholds. The obligation to notify arises once a binding merger agreement has been entered into.
Tax. The corporate tax regime in Denmark is generally favourable with a rate of 25%, with deductions and depreciations, however, being subject to certain restrictions, including thin-capitalisation.
Dividend distributions from Danish companies are tax-free for shareholders holding more than 10% of the share capital for a consecutive period of more than one year and, generally, the extensive Danish tax treaty network allows for reduced taxation.
Mogens Ebeling is a partner at Bruun & Hjejle. He can be contacted at +45 33 34 50 00 or by e-mail at email@example.com.
Andreas Nielsen is a senior associate at Bruun & Hjejle. He can be contacted at +45 33 34 50 00 or by e-mail at firstname.lastname@example.org