According to the Norwegian Securities Trading Act (the “NSTA”), the offer price in a mandatory bid shall be at least as high as the highest consideration that the offeror has paid or agreed to pay during the six-month period preceding the time when the bid was triggered. However, if it is clear that the “market price” at the time the obligation to make a mandatory bid is triggered is higher than the highest consideration paid by the offeror during the preceding six months, the offer price shall be at least as high as the “market price”. In such case, the price in the mandatory offer can be adjusted upwards by the regulator without allowing the offeror an opportunity to withdraw the bid. Although this provision has never been employed in practice in circumstances where the bid was triggered by a bona fide purchase of shares, it has caused considerable legal uncertainty for potential offerors.
This provision has recently been the centrepiece of a request for an advisory opinion from the EFTA Court (the EFTA/EEA equivalent of the European Court of Justice). Thommessen has argued on behalf of our client in an on-going case before the Norwegian Courts that the provision fails to implement correctly the requirements of Article 5(4) of Directive 2004/25/EC of the European Parliament and of the Council (the “Directive”). The Directive defines the equitable price payable in a mandatory bid as the highest price paid by the offeror or persons acting in concert with the offeror over a period, to be determined by member states, of not less than six and no more than 12 months before the bid. However, the Directive allows the Member States’ authorities to adjust the highest price paid or agreed to pay during the relevant period “in circumstances and in accordance with criteria that are clearly determined”. We argued that an adjustment of the highest price paid, based solely on a reference to the “market price”, does not meet these requirements of the Directive.
The Court’s decision
The EFTA Court ruled that the criterion used by national legislation at hand, “market price at the time when the obligation to make a bid arises”, gives no indication whether or not the price must be a volume-weighted average, whether actual trades are necessary or standing buy or sell orders suffice and on the time interval which is relevant. Thus, a reference to the criterion used by Norwegian legislation cannot be considered to constitute circumstances and criteria which are clearly determined, as required by the Directive. Nor is there sufficient clarification in comments such as those found in the preparatory works.
This is the first court decision giving guidance to member states on the interpretation of the Takeover Directive rules.
Consequences under Norwegian law
The immediate consequence of the EFTA Court’s ruling is that the provision of the NSTA must be interpreted in accordance with the ruling. Thus, where the offer price can be established on the basis of the highest consideration that the offeror has paid or agreed to pay during the six-month period preceding the time when the bid was triggered, the provisions regarding an adjustment based on a “market price” are not applicable.
However, the non-availability of the “market price” alternative does not imply that potential bidders may seek to establish an artificially low offer price (based on the 6 month rule). Such practices may be deemed to contravene other provisions applicable to take-over bids and the general prohibition in the NSTA Section 3-9 against “unreasonable business methods”. An investor violating this provision might be liable to indemnify the economic loss the shareholders endure as a consequence of such actions.
It is expected and likely that the Norwegian legislator will revise the NSTA in accordance with the ruling of the EFTA court, to meet the requirements of the Directive. The result of the revision is of course unknown at the present time, but it is likely that the legislator will seek guidance from legislation in force in other EEA member states.