Sell-out mechanism for minority shareholders

      As harmonization of Estonian securities regulation with the Takeover Bids Directive (2004/25/EC “the Takeover Directive”) was finalized November 2007 with enactment of amendments to the Securities Market Act (“the SMA”), a sell-out mechanism was introduced providing additional rights for minority shareholders in Estonian companies listed on the regulated market.

      Under the revised SMA, minority shareholders of a company may use their sell-out right to compel a shareholder directly or indirectly acquiring at least 90% of the shares of the company during a takeover bid to purchase their shares. The precondition to this rule is that minority shareholders’ shares must be sold at a fair price. The statutory minimum fair price is set at the highest value paid for the share of the company during the last six months; however, a higher price can also be offered.

      This new protection provides a symmetrical balance for minority shareholders in correlation to the existing right established for majority shareholders holding 90% of the shares of the target company to squeeze out the minority. The sell-out rule provides minority shareholders with a three-month period to decide whether to sell their shares. The protection is enacted explicitly for shareholders who have opposed a takeover or who are indecisive about selling their shares. It will also enable them to receive the highest consideration for their shares in the target company.

      The Takeover Directive creates a common set of rules for all EU Member States and thus promotes the idea of unifying the Common Market. Entrepreneurs can rely on the same possibilities tackling probable threats while acquiring companies through takeovers pan-Europe. However, it must be noted that the 90% threshold for exercising the sellout (or squeeze-out) right may vary by jurisdiction to a maximum of 95% in some Member States. The new regulation only applies to shareholders of companies listed on the local regulated market.

      Additional information: Stefano Grace

      e-mail: stefano.grace@sorainen.ee