NORWAY: An Introduction to Corporate/M&A

Contributed by Ole K. Aabø-Evensen at Aabø-Evensen & Co

The current state of the Norwegian M&A market

The Norwegian M&A transaction volume was up 15% in 2019 compared with 2018, and the 2019 deal figures reached the second highest ever recorded, only surpassed by 2017.

Throughout 2019, industrial players continued to take a large stake of the total M&A volume, and eight out of the ten largest disclosed Norwegian M&A deals for 2019 had industrial or strategic investors on the buy side, which is an identical number to the 2018 deal count. In 2019, four out of the ten largest Norwegian M&A deals involved financial sponsors either on the sell side or on the buy side.

Private equity sponsors were increasingly active in 2019. Compared to 2018, the Norwegian market increased 17.6% in number of transactions involving private equity sponsors (either on the buy- or sell-side), and at the same time, the average reported deal sizes for deals involving private equity sponsors increased significantly. The market continued to be driven by new investments and add-ons, but for 2019, we also witnessed a significant increase in number of private equity exits compared with 2018, while the number of private equity new investments and add-ons was slightly down.

At the beginning of 2020, the TMT, business services and industrials sectors have all shown the strongest momentum in the Norwegian M&A market. However, entering 2020, Norwegian deal activity for the first two months is down in the number of announced deals, dropping 43.3% compared with the same period in 2019. The reported deal values also fell significantly, with the average reported deal value dropping from EUR218.4 million for the first two months of 2019 to EUR19.8 million for the same period in 2020. It remains to be seen whether this simply reflects the normal ebb and flow of deal activity, or if it is a signal of something more. In this regard, note that many businesses are, for the moment, preoccupied with what seems to be an increasing coronavirus epidemic, which has started to take its toll on volatile capital markets, with Oslo Stock Exchange (OSE) dropping around 15% from 20 February 2020 to 6 March 2020. This correction also seems to have an indirect impact on the Norwegian M&A deal volumes, at least on a short-term basis, due to businesses cancelling or delaying travelling plans, hotel stays, business conferences, and sports arrangements, and some businesses also starting to complain about a lack of incoming goods from China, resulting in dropping revenue figures. All of this is eventually expected to have an impact on many businesses’ earning figures for 2020. Still, we remain fairly optimistic for 2020 since the deal pipeline continues to be relatively strong with an increasing number of respondents planning divesting parts of their business operations in the next couple of years. We also expect the coronavirus panic to fade in the coming months, which may indirectly also result in some new attractive transaction opportunities coming to the surface.

News and current legal issues expected to have an impact on doing M&A deals in Norway

The most imminent expected changes to the law that may have an impact on doing M&A deals in Norway are certain amendments to the Norwegian takeover rules proposed by a government-appointed committee in a report issued in early 2019 concerning the rules governing voluntary and mandatory offers, with particular focus on the current securities trading act's limited regulation of the pre-offer phase.

In its report, the committee proposes, inter alia, a new requirement that a bidder must carry out certain preparations before it announces that it will launch an offer to acquire a listed company. The committee also proposes new content requirements for the notification that a voluntary offer will be made, including information on matters of importance for the market's assessment of the offer and for the formation of the price. It is proposed to clarify that the Norwegian Takeover Supervisory Authority (now Oslo Stock Exchange) shall publish such notifications immediately. Furthermore, a new requirement proposed is that the bidder must present a voluntary offer no later than four weeks from the publication of the notice announcing that an offer would be issued. At the same time, it is proposed that the Takeover Supervisory Authority may grant an exemption from this deadline in special cases. The committee proposes that the minimum length of the offer period in voluntary offers shall be extended from at least two to at least four weeks.

The existing main rule that the offer price under a mandatory offer must correspond to the highest consideration paid or agreed by the bidder in the last six months before the mandatory offer obligation being triggered is proposed to be continued. However, the committee proposes a separate regulation setting out rules for calculating the offer price in cases where there is a need for an exception from the above main rule or where it is not possible or reasonable to use the main rule for calculating the offer price. In this regard, it is also being proposed that the offer price should be adjustable if the Takeover Supervisory Authority considers that (i) the stock prices during the period in question have been kept at an artificial level, (ii) the stock purchase which is the basis for the offer price was not carried out on normal “commercial” terms, or (iii) the mandatory offer obligation is being triggered in connection with a restructuring of a company in serious financial distress. In cases of adjustment of the offer price where the stock prices have been kept at an artificial level, or where the stock purchase which is the basis of the offer price was not made on normal “commercial” terms, the committee proposes that the adjusted offer price shall be calculated on the basis of a three-month volume-weighted average stock price.

One of the more controversial proposals by the committee is a new right for the accepting stockholders to revoke their acceptances for a period limited to three trading days after a competing offer is made and disclosed, provided this occurs during the offer period for the original (first) offer. It remains to be seen if this proposal will be upheld by the ministry that is currently reviewing the committee’s proposal.

It is currently unclear when the Parliament can be expected to adopt these amendments into Norwegian legislation. However, we do not expect the proposed changes to be implemented in Norwegian law until 2H of 2020 at the earliest.

From 1 January 2020, the Norwegian Parliament approved amending the limited liability companies legislation aiming to ease Norwegian AS-companies’ ability to provide financial assistance in relation to the acquisition of shares in such companies or their respective parent companies, first by introducing an exemption from the dividend limitation rule applying to an AS-company. However, this exemption rule will only apply if the bidder (as borrower) is domiciled within the EEA area and is part of, or after an acquisition of shares will form part of, a group with the target company. In such situations, the financial assistance may now also exceed the target company’s funds available for distribution of dividend. However, this group exemption will not apply if the target company is a Norwegian ASA-company.

Second, from the same date, the requirement for the buyer (as borrower) to provide "adequate security" for its repayment obligation will no longer be an absolute condition for obtaining such financial assistance from the target company. Having said that, due to the requirement that such financial assistance has to be granted on normal commercial terms and conditions, it cannot be completely ruled out that a bidder also in the future still may have to provide some sort of "security" for being allowed to obtain financial assistance from a Norwegian target company. Nevertheless, as long as it can be argued that the acquisition is in the target company’s best interest and such financial assistance can be justified in the absence of any security, after 1 January 2020 it will now be possible for a target company to grant financial assistance to a bidder without such security.

Note that in order for a target company to grant such financial assistance, certain formalities will still need to be observed.