There have been no major acquisitions of any listed companies in Estonia for a couple of years already. With the exception of Järvevana (2014), the latest acquisitions date back to the previous decade – Norma (2010), Estonian Telecom (2009), Saku Brewery(2008) etc. Also, considering the importance of OEG for the stock exchange and for minority shareholders (OEG has over 5000 minority shareholders), it is natural that the news of yesterday regarding the intended takeover bid of OEG has brought about lively reflections and comments on the subject.
Firstly, some initial observations.
It’s wise to take one’s time
In accordance with the press release of OEG, yesterday, i.e. on 19 March 2018 an application was filed with the Financial Supervisory Authority for approval of the takeover bid. The Financial Supervisory Authority is to grant its approval within 15 days, and OEG expects to obtain the approval on 4 April.
The approval will be made public together with the prospectus of the takeover bid which will describe the takeover bid and related matters in detail. One may get an idea of such a document and volume of the information on the basis of the previous prospectuses of takeover bids that can be accessed on the website of the Financial Supervisory Authority.
Minority shareholders will have about one month to make their decisions after the approval. OEG has stated that the bidding period will be 4 April – 2 May, which means that minority shareholders will have almost one and a half months from today to evaluate whether they wish to sell their shares or not.
Sell if you wish to sell, if you don’t want to sell, don’t sell
The acceptance of the takeover bid is voluntary for minority shareholders. In this stage of the takeover bid, nobody can force minority shareholders to sell their shares.
The so-called forcing will occur if the bid is accepted by a sufficient number of small investors and as a result the bidder will have over 90% of the share capital of OEG. If the takeover bidder acquires at least 90% of the voting share capital of OEG, the general meeting of the shareholders of OEG may, at the bidder’s request, decide to take over the shares of the remaining shareholders for fair compensation.
For example, in the case of Estonian Telecom, TeliaSonera acquired 97% of the shares in Estonian Telecom in the course of the takeover bid, and after that took over the remaining shares for fair compensation. Afterwards there was a court dispute that lasted for several years over the determination of fair compensation – TeliaSonera believed it to be 5.9 euros, while the minority shareholders believed it to be 10.2 euros, and the court decided that a fair compensation was 6.5 euros.
We should distinguish between two different terms – one of them is the price offered in the course of takeover bidding, and the other is the fair compensation paid upon takeover of shares.
As to the price of a takeover bid, it is set forth by the takeover rules that the purchase price payable for a share shall be fair. As to the definition of a fair purchase price, the takeover bid rules set out also the criteria that have to be taken into consideration in their entirety in order to determine the highest purchase price. In total, there are five criteria, and three of them seem relevant in the case of OEG:
- the purchase price shall be the weighted average of the prices of transactions made with the given share on the market within the last six months or weighed average of the price paid for the share in these transactions
- the purchase price shall be at least 90% of the weighted average of the prices of the respective share in ten trade dates preceding the day when the takeover bid is filed with the Financial Supervisory Authority
- the purchase price shall not be smaller than the book value of the share
The price development shall also be described in the prospectus of the takeover bid.
At the moment, OEG is in the (preliminary) stage of the takeover bid, and as far as the bidder still does not have 90% of the share capital of OEG and has not started the process of takeover of the shares, the talk about fair compensation is yet not relevant. As regard the fair compensation, there are few court cases, most notably the Estonian Telecom case.
OEG leaving the stock market
Any listed company may theoretically at any moment of time convene a general meeting of shareholders and decide to leave the stock market. However, in order to leave the stock market, it is also necessary to obtain the consent of the stock exchange listing committee, and the listing committee has the right to refuse to satisfy the respective request if the committee considers the termination of listing to be substantially damaging to the interests of investors or to the orderly functioning of the market. For example, there is an example in Estonia dating back to the beginning of the years 2000, where a bidder acquired 94% of the shares of a listed company and wished to leave the stock market, but the stock market did not allow it to do so (Sampo/Optiva Pank). Similarly, when Starman carried out its takeover bidding in 2007, the company remained listed for another 1.5 years after the bidding, as a sufficient number of shareholders did not sell their holdings.
As to OEG, the continued listing depends primarily on the percentage of minority shareholders who will agree with the bid. If the takeover bidder acquires over 90% of the share capital and carries out takeover of the shares for compensation, then presumably OEG will leave the stock market. If it acquires less than 90%, it will presumably stay. However, it will be ultimately up to the listing committee to decide whether anyone can leave the market.
Minority shareholders should not panic and wait for more information – especially regarding the issue of whether the offered price is fair to them. Even if everything goes smoothly with the Financial Supervisory Authority, minority shareholders have almost 1.5 months after today to make up their minds.