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Public takeover of companies listed on Euronext Growth

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It has long been anticipated that the flow of new listings on Euronext Growth Oslo in 2020 and 2021, followed by the recent market turmoil, would lead to a number of public takeovers of such companies. Within the span of a few days in the end of May and the beginning of June this year, two takeover offers at this market were announced. Here are the key takeaways.

The takeover offers were made for Ørn Software Holding AS (30 May 2022) and EcoOnline Holding AS (2 June 2022). Both companies are software companies and both takeover offers were made following a structured sales process. Further, the bid premium is significant in both cases, and higher than normally seen in public takeovers of companies listed at the main market of the Oslo Stock Exchange, although the price offered in each case is lower than the IPO pricing. The two offers follow the takeover offer made in March 2022 by Lunar for Instabank ASA, also listed on Euronext Growth Oslo, which differs somewhat from the two more recent offers from a process perspective given the regulated nature of a financial institution.

The takeover process for companies listed on Euronext Growth Oslo is largely unregulated compared to the main markets of the Oslo Stock Exchange. For example, there is no mandatory offer requirement, no minimum or maximum offer period, and no content requirements or approval process for the offer document. Nevertheless, the offers for the two software companies follow broadly the same approach as if the target company had been listed at the main market. An important reason for this is that both are so-called "friendly" takeover offers, where the offer is recommended by the target company and supported by key shareholders. Through negotiating the terms of such support, the board of the target company will be able to ensure that the interests of its shareholders are protected in a similar fashion as if the takeover rules of Chapter 6 of the Norwegian Securities Trading Act had applied.

Conversely, the bidder has been able to ensure that the target company's actions is subject to restrictions during the course of the offer, which would otherwise not have been the case, and also that the board of directors of the target makes a public recommendation of the offer, which is also not required at Euronext Growth Oslo. Furthermore, the bidders have secured pre-acceptances of the offers making the offers more robust when launched.

So what are the key differences in practice between a public offer for a company listed on Euronext Growth and one listed the main market of the Oslo Stock Exchange?

One notable feature, albeit a subtle one, is that the duration of the "price protection period" is one for specific negotiation rather than reliance on established market practice. For companies listed on the Oslo Stock Exchange, it is established practice that all shareholders will enjoy the benefit of a higher price paid by the bidder until the expiry of the mandatory offer period or the initiation of a squeeze-out, given that this in practice is the maximum period that one may agree. The absence of mandatory offer rules at Euronext Growth Oslo leaves the length of the period up the parties' negotiation. In the case of Ørn Software, it was agreed that the price protection would cease upon settlement of the offer, and for EcoOnline, it was agreed that the price protection period would extend to six weeks after the settlement of the offer. In both cases, one could have expected that stronger protection had been required by the target if it had not been for the considerable pre-committed support from shareholders (around 45% in each case), as well as the nature of the structured sales process.

Further, and more importantly, another aspect that impacts the dynamic of takeover offers for companies on Euronext Growth is that no mandatory offer will be required should the bidder decide to complete the offer at an acceptance level between 1/3 and 90%. This makes it far more risky for investors to holdout and wait for a potentially increased offer, since there will be no unconditional follow-up offer should the bidder complete the offer at an acceptance level of e.g. 70%. Instead, the shareholders risk being locked into an illiquid share with a majority shareholder controlling the company. There is also a possibility that the majority shareholder will succeed in delisting the target company from the Oslo Stock Exchange even if the 90% threshold has not been fully reached, which will exacerbate the problems facing the minority shareholders, of course. In the two takeover offers made, both bidders have set a 90% acceptance level condition, but it could be noted that this can be waived without any limitations. One could have considered that the target company added a layer of protection by setting a floor of e.g. 50% or 2/3 for how far down the acceptance level could be waived. However, again, the pre-commitments from shareholders and the nature of the structured process, will have given the board of the target companies comfort in deciding that the offers were fair and should proceed without such protection.

In sum, it could be expected that the differences between the regulatory framework between Euronext Growth Oslo and the main market of the Oslo Stock Exchange will become more apparent in the context of unsolicited or hostile takeovers. In such a setting, both the target and the bidder may be tempted to exploit the regulatory void, both when it comes to what actions the target company may take during the course of a takeover process and, for the bidder, how an offer may be launched and completed without involving the Oslo Stock Exchange or any mandatory offer. Further, to the extent an unsolicited approach eventually results in a transaction agreement and a board recommendation without the same level of support from pre-committing shareholders, one could expect that the target company will consider it necessary to go further in protecting the minority shareholders and restricting the bidder than what was the case in the offers for Ørn Software and EcoOnline.

Thommessen is acting for Ørn Software in the takeover offer by EG Norge AS, and for the shareholders GLQ Holdings (UK) Ltd., StoneBridge 2020, L.P. and StoneBridge 2020 Offshore Holdings II, L.P. in the takeover offer for EcoOnline by Erling Bidco AS. Thommessen also acted for Instabank in the takeover offer by Lunar Bank A/S.

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