Recommendation Regarding Good Securities Market Practice in Consortium Bids by The Finnish Takeover Board

The Takeover Board of the Finnish Securities Markets Association has in August 2025 issued a recommendation that clarifies the procedures to be followed when a target company’s significant shareholder who is also a board member in the target acts as a bidder in a consortium bid.

Finland has recently seen an increasing number of consortium bids where some of the target company’s shareholders act as bidders. Therefore, the Takeover Board’s clarifications on good securities market practice in such a situation are welcome in the current Finnish landscape. We summarise the main points of the recommendation below.

According to the Takeover Board, a board member who is also a significant shareholder in the target company and who takes part in a consortium making a takeover bid is normally not prohibited by their duty of loyalty from giving a conditional or unconditional undertaking to accept the consortium’s takeover bid or otherwise selling their shares to the consortium (NB: the statement does, however, not take a stand on the principle of equivalent treatment applicable to the bidder). Such board members are allowed to act in their own interests in the undertakings they give on the sale of their shares and the terms thereof (e.g. a possible threshold for the value of a competing bid making the undertaking lapse). However, the Takeover Board emphasises that such board members are still prevented by their duty of loyalty from disclosing to other consortium members any confidential information they possess regarding the target company and that they must be disqualified from participating in matters regarding the bid in the target board. Such matters include among others the board’s statement on the bid, preparation of the bid, assessment of alternatives or competing proposals, decision to allow due diligence, and concluding a combination agreement. At the same time, the (disinterested) board’s obligation to safeguard the common interests of the company and all of its shareholders is emphasised in such a situation.

A board member may issue an undertaking described above, but in order to ensure adherence to good securities market practice, the terms of the undertaking must be transparently disclosed to the market. The Takeover Board specifies that recommendation 11 of the Takeover Code requiring disclosure of material terms of a shareholder’s undertaking (such as terms relating to the withdrawal of such undertakings or ability to accept a competing bid) in the bid announcement release applies to a shareholder’s undertaking regardless of whether the shares are tendered in the bid or sold outside of the bid.

Further, the target board’s duty to in its statement describe the actions it has taken to assess the company’s alternatives and to achieve the best possible bid is heightened in the context of a consortium bid in which a shareholder is involved. Such actions should be transparently described, and the board should also explain how the contents of a major shareholder’s undertaking has affected the board’s assessment.

The board’s obligation to aim for the best possible outcome for the company and all of its shareholders is particularly pronounced in a consortium bid, especially if the shareholder’s participation in the consortium in practice prevents competing takeover bids or materially hinders their realisation. In such a case, finding a realistic competing bid for or obtaining a sufficiently reliable valuation of the target may be challenging under the timetable established by the consortium. It may then be necessary for the board to use an external financial advisor for valuation purposes and for assessing the company’s alternatives. If the assessment shows that the consortium’s bid is in the best interests of the company and its shareholders, the board should commence negotiations to achieve the best possible bid, also negotiating the content of major shareholders’ undertakings.

In order for the board to be able to recommend the consortium’s bid, the bid consideration and the terms of the bid as a whole must be in the common interest of the target shareholders when assessed objectively. In particular, the Takeover Board states that the fact that a significant shareholder has committed to accepting the bid resulting in the low likelihood of a better competing bid does not alone constitute sufficient grounds for recommending the consortium bid.

The terms of a possible combination agreement between the bidder and target must be negotiated so as to ensure that they do not unduly limit the company’s and the board’s ability to operate e.g. with regard to a potential competing bid. Neither may the terms in fact transfer the power of decision from the board to the shareholder who participates in the consortium. Examples of terms that are relatively common but may become problematic in these kinds of situations include break-up fees and terms related to competing bids or the withdrawal of the board recommendation. For example, even if the Takeover Code normally allows the board to consider in its assessment of a competing bid, in addition to the bid consideration, the bid’s chances of success and timetable for execution, if the combination agreement ties such factors to the right to withdraw the board recommendation, this may effectively limit the board’s ability to operate or transfer decision power to the shareholder who is a member of the consortium.

If the target board has not, when assessing the alternatives available to the company, been able to find a realistic competing bid or obtain a sufficiently realistic external indication of the value of the company, the board should pay particular attention to being able to act in the event that a competing bid arises. Terms of a combination agreement that in reality increase the threshold for withdrawing the board’s recommendation or for advancing a competing bid are, in the view of the Takeover Board, not in the interests of all target shareholders nor in accordance with good securities market practice.

The Takeover Board has so far issued a limited number of recommendations. The clarifications to good securities market practice are welcome to guide the processes to be followed in consortium bids where a significant shareholder is involved. In particular, target boards should pay careful attention to the terms of the possible combination agreement and shareholder’s undertakings to ensure that those do not in practice limit the board’s freedom to operate or transfer decision power to a shareholder who is a member of the consortium, thereby endangering the best interests of the shareholders as a whole. The latest recommendation by the Takeover Board has already had an effect on the Finnish practice, having been referred to in a recent target board statement on a recommended consortium bid.