The Danish M&A market was extremely active in 2021 and more active than 2020 (or any other year in recent history) measured both by number of transactions and deal value.
What made 2021 stand out as a record year in terms of M&A activity was not only the increased number of transactions and estimated total deal value, but also the variety of the deals. Many industries were involved and the seller/buyer landscape was very diverse.
Transaction types ranged from traditional private M&A transactions to minority/partnership deals to growth capital transactions and even a limited number of public M&A transactions with significant cross border elements.
Some of the most notable transactions in the Danish market in 2021 include:
In general, the COVID-19 pandemic did not affect the Danish M&A market negatively. Complex cross-border deals were completed seamlessly despite the pandemic. While industries such as physical retail, hospitality and food and beverage (F&B) were negatively affected due to lockdowns, other industries benefitted from such measures, eg, e-commerce and construction (including suppliers).
It remained a key trend for the Danish M&A market that it was dominated by private M&A deals and that significant public M&A transactions were rare.
A number of investment companies controlled by Danish commercial foundations and/or families (eg, Novo Holdings, A.P. Møller Holdin and Kirk Kapital) have become more visible in the Danish market. They provide long term capital and deep knowledge and network with selected industries. They do principal investments in majority stakes and take part in consortium deals as minority investor. They are active in Denmark and abroad.
It continued that some targets with IPO potential seek reputable, international minded minority investors in structured processes as a first step to a full or partial exit by way of trade sale or IPO. Nordic Capital’s investment in Leo Pharma and EQT’s investment in 3Shape are good examples. Further, a drive for consolidation remained within the Nordic insurance sector and as well as the Danish banking sector.
W&I insurance is normally used in structured M&A processes. We see a good range of underwriters that offer competitive prices and terms.
Throughout 2021 there has been significant interest in Danish assets within industries where Denmark has a strong reputation. Such industries include:
While industries such as physical retail, hospitality and F&B were negatively affected due to lockdowns, other industries benefitted from such measures, eg, e-commerce (consumer goods), and construction (including suppliers).
An acquisition of a private company is typically completed as an acquisition of shares as this is generally considered simpler and more tax efficient than an asset transfer. Both types of acquisitions are documented by a purchase agreement the format of which depends on the parties involved and the size and complexity of the transaction. Corporate mergers may also be used for business combinations, but this is rarely seen.
An acquisition of a public company will usually take place as a public takeover (voluntary or mandatory), which is documented by an offer document. Provided that the bidder obtains more than 90% of the shares and votes in the company, the bidder is, according to Danish law, entitled to complete a squeeze out of the minority shareholders.
In Denmark, private M&A activities are mostly unregulated.
The Danish Financial Supervisory Authority is the supervisory authority in respect of public takeovers, issuance of prospectuses and compliance with the market abuse regulation.
The Danish Business Authority is the relevant authority with to the various corporate actions that are usually necessary in connection with an acquisition, eg, registrations related to direct and indirect ownership, amendments to the target’s articles of association, registration of changes to the management, capital increases, and mergers.
In relation to antitrust regulation, filings need to be made with the Danish Competition and Consumer Agency or the European Commission, as applicable. Individual filings in other jurisdictions may be required.
Certain targets will hold licences to conduct particular types of businesses, eg, debt collection, telecom, insurance, and banking. Regulatory approvals may be required when obtaining control of such businesses.
On 1 July 2021 the Danish Act on screening of foreign direct investments (the “FDI Act”) entered into force and fully applies to foreign direct investments made on or after 1 September 2021. The Danish FDI regime is based on the EU (2019/452) regulation on screening of foreign direct investment and implements a two-tiered screening mechanism:
The mandatory filing obligation is triggered by the acquisition of control (either through a "qualified share" in or a special financial economic agreement) with a Danish undertaking active within a "particularly sensitive sector or activity". A qualified share is control over more than 10% of the shares or voting rights or equivalent control and increases of shares or voting rights exceeding thresholds of 20%, one third, 50%, two thirds and 100%.
There are five particularly sensitive sectors and activities in Denmark:
It is the responsibility of the foreign investor to make the filing with the Danish Business Authority and provide comprehensive information and documentation regarding the investment, the target and the foreign investor. There are no filing fees or execution formalities (provided a qualified lawyer in Denmark makes the filing on the foreign investor’s behalf). In unproblematic cases, the foreign investor can currently expect a decision within five to six weeks.
The Danish merger control regime is laid out in the Danish Competition Act and is based on the principles of the EU Merger Regulation, why the Danish merger regulation to a large extent is similar to the EU merger rules. The Danish merger rules are generally interpreted in accordance with EU law and practice from the European Commission and the European courts. The concept of a concentration (ie, definition of a merger) as well as the substantive test (the assessment of a merger) is equivalent to the concept and test under EU law.
As under EU merger control, the Danish merger rules apply to mergers and full-function joint ventures that meet the thresholds for notification. If the thresholds are met, a stand-still obligation applies, and the concentration must not be implemented (“gun-jumping”) before the merger has been notified and approved by the Danish competition authorities.
Concentrations must be notified to the Danish Competition and Consumer Authority where:
Besides the Danish merger control rules, the restrictions in Danish competition law against anti-competitive agreements apply to transaction processes.
Accordingly, during negotiations, under a due diligence process and in the period between signing and closing, the parties to the transaction must not engage in anti-competitive practices such as the exchange of competitively sensitive information. In practice, this is handled by establishing so-called “clean team” procedures when a merger involves competitors.
Share Sale
A share sale generally has limited effect on employment relationships as they are not directly affected by the sale. Danish rules on consultation and information will generally not apply if no material changes are made in connection with a share sale.
Asset Sale
An asset sale makes an assessment of the applicability of the Act on Transfer of Undertakings (TUPE) relevant. In particular, whether the transferred assets qualify as an economic entity, which is a requirement for TUPE to apply.
The Act on Transfer of Undertakings (TUPE)
Under TUPE, employment relationships automatically transfer with the business, and the acquirer assumes the rights and obligations towards the transferring employees. In connection with a transfer of a part of a business (carve out), attention should be paid to employees, who are partially working with the transferred activities or indirectly affected by such transfer. Such employees may be eligible to transfer with a part of their working hours or tasks.
Reductions in force and changed employment terms, including changes constituting constructive dismissals in relation to a transfer are permitted under TUPE on economic, technical, or organisational grounds.
Information and consultation requirements must be observed in connection with the transfer of employees. Reductions or constructive dismissals affecting at least ten employees may trigger special information and consultation procedures.
Collective bargaining
If work comprised by an asset sale is subject to collective bargaining, the acquirer has the option of opting out of the applicable collective agreements, provided certain procedural requirements and deadlines are observed. The entitlements awarded to employees under the collective agreements remain in effect until the expiry of the term of the collective agreement as individual employment terms. After the expiry date, the individual employment terms may be modified under the general rules for changing employment terms.
Restrictive Covenants
Restrictive covenants (non-competition and non-solicitation of business restrictions) are permitted within a comprehensive employee protective framework, including capped duration and compensation requirements.
Non-poaching of employees restrictions are enforceable in connection with share and asset sales for a period of six months following closing.
Incentives
Salaried employees are entitled to pro-rated cash bonus in a termination scenario without consideration to bad leaver conditions.
In connection with certain types of retention bonus, bad leaver conditions on the forfeiture of bonus may be enforceable.
Several categories of share-based incentives permit full or partial forfeiture for leavers. In certain circumstances, an obligation on the employee to sell back shares comprised by the incentive scheme at a price below fair market value will be void. This is not an issue in respect of publicly traded shares.
As mentioned above, the FDI Act requires that certain transactions must be filed to and approved by the Danish Business Authority. If the Danish Business Authority decides that the completion of the transaction should be denied, the Danish Business Authority must refer the case to the Minister for Industry, Business and Financial Affairs, who is authorised to deny the completion of the transaction if the transaction threatens national security or public order.
Court Decisions
Litigation in connection with public M&A deals is fairly uncommon in Denmark.
Litigation in respect to private M&A deals is also uncommon, although claims against W&I insurers seems to be tested at the moment. As most private M&A deals are subject to arbitration clauses, inter alia due to the confidential nature of such disputes, very little public information on such disputes is available.
Legal Developments
In July 2020 a new Danish Takeover Order (the "new Takeover Order") entered into force. As something new, it introduced, inter alia, the following.
In addition to the above, in January 2020, Nasdaq issued more flexible rules for delisting companies, as Nasdaq will now meet a delisting request if a valid resolution has been adopted by the general meeting, passed by at least 90% of the votes cast as well as the share capital represented at the general meeting.
Previously, the rule contained considerable discretion for Nasdaq to decide on a delisting request based on an assessment of the impact on the investors’ interests and the proper functioning of the market. Thus, the new rules set out more objective criteria.
There have been no significant changes to the Danish takeover regime in the past 12 months. The latest changes in Danish takeover law were seen on 1 July 2020 (see 3.1 Significant Court Decisions or Legal Developments).
In respect to public takeovers, it is not uncommon for the bidder to have built up a stake in the target company prior to launching the offer. As long as the bidder is not in possession of inside information – which may be the case if the bidder has already been granted permission to carry out due diligence of the target – the bidder is free to buy shares and thereby increase its stake in the target.
The bidder should be aware that in both a voluntary and mandatory offer, the bidder will be required to raise its offer price, if – during the offer period and up to six months after – the bidder acquires shares in the target company at a higher price.
In addition, the price offered in a mandatory offer must, at a minimum, correspond to the highest price paid by the bidder for shares in the target company during the six preceding months. This rule is sometimes exploited by bidders, who deliberately use stakebuilding (at market price) to trigger a mandatory offer, which can then be carried out without a premium. Following the completion of the offer, the bidder will not be required to complete another mandatory offer irrespective of the outcome of the takeover. If the bidder had completed a voluntary offer and acquired between one third and 50% of target, the bidder would be required to complete a mandatory offer following the voluntary offer.
Any person directly or indirectly holding shares in a listed company must notify the company and the Danish Financial Supervisory Authority when their holding of shares reaches, exceeds, or falls below 5%, 10%, 15%, 20%, 25%, 50% or 90% or one third or two thirds of the voting rights or shares capital of the company.
However, this does not apply to an issuer directly or indirectly holding own shares, who instead must publish a notice to this effect when its holding of own shares reaches, exceeds, or falls below 5% or 10% of the voting rights or shares capital of the company.
When building a stake in a target company, the bidder should consider the following aspects.
Under Danish law, dealings in derivatives are allowed, subject to reporting and disclosure obligations.
Any person directly or indirectly holding instruments giving unconditional rights to acquire shares and derivative financial instruments having an economic effect comparable to holding shares in a listed company must notify the company and the Danish Financial Supervisory Authority when the holding of such instruments reaches, exceeds, or falls below 5%, 10%, 15%, 20%, 25%, 50% or 90% or one third or two thirds of the voting rights or shares capital of the company. Only long positions are taken into account when calculating voting rights. Long positions cannot be netted with short positions that have the same underlying issuer.
There is no general obligation to make known the purpose of an acquisition or any intention regarding control of the company.
A bidder must publish its intention to launch a voluntary offer as soon as possible following the bidder’s decision to submit such offer.
In addition, the bidder is required as soon as possible and no later than four weeks after the publication of a voluntary offer or the acquisition of a controlling interest to publish a takeover document in which information on the bidder’s intentions with the target company and strategy with respect thereto must be included.
The obligation to launch a mandatory offer must be published as soon as possible after the bidder’s acquisition of a controlling interest.
Whether a transaction needs to be disclosed to the public under Danish law, depends on whether a listed company is participating in the transaction.
Purely private M&A deals need not (as such) be disclosed to the public. However, legal requirements to register the change of ownership in the Danish public business register and other filing requirements (eg, antitrust) will entail the transaction becoming public.
If a listed company participates in the transaction (either as the seller, the buyer, or the target), information related to the transaction must be disclosed in accordance with the EU Market Abuse Regulation (MAR) when – but only if – the information constitutes inside information. This will usually occur at some point during the negotiation phase, but the issuing company may be entitled to delay the disclosure until the deal has been signed, provided that the delay conditions set out in the market abuse regulation are fulfilled (eg, confidentiality must be ensured).
In the case of a takeover, the mere approach by a bidder to the listed company’s board may be regarded inside information depending on the firmness of the approach (see 7.1 Making a Bid Public).
Market practice on the timing of disclosure is in line with the legal requirements set out in MAR. It is often debated between practitioners when a transaction reaches a stage where information regarding the transaction becomes inside information and whether disclosure of such information by the target can be delayed.
In larger private M&A deals, a full scope legal due diligence of the target will be customary. The legal due diligence may be in the form of a vendor due diligence, which is topped up by the buyer, or by a full buyside due diligence.
As warranty and indemnity (W&I) insurance is usually taken out in connection with larger private M&A deals, the scope of the due diligence is likely to be affected by the underwriter’s requirements to the level and scope of due diligence.
In a public takeover situation, a (non-hostile) bidder will often be granted access to complete a light legal due diligence, which focuses on material issues, eg, business sensitive matters and/or litigation. A bidder may also have completed a (outside-in) due diligence of all public matters relating to the target.
In connection with a public takeover, a standstill obligation will usually be demanded by the target’s board of directors. A bidder will generally accept a standstill obligation to facilitate discussions between the bidder and the target and to mitigate the risk of insider trading.
A bidder is similarly interested in demanding exclusivity. If accepted by the target’s board of directors, it will usually – due to the board’s fiduciary duties to act in the company’s best interest – contain a carve out for competing offers that present a better price.
In connection with a public takeover, it is permissible for the bidder and the target to document the agreed terms in a definitive agreement. It is usually seen in larger transactions, but it depends on the circumstances.
The length of the process relating to acquiring or selling a business in a private M&A transaction largely depends on the type of transaction and the size of the target.
Most structured processes in Denmark are completed within three to six months’ time, excluding preparatory work. However, as most structured processes require thorough preparation, including gathering information for a data room and completing legal and financial vender due diligence processes, the full process may take as much as one year to complete.
A more simplified transaction may be completed in less than three months (which assumes a simultaneous signing/closing).
If the takeover of a listed company is carried out as a takeover, the timing is affected by the Danish Takeover Order, which sets out that the offer period must be at least four weeks and no more than ten weeks. Any antitrust filings may extent the period for up to nine months from the publication of the offer document.
In connections with COVID-19, government lockdown measures in Denmark have generally been less severe than measures taken in many other countries. Most of society remained relatively unaffected with the exception of certain sectors, and this, combined with a quick adjustment to electronic communication, means that M&A processes have been fairly stable.
In public M&A transactions, a mandatory offer threshold under Danish law is reached when one or more persons acting in concert obtain controlling influence of the listed company.
Controlling influence is reached when the person(s) obtain(s) ownership or control of a third of voting rights in a listed company, unless it in extraordinary circumstances can be established that this ownership or control of voting rights does not constitute controlling influence of the listed company.
Furthermore, controlling influence is obtained if the person(s) has/have the ability to control a third of the voting rights in the company via an agreement with other shareholders or if they have the power to appoint the majority of the board of directors.
In a private company setting, the same mandatory offer threshold does not exist. However, in a situation where a single shareholder holds more than nine-tenths of the shares and voting rights of a limited liability company, any minority shareholder will be entitled to demand a redemption of its shares by the majority shareholder.
In private M&A transactions, cash is the primary method of consideration, although re-investment schemes are often seen as a way to bridge the financing. Earn-out provisions or indemnifications (in case of a specific risk) may be used if the parties cannot agree on the value of a target. Although often discussed, earn-out provisions are rarely incorporated.
In a public takeover scenario, the primary method of consideration is cash. A bidder is entitled to offer both cash or shares and a combination thereof, except in the case of a mandatory offer, which must include a cash alternative if shares offered are not liquid shares in a company listed on a regulated market, or if the bidder has acquired at least 5% against cash within six months prior to the offer.
A shareholder holding more than 90% of the shares and the votes in a company will be entitled to complete a squeeze-out of the remaining shareholders. Such squeeze-out must be completed by offering cash.
While a mandatory offer must be unconditional, voluntary offers may be conditional as long as the conditions are not within the control of the bidder. Common conditions are, eg, a minimum acceptance threshold of more than 90% (due to the squeeze out option) and regulatory conditions.
If a bidder in a voluntary offer acquires between one third and 50% of target, the bidder is required to complete a mandatory offer following the voluntary offer. Consequently, an acceptance threshold above 50% will usually be included in a voluntary offer.
It is very common that the minimum acceptance condition is set at more than 90% of the shares and voting rights as this is the threshold for effecting a redemption of the remaining minority shareholders under the Danish Companies Act. In addition, the threshold for effecting a delisting is 90% of the vote cast at a general meeting.
Other relevant thresholds are two thirds of the shares and voting rights or just above 50%. Two thirds of the shares and voting rights is sufficient to complete most amendments of the articles of association and to effect capital increases or mergers. A simple majority of shares and voting rights is sufficient to control most decisions at the general meeting, including the appointment of directors.
Neither a mandatory nor a voluntary offer may be conditional on the bidder obtaining financing. Prior to the announcement of a mandatory or a voluntary offer, it must be ensured that the bidder can fully meet any requirement regarding consideration in cash. Furthermore, the bidder must also have taken all reasonable measures to ensure that any other form of consideration, eg, share consideration, can be paid.
The most common deal security measure used by bidders in public M&A transactions is non-solicitation provisions and matching rights. Break-up fees legally permissible (if reasonable), but not commonly used in the Danish market and often rejected by targets with reference to the board’s fiduciary duties.
Managing pandemic risk has not led to new contractual tools. MAC conditions are sometimes used and GAP covenants have been tailored to protect against pandemic risk in an interim period.
There has been no changes in the regulatory environment leading to changes in interim periods.
In private M&A transactions it is common for the shareholders to enter into a shareholders’ agreement where additional terms can be arranged, including rights to appoint members of the board of directors and veto rights concerning certain proposals put forward at the general meeting. It is, however, important to notice that under Danish law a shareholders’ agreement is generally not binding on the company. A breach of contract must therefore be handled separately between the shareholders.
In a listed company, it is uncommon for certain shareholders to be provided with additional governance rights. It is possible to build special governance rights into the articles of association, but this is rarely seen outside the context of restructurings.
Shareholders have the opportunity to vote by proxy in Denmark, and such a right cannot be restricted in a limited liability company. If a shareholder wishes to vote by proxy, a dated power-of-attorney must be provided in writing. The power-of-attorney can be given to a specific person or to the holder of the power-of-attorney, it does not need to be limited in time, and it can be withdrawn at any time.
If a single shareholder owns more than 90% of the shares and voting rights in a limited liability company, the shareholder may demand that the remaining minority shareholders have their shares redeemed in accordance with the Danish Companies Act.
In a squeeze-out following the completion of a takeover offer, the redemption price should be calculated in the same way as the price in the offer unless a minority shareholder requests that the price be determined by an independent expert.
In connection with a public takeover, bidders may obtain irrevocable commitments from larger shareholders as an alternative to stake building.
Depending on the shareholder structure and the transaction, the bidder may enter into irrevocable commitments prior to contacting the target’s board of directors in order to put pressure on the board. It is also seen that the bidder enters into irrevocable commitments following discussions with the board and in such case with the board’s blessing.
Irrevocable commitments will usually contain an out in case of competing offers that present a better price.
Private M&A transactions are not required to be made public but are often disclosed by the parties involved through a press release, either at signing or at closing. As previously mentioned, antitrust filing, registration of ownership in the public register and other corporate actions will preclude the option of keeping the transaction secret.
Inside Information
As mentioned in 5.1 Requirement to Disclose a Deal, a transaction may be regarded inside information if a listed company participates in the transaction (either as the seller, the buyer or the target). To the extent the transaction constitutes inside information, disclosure of the transaction must be made no later than at signing and cannot be postponed based on any required regulatory approvals.
In the case of a public takeover, the mere approach by a bidder to the listed company’s board may be regarded inside information depending on the firmness of the approach. In a recent ruling relating to inside information in connection with a takeover, the Danish Financial Supervisory Authority (Danish FSA) stated that even an indicate offer should be considered sufficiently serious to be deemed inside information. In the present case, the indicative offer was made by a consortium of a global financial service group and three large Danish pension funds, and the indicative offer was made after a thorough examination of the company and the Danish market. In addition, the indicative offer was already fully financed.
Public Takeover
For public takeovers, the Danish Takeover Order stipulates that a takeover offer must be made public. A bidder launching a voluntary offer, must disclose its intention to do so as soon as possible following the bidder’s decision to submit such offer. In case of a mandatory offer, the bidder must disclose the obligation to launch a mandatory offer as soon as possible after the bidder’s acquisition of a controlling interest (see 6.1 Length of Process for Acquisition/Sale for the definition of “controlling interest”).
As regards the manner in which the announcement must be made, the Danish Takeover Order prescribes that the announcement must be made by means of a notice which via electronic media reaches the public in the countries where the target company’s shares are listed on a regulated market.
In the event of an issuance of shares in a M&A transaction, the following types of disclosure are relevant depending on the type of transaction.
Neither in private nor public M&A transactions, the bidder is required to disclose or produce financial statements for the bidder.
However, in public M&A transactions, the bidder is required as soon as possible and no later than four weeks after the publication of a voluntary offer or the acquisition of a controlling interest to publish an offer document in which information on the target company’s current activity and key figures from the most recently published financial statement of the target company and the most recently published financial expectations for the target company in the current financial year must be included.
Private M&A Transactions
In private M&A transactions, no transaction documents are required to be disclosed in full.
Public M&A Transactions
In public M&A transactions, the takeover document and a statement from the target company’s Board of Directors containing the Board of Director’s reasoned position on the offer must be disclosed. No other transaction documents need to be disclosed in full. However, as the takeover document must contain information on the parties, the offer price, the consideration, any conditions (only in a voluntary offer) and applicable law, etc, some main terms of other transaction documents will as such be included in the takeover document.
The duties of the directors are primarily owed to the shareholders of the company as a whole. This also entails that the management is not allowed to take any action that is likely to provide certain shareholders or others undue advantages over other shareholders or the company.
In a public takeover, it is not common for the board of directors to establish special or ad hoc committees.
Corporate mergers between one or more listed companies are rarely seen, but in such cases, it will be common to establish a special committee to negotiate the deal and to plan for integration, assess separation issues and synergies and/or to handle conflicts of interest.
Case law has in recent years strongly indicated the application of the business judgement rule under Danish Law. The Danish Supreme Court has in cases concerning management liability stated that the court should be cautious to hold management liable when a business judgement has been made. This caution presupposes that the management is acting solely in the interest of the company and that the business judgement is made on a well-informed basis.
Although there is no case law concerning the business judgement rule in takeover situations, it is presumed that the same caution would apply under those circumstances.
Any transaction – private or public – will generally require external legal involvement. Financial advisers will usually also be involved together with an accountant.
In public M&A transactions, it is common for the management of the target to retain independent financial advisers to issue fairness opinions and provide support concerning valuation issues.
The principle of conflict of interest amongst directors and managers are well-established and are regulated in the Danish Companies Act.
Under the Danish Companies Act, no member of the board of directors or the executive board may take part in the process concerning an agreement between the limited liability company and the member themselves as well as discussions regarding lawsuits against the member themselves. Furthermore, a member is not allowed to participate in discussions regarding agreements between the limited liability company and any third party or discussions about lawsuits against a third parties, if the member has a material interest which may conflict with the interest of the company.
Whilst the rules of conflict of interest do not apply to shareholders, the members of the management appointed by a majority shareholder may be in a conflict of interest in situations where the interests of the limited liability company and the majority shareholder are in conflict. The consequences are that a member of the management may be obliged to withdraw from the board consideration of certain transactions.
As to the advisers of the company, these will usually ensure that conflict considerations are made prior to them accepting to be retained in the first place.
Hostile tender offers are permitted in Denmark, but they are not common, since bids usually follow a formalised auction process and (friendly) negotiations with the board of directors of the target company.
Use of defensive measures by the directors are allowed under Danish law. Subject to the duties of the management, the directors must, however, be aware of potential risks of becoming liable when utilising aggressive measures, such as issuing new shares to a friendly third party or using “poison pills”. Other and less aggressive ways of using defensive measures include denying a due diligence review and recommending that shareholders decline the tender offer.
As hostile tender offers generally are quite uncommon in Denmark, so are these measures.
In terms of reactive measures, the most common response to a hostile tender offer is for the management to search the market for competing bidders and create a formalised auction process in an effort to ensure price competition.
It is also not uncommon for companies to have precautionary measures incorporated into the articles of association (eg, an authorisation for the board of directors to make a directed share issue), and especially in the financial sector it is common to have voting rights ceilings included. It is also fairly common in larger, formerly family-owned businesses to have separated classes of shares. This way, B shares are usually listed on a regulated market whilst A shares with stronger voting rights attached remain in the hands of the original owners.
The pandemic has not changed the use of defensive measures.
When enacting defensive measures, directors must have due regard to the corporate benefit doctrine, according to which any action taken by the directors must be in the interest of the company (ie, generally the collective interest of the shareholders in the company). That being said, there are no specific rules governing directors’ duties in relation to defensive measures.
In practice, the Board of Directors will often consult strategically important shareholders to ensure that they support the initiatives taken by the Board of Directors. However, this must be done in accordance with the duty to not take any action that is clearly capable of providing certain shareholders or others with an undue advantage over other shareholders or the limited liability company. Certain defensive measures must be approved by the shareholders at a general meeting.
Naturally, the potential responsibility of the Board of Directors is greater if it actively seeks to prevent a takeover offer being made or implemented than if it refrains from actively supporting the takeover offer.
As long as the directors loyally work in the best interest of the shareholders and the company as a whole, directors are deemed to have a fairly broad access to oppose business combinations.
In the context of public takeover offers, it is primarily left to the shareholders to deny or accept an offer. In practice, however, directors are left this broad access to assess whether an offer is in the best interest of the shareholders and the company, since a bidder, if they are met with resistance from the management, will have the option to approach the shareholders directly. The board of directors will usually hire financial advisors in order to assess the offer and, optionally, to formalise an auction process to create price competition.
Litigation in connection with public M&A deals is very uncommon in Denmark, and Danish private M&A deals are generally subject to arbitration clauses, due to the confidential nature of such proceedings. Therefore, very little public information is available in respect to M&A litigation.
In 2014, a Danish company (OW Bunker) was listed on Nasdaq Copenhagen with a value of roughly DKK5 billion. Only seven months after the listing, the company went bankrupt. As a consequence of the bankruptcy, various civil cases primarily relating to prospectus liability are currently pending at the Danish courts.
Litigation related to private M&A will in general relate to breach of warranties or purchase price calculations in closing account deals, ie, post-closing.
There have been no public disputes between parties with pending transactions in early 2020.
Shareholder activism is seen more and more in the Danish market, in particular in respect to larger companies and generally more in sectors such as pharma, banking, and energy.
Shareholder activism in the Danish market is primarily seen taking place at annual general meetings of the listed companies, where shareholders ask critical questions and challenge management decisions.
Danish pension funds and international and national shareholder organisations are the most active shareholders in the Danish market.
When shareholder activism is seen in Denmark, it is mostly related to the composition of the management, ESG and compliance matters, remuneration and observance of disclosure obligations.
It is rare that activists try to interfere with the completion of announced transactions in Denmark.
Bruun & Hjejle
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www.bruunhjejle.dkReview of 2021
In 2021, the COVID-19 pandemic continued to impact societies and businesses around the world.
Danish businesses were generally well prepared to deal with the consequences of the pandemic – both positive and negative – and business performance was generally good in 2021. Only a few industries, most notably the leisure and hospitality sectors, were generally adversely affected by lockdowns, although COVID-19-related restrictions in Denmark were limited compared to other countries.
Significant amounts of capital were available from (and invested by) a wide range of Danish and international investors, including private equity sponsors, pension funds, corporates and the large Danish commercial foundations.
This resulted in record high M&A activity in 2021, while market participants continued to discuss the risk of increasing interest levels, inflation, inflated real estate prices and other macroeconomic risk factors. We saw no significant increase in restructuring activities during 2021.
ESG in M&A
Environmental, social and governance (ESG) policies have been adopted by many larger Danish companies and many professional investors have, and require business in which they invest to have, ESG policies in place.
Significant work remains to be done when it comes to implementation of the policies and measuring ESG impact. There seems to be a trend that some focus more on environment than on social and governance.
The implementation of policies to ensure gender equality in management of Danish companies is progressing at a much too slow a pace. While there is some resistance against the use of legislative initiatives to speed up the transition, it is currently the expectation that the Danish Parliament will enact statutory requirements to ensure a higher degree of gender equality in the management of Danish companies.
In addition, the Danish Parliament is enacting legislation to comply with an EU directive regarding mandatory parental leave for both parents. The new legislation entails that each parent is entitled to 11 weeks of non-transferable parental leave. Some Danish businesses have gone even further by offering equal terms for men and women with respect to paternity and maternity leave (which is often six months paid leave).
Some professional investors are increasing their focus on how to incentivise management to measure and deliver on ESG targets. We expect that the push to structure incentive programmes to facilitate measurable ESG impact will increase.
Lack of ESG awareness and measurable impact is still not a deal breaker for investors investing in Danish businesses.
We have seen a development over the last years towards material compliance issues within areas like AML, Sanctions, GDPR and dual use regulations becoming potential deal breakers for investors for whom compliance issues cannot be overruled by commercial arguments. It is going to be interesting to see, if a similar development will evolve over time with respect to ESG.
The Financial Sector and Digitisation
The financial sector focuses on digitisation is many ways. Legacy IT systems are being replaced and new digital services are being added to the business. The amounts invested by the financial sector in digitisation are enormous.
The financial sector is facing fierce competition from traditional financial businesses as well as new businesses offering competing services or digital solutions that challenge traditional financial offerings or disrupts the way in which financial business is conducted.
The number of new fintech businesses focussed on solving issues related to digitization of the financial sector is higher than ever and increasing. Many of these businesses are relatively small and lack the ability to expand globally. During 2021, a number of Danish fintech businesses have been successful in raising significant amounts of capital from Danish and international investors at record high valuation.
It seems as if both traditional financial businesses and new fintech businesses are trying to push the digital transition of the financial sector on their own premises.
It is envisaged that massive investments in digitisation of the financial sector will continue and drive significant M&A activity in the coming years.
Further, a role is seen for players that can connect traditional financial businesses and new fintech businesses in a way that leads to a faster and more cost-efficient digitisation of the financial sector.
Energy and Infrastructure
Denmark has a strong tradition of working actively to realise the transition towards green energy. There is a strong, professional investor base and companies with a significant role in the green transition, including businesses involved in wind and solar energy.
The political agenda in Denmark and the EU is increasingly focussed on green transitioning and removing dependency on fossil fuels, including natural gas. This may drive an increased need for significant investments in renewable energy and infrastructure in Denmark and abroad.
Danish businesses are well positioned to take part in such energy and infrastructure projects, which often involve partnerships between public and private stakeholders.
Due to the current political situation in Denmark and the EU, and the importance of significantly improving the speed at which the green transition takes place, it may be necessary to find alternative or new solutions to the ways in which partnerships are structured and to the types of projects that need to be realised. This could be a catalyst for initiating developments of energy islands like Vindø, which is a very significant new Danish wind project, located off the Danish coast. The project has been heavily debated among various stakeholders in Denmark without much progress.
Life Science and Pharma
Denmark has a strong base of significant corporates in the pharmaceutical sector many of which are controlled by Danish commercial foundations. These businesses and their long-term owners provide a strong basis for development of existing and new businesses within the pharmaceutical sector as well as the life science sector.
During 2021, a number of Danish life science and pharma businesses have been successful in raising significant amounts of capital from Danish and international investors, including private equity sponsors, pension funds and the Danish commercial foundations.
It is envisaged that investors will continue to have appetite for Danish life science and pharma targets and that new businesses will continue to arise within these sectors, which is likely to drive continued M&A activity in Denmark.
SPACs
The amount of capital raised by SPACs in the USA and other jurisdictions is very significant. This has raised questions around the market for raising SPACs in Denmark and SPACs investing in Danish businesses. There have been no significant SPACs raised in Denmark and, as such, SPACs have not played a role on the Danish M&A market in 2021. It seems that many market participants have limited appetite for transacting with a SPAC.
What to Expect for 2022
M&A activity slowed down during the first months of 2022 compared to 2021 but remained at a reasonably high level.
Then came the conflict in Ukraine and the international sanctions imposed against Russia as a result thereof. This has significantly added to the uncertainties identified during 2021. It is difficult to see how increasing inflation levels and the risk of an economic downturn as a result of the new situation would not lead to a decrease in general M&A activity in 2022 compared to 2021.
It is thought that certain sectors such as IT/tech, life science/pharma, energy and infrastructure will be less vulnerable to the pandemic and/or an economic downturn and continue to generate a solid level of M&A activity in 2022.
Bruun & Hjejle
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