The Mergers & Acquisitions Review: Norway

Overview of M&A activity

In 2020, the Norwegian M&A market dropped significantly both in value and numbers of transactions during the first six months of year, as a result of the covid-19 pandemic. Despite the first six months' significant slowdown, the M&A market rapidly recovered in the following months and an extremely strong fourth quarter brought the last 12-month 2020 M&A deal count back in line with those observed pre-pandemic. As for the number of M&A transactions, the 2020 Norway market was down just 3 per cent compared with 2019. During 2020, the reported deal value also increased from €24.319 billion for 2019 to €25.265 billion for 2020, while the average reported deal size also increased from €286 million for 2019 to €308 million for 2020.

Throughout 2020, industrial players continued to take a large stake of the total M&A volume, and nine out of the largest 10 disclosed Norwegian M&A deals for 2020 had industrial or strategic investors on the buy side, which is two more than in 2019. The private equity (PE) transaction volume for 2020 dropped (4.6 per cent compared with 2019's figures), and for 2020 we witnessed a significant decrease in the number of PE exits compared with 2019, while the number of new PE investments increased significantly.

Entering 2021, we've observed a 29 per cent spike in the number of M&A deals for the first quarter of 2021 as against the first quarter of 2020, and an increase of 3 per cent in the number of M&A deals for the first quarter of 2021 against the same period in 2019. This trend continued into the second quarter of 2021, and in total the deal activity increased by 77 per cent for the first half of 2021 compared with the same period in 2020, and with 28.2 per cent compared with the first half of 2019. The reported deal values also increased significantly, with the average reported deal value also increasing from €113 million for the first half of 2020 to €310 million for the first half of 2021. We are quite optimistic for the second half of 2021, as it seems as if the deal pipeline continues to be quite strong with a number of respondents planning on divesting parts of their business operations in the next couple of years. During the second quarter of 2021, we've also started to witness increasing fundraising activity among private equity sponsors, which indicates increased deal activity from private equity funds for the rest of 2021.

Except for an increasing number of dealmakers during the pandemic having implemented new ways of carrying out all aspects of the deal via various online collaboration tools, facilitating cross-border deals in spite of social distancing, there has not been much change in the market for M&A deals. Nevertheless, we have for the last 36 months observed an increase in the use of more tailored sales processes, involving one or a very limited number of participants rather than full auction processes.

General introduction to the legal framework for M&A

The Limited Liability Companies Act (1997), the Public Limited Liability Companies Act (1997) and the Partnership Act provide the fundamental statutory framework and, with the Contract Act (1918) (which applies to almost any kind of contract) and the Norwegian Sales of Goods Act (1988), form the legal basis for the purchase and sale of corporate entities.

Public companies whose securities are listed on the Oslo Stock Exchange (OSE) or another regulated market in Norway are additionally regulated under the Securities Trading Act (2007) (STA) and the Securities Trading Regulation (STR). These rules regulate prospectus and information requirements, establish a regime to prevent market abuse and insider dealing, and set out more detailed regulations with respect to tender offers involving listed shares under Norwegian law. These statutes are supplemented by, inter alia, guidelines and recommendations issued by the OSE, and the rules and regulations of the OSE. Mergers and takeovers of private companies and unlisted public companies have no equivalent regulations. Anyone familiar with M&A transactions in most other parts of Europe will find the Norwegian landscape relatively familiar, in particular with respect to public takeovers. Norway is part of the European Economic Area (EEA) and has therefore implemented the EU regulations of relevance to companies with publicly traded securities, including the Prospectus Regulation, the Takeover Directive, the Transparency Directive, Directive 2014/65/EU on markets in financial instruments (MiFID II), which replaces the Market in Financial Instruments Directive (MiFID) and the Market Abuse Directive. In addition, the Market Abuse Regulation has in 2021 now also been implemented into Norwegian law.

The Competition Act (2004) gives the Norwegian Competition Authority (NCA) the power to intervene against anticompetitive concentrations. Companies that are active in the Norwegian market (generally in larger transactions) must also abide by the merger control provisions set out in the EEA agreement; however, the one-stop shop principle prevents duplication of the competence of the European Commission, the European Free Trade Association (EFTA) Surveillance Authority and the NCA.

The remainder of this section describes the key rules applicable to public takeovers and certain particular issues arising under Norwegian law.

i Stakebuilding in public traded companies: disclosure obligations

No limits exist regarding the speed at which a stake can be built. Norwegian law contains a limited set of provisions governing stakebuilding, but insider dealing rules, disclosure requirements and mandatory bid rules must also be observed.

Any persons owning shares in a company whose securities are listed on a Norwegian regulated market (OSE or Euronext Expand (former Oslo Axess)) must immediately notify the company and the OSE if their proportion of shares or rights to shares in the company reaches, exceeds or falls below any of the following thresholds: 5, 10, 15, 20 or 25 per cent, one-third, 50 per cent, two-thirds or 90 per cent of the share capital, or a corresponding proportion of the votes, as a result of acquisitions, disposal or other circumstances. Specific rules apply with regard to the calculation of voting rights and share capital. Breaches of these disclosure rules will frequently result in fines, which are increasing in severity.

Certain types of convertible securities, such as subscription rights and options, are counted when calculating whether a threshold requiring disclosure has been reached; however, see Section III.i with regard to certain proposed changes in this regard. It is possible, and to some extent customary, to seek irrevocable undertakings or pre-acceptances from major shareholders as well as from key or management shareholders during a stakebuilding process, prior to announcing a mandatory or voluntary bid. Such irrevocable undertakings are typically either drafted as soft irrevocables or hard irrevocables. The latter are irrevocable undertakings to sell the shares regardless of whether a subsequent competing higher bid is put forward. Soft irrevocables will normally be limited to a commitment to accept the offer provided that no higher competing bids are made. There are no particular disclosure requirements for such undertakings, other than the general disclosure obligations and the disclosure obligations regarding options and similar instruments as part of stakebuilding, which, however, may imply early disclosure of the undertakings owing to the low thresholds set out by law. In Norwegian legal theory, it has so far been assumed that the disclosure requirements will not be triggered by properly drafted soft irrevocable undertakings.

Notification must be given as soon as an agreement regarding acquisition or disposal has been entered into. Crossing one of these statutory thresholds requires disclosure even if it is passive (i.e., caused by changes in the share capital of the issuer where the person crossing the relevant threshold does not acquire any shares or rights to shares or to dispose of any shares). In such cases, notification must be given as soon as the shareholder becomes aware of the circumstances causing the shareholder's holdings in the company to reach, exceed or fall below the relevant thresholds. Consolidation rules apply, and require the consolidation of shares held by certain affiliates and closely related parties. Hence, the combined holdings of the acquirer or the disposer, or of both, and of a party's close associates, are relevant when deciding whether any disclosure obligations have been triggered.

ii Mandatory offers

If a stake of one-third or more of the votes is acquired (directly or indirectly, or through consolidation of ownership) in a Norwegian target company whose shares are listed on a Norwegian regulated market, but also in, inter alia, foreign companies listed in Norway but not in their home country, a mandatory offer to buy the remaining shares must be made. Certain exceptions do apply, the most practical of which is when the shares are acquired as consideration in mergers and demergers. In practice, a mandatory offer usually follows a voluntary offer, triggered by the voluntary offer reaching the mandatory offer threshold. The offeror is further obliged to make subsequent mandatory offers when, as a result of an acquisition, the offeror passes a threshold of 40 or 50 per cent of the voting shares of the company.

Regarding consolidation rules, note that certain derivative arrangements, such as total return swaps, may be considered as controlling votes for the purpose of the mandatory offer rules. A voluntary offer will also be subject to certain provisions of the mandatory offer requirements if the offer – if accepted – may take the offeror above the thresholds for a mandatory offer. This means that a voluntary offer document for all the shares in a listed company must, inter alia, be approved by the OSE before the offer is made public.

After entering into an acquisition agreement that will trigger a mandatory offer, the acquirer shall immediately notify the target company and the OSE about whether it will make an offer or sell the shares. It is possible to avoid the obligation to make an offer if the acquirer sells the shares that exceed the relevant threshold within four weeks. After announcing that an offer will be made, the announcement may not thereafter be changed to an announcement of sale.

The offeror must then prepare an offer document to be approved by the OSE before it is issued. In practice, the approval procedure takes one or two weeks, or longer if there are difficult issues to deal with or if the OSE finds errors within the offer document. In a mandatory offer document, the offeror must give a time limit of between four and six weeks for acceptance by the shareholders.

The share price offered in a mandatory offer must be equal to the highest price paid by the offeror (or agreed to be paid by the offeror) for shares (or, under the relevant circumstances, rights to shares) in the target company during the previous six months. According to the STA, the takeover authority may invoke that the offer must be based on market price if it is clear that the market price at the time the offer obligation was triggered was higher than the highest share price the bidder paid or agreed to pay. However, a 2010 EFTA court ruling found that this rule did not comply with the EU takeover rules, as it does not provide sufficient guidance on the method concerning how the market price is to be calculated. It has been assumed that the Norwegian legislator is most likely to seek to revise the relevant provision of the STA to meet the requirements of the EU takeover rules. In April 2020, Parliament adopted a rule under which a regulation can be issued setting out rules for calculating the offer price in cases where there is a need for an exception from the above general rule or where it is not possible or reasonable to use the main rule for calculating the offer price. At the same time, it resolved to repeal the 'market-pricing' alternative with a more balanced rule set out in a separate regulation. However, the repeal of the 'market-pricing' alternative has not yet entered into force. A temporary regulation for calculating the offer price was due to the covid-19 pandemic implemented with effect from 20 May 2020 to expire on 1 January 2022.

A mandatory offer must be unconditional and apply to all issued shares in the target company, and the consideration needs to be in cash; however, it is possible to offer alternative forms of consideration under a mandatory offer (e.g., shares in the offeror) provided that an option to receive the total offer price in cash is also made, and this option is at least as favourable as the alternative consideration. The consideration offered must be unconditionally guaranteed by either a bank or an insurance undertaking authorised to conduct business in Norway.

If the offeror acquires more than 90 per cent of the shares and the capital of the target company, squeeze-out rights will be available.

iii Voluntary offers

In a voluntary tender offer (VTO) or exchange offer for a listed company, there is in general no limitation under Norwegian law as to which conditions the offer may contain. A VTO may be launched at the offeror's discretion. The offeror may also choose to make the offer to only some shareholders. Conditions such as a certain level of acceptance from existing shareholders (90 per cent or two-thirds of the shares and votes), regulatory or competition approvals, completion of satisfactory due diligence and a no material adverse change clause are regularly included in Norwegian VTO documents. To complete the transaction quickly or to avoid competing bids, in some cases the offeror may decide to include very few conditions. In other cases, an offeror may decide to include more extensive conditions. In a VTO, the offeror can offer consideration in shares or other non-cash forms, or a combination, also with cash as an element. In principle, it is also possible to make a voluntary offer conditional upon financing, but the offer document must include information on how the acquisition is to be financed.

There are no provisions regarding minimum consideration in a VTO under Norwegian law, but in general a shareholder may expect to achieve a premium of 20 to 40 per cent compared with the current share price. In recent years, there has been considerable variation in the level of premiums offered in VTOs, with some examples of premiums of around 60 per cent compared with the average in the preceding 30 days.

If a VTO is accepted and brings the offeror control over voting rights so that it triggers an obligation to issue a subsequent mandatory offer, several of the obligations relating to mandatory offers will also apply, including an obligation of equal treatment of shareholders. Under these circumstances, the VTO document must first be approved by the OSE, but the offeror is still free to decide which conditions the voluntary offer may contain. The mandatory offer requirements will not apply if the offeror has reserved the right to refuse or reduce acceptance if the offer gives the offeror at least one-third of the voting rights, or if the offer is addressed specifically to certain shareholders without it being made simultaneously or in conjunction and with the same content.

The offer period for a VTO is between two and 10 weeks, and four weeks frequently used as the initial offer period.

iv Standstill

The target company is allowed to take a more or less cooperative approach in a takeover situation. However, there are restrictions on the board of the target company taking action that might frustrate the willingness or otherwise of an offeror to make an offer or complete an offer that has already been made. These restrictions apply after the target has been informed that a mandatory or voluntary offer will be made. During this period, the target company may, as a general rule, not issue new shares or other financial instruments, merge, or sell or purchase material assets or shares in the company. These restrictions do not apply to disposals that are part of the target's normal business operations or when a shareholders' meeting authorises the board or the manager to take such action with takeover situations in mind. As a result of this, a considerable number of Norwegian-listed companies have adopted defensive measures aimed at preventing a successful hostile bid.

The Norwegian Competition Act provides that all transactions fulfilling certain thresholds must be notified to the NCA, and that completion is suspended until clearance.

v Squeeze-out

It is rare that an offeror can expect to acquire 100 per cent of the shares and votes in the target company through a voluntary or mandatory offer process; however, if the offeror is able to acquire more than 90 per cent of the shares and voting rights, it has the right to acquire (squeeze out) the remaining shares even if the minority shareholders refuse.

The Limited Liability Companies Act and the Public Limited Liability Companies Act provide that if a parent company, either solely or jointly with a subsidiary, owns or controls more than 90 per cent of another company's shares and voting rights, the board of directors of the parent company may, by resolution, decide to squeeze out the remaining minority shareholders by a forced purchase at a redemption price. Minority shareholders have a corresponding right to demand the acquisition of their shares by a shareholder with a stake of more than 90 per cent of the company's shares.

The resolution shall be notified to the minority shareholders in writing and made public through electronic notification from the Norwegian Register of Business Enterprises (the Register). A deadline may be fixed, which must be at least two months after the date of electronic notification from the Register, within which the individual minority shareholders may make objections to or reject the offered price. The acquirer becomes the owner of (and assumes legal title to) the remaining shares immediately, following a notice to the minority shareholders of the squeeze-out and the price offered, and the depositing of the aggregate consideration in a separate account with an appropriate financial institution.

If any minority shareholders do not accept the redemption price per share offered, they are protected by appraisal rights that allow shareholders who do not consent to seek judicially determined consideration for their shares at the company's expense. The courts decide the actual value of the shares. In determining the actual value, the starting point for the court will be to establish the underlying value of the company divided equally between all shares. However, if the squeeze-out takes place within three months of the expiry of the public tender offer period for a listed company, then the price is fixed on the basis of the price offered in the tender offer unless special grounds call for another price.

Provided that the conditions for a squeeze-out are met, it is a straightforward process to have the target company delisted from the OSE or Euronext Expand (former Oslo Axess). However, if these conditions are not met, it could be substantially more challenging to delist the target company even when the offeror has managed to acquire more than 80 per cent of the votes.

vi Statutory mergers

Subject to the approval of the majority of two-thirds of the votes and the share capital represented at a general meeting of shareholders, Norwegian limited liability companies (LLCs) may merge, creating a company (the surviving company) that takes over all assets, rights and obligations of one or more assigning companies (the surrendering company or companies). The articles of association of a company may provide for a higher majority threshold, but may not set a lower one. Under a statutory merger, the shareholders of the surrendering company have to be compensated by way of shares in the surviving company, or by a combination of shares and cash, provided that the amount of cash does not exceed 20 per cent of the aggregate compensation. If the surviving company is part of a group, and if one or more of the group companies hold more than 90 per cent of the shares and the votes of the surviving company, compensation to the shareholders of the surrendering company may consist of shares in the parent company or in another member of the surviving company's group. It is further possible to effect a merger by combining two or more companies into a new company established for the purpose of the merger. After completion of a statutory merger, any surrendering companies are dissolved.

Under Norwegian law, a statutory merger will be considered as a continuation of the companies involved in the merger, implying that the transaction does not represent an assignment of the original companies' rights and obligations.

Certain formalities need to be observed to complete a merger under Norwegian law. A joint merger plan describing the general terms of the merger has to be prepared and negotiated between the surviving and surrendering companies. The joint merger plan must be signed by the board of directors prior to the general meeting of shareholders resolving to approve the merger plan. The board of directors, after signing the joint merger plan, has to issue a report to the shareholders explaining the reasoning behind the merger, and how, inter alia, this may affect the company's employees. If a public LLC (ASA) is involved in a legal merger there are more detailed requirements for the content of the report. In addition, each of the participating entities' boards shall ensure that a written statement containing a detailed review of the merger consideration payable to the shareholders of the participating companies is issued, including an opinion of the fairness of the consideration. This statement is to be prepared and issued by an independent expert (such as an auditor) when the participating entity is an ASA. When the participating entity is a private limited company (AS), the statement may be issued by the board and confirmed by the company's auditor. The resolution to merge the companies must be reported to the Register within certain time limits to avoid the resolutions being deemed void. The shares used as consideration to the shareholders in the surrendering company are issued according to the rules applicable to a capital increase.

Since Norway implemented Directive 2005/56/EC, it is further possible to conduct a statutory merger of a Norwegian company cross-border within the European Union and the EEA; however, public tender offers and other offer structures are often used instead of a statutory merger, which cannot be used by foreign companies (outside the European Union or the EEA), allows only 20 per cent of the consideration to be given in cash, requires more formalities and documentation, and normally takes longer to complete than a public offer. Still, a statutory merger may be suitable when an exchange offer mechanism would not procure complete control under one corporate umbrella, and if there is not enough cash available to effect a mandatory offer and squeeze out the minority shareholders.

Statutory mergers are generally not regulated by the STA's public takeover rules; however, transactions that are similar in form to mergers (share-for-share exchanges) but whose structures do not meet the formal requirements for a merger under Norwegian legislation, may be subject to the STA's takeover rules if the target company's shares are listed on the OSE.

vii Employee board representation

In both ASAs and ASs, employees are entitled to be represented on the board of directors, provided that the number of full-time employees in a company exceeds 30. Under these circumstances, employees will be entitled to elect between one and up to one-third of the members of the board from among the employees. The exact number of employee representatives on a board varies according to the number of employees in the company. Employee representatives will have the same voting rights as the other board members. Employee board representation is not mandatory under Norwegian law, but cannot be rejected if requested by employees when the conditions for representation are fulfilled.

A bidder should note that the employees of a Norwegian subsidiary may also demand to be treated as employees at the Norwegian parent or sub-parent level, thus obtaining representation on the board of directors of the Norwegian parent or sub parent.

viii Residency requirements

The chief executive officer and at least 50 per cent of the members of the board of directors must be residents of Norway, unless the Ministry of Trade, Industry and Fisheries grants an exemption in an individual case. These residency requirements do not apply to citizens of the UK or an EEA Member State, provided the board members are residents of the UK or an EEA Member State. With respect to this, at least half of the ordinary directors must fulfil the residential requirement; it will not suffice that solely deputy directors fulfil it, irrespective of how many of them are Norwegian residents or EEA/UK nationals.

ix Gender requirements

For public LLCs, Norwegian law imposes a requirement that both genders shall be represented on a board of directors. As a general rule, each gender must be represented by at least 40 per cent on the boards of directors of public companies. Consequently, on a board of five directors there cannot be fewer than two members of each gender. Exceptions apply to the directors elected from among employees. The obligation to have both genders represented on the board does not apply to Norwegian private LLCs.

Developments in corporate and takeover law and their impact

i EU initiatives

Several new EU directives, regulations and clarification statements regarding the capital markets are proposed or have been implemented in recent years. Norway will have to adopt and implement some of these to comply with its obligations under the EEA agreement. These EU initiatives are likely to have a direct or indirect impact on the regulatory framework for public M&A transactions in Norway. As a result of these initiatives, several amendments to the STA are expected to take place in the near future.

The government appointed an expert committee to evaluate and propose relevant amendments to existing Norwegian legislation resulting from amendments to the Transparency Directive, MiFID I and the Market Abuse Directive. The committee was mandated to prepare three separate reports to the government. This mandate was later extended to comprise seven separate reports. All reports have now been delivered. The first report, inter alia, proposes implementing certain amendments to the STA with regard to disclosure requirements for derivatives with shares as underlying instruments. According to the proposal, the materiality thresholds and disclosure requirements that apply for acquisition of shares in listed companies shall now also apply for derivatives with shares as underlying instruments, irrespective of such equity derivatives being cash-settled or settled by physical delivery of the underlying securities.

The committee further proposes that both borrowing and lending of shares shall become subject to the same notification regime for both the lender and the borrower. Soft, irrevocable undertakings will remain exempt from the disclosure obligations. The existing disclosure obligations under the STA also include an obligation to disclose information in relation to rights to shares, regardless of whether the shares already have been issued or not. This is a stricter disclosure and filing obligation than what follows from the minimum requirements set out in the Transparency Directive, and the committee has proposed that the obligation be abolished. If adopted by Parliament, Norwegian law will no longer have mandatory disclosure obligations for warrants and convertible bonds not linked to any issued (existing) shares.

The second report, published in January 2017, proposed, inter alia, further amendments to the STA to implement MiFID II and MiFIR into Norwegian law. In April 2018, the Ministry of Finance issued a white paper to Parliament based on the committee's second report. In June 2018, Parliament resolved to implement these proposals into Norwegian law, but the changes do not contain amendments that are directly relevant for the bidder or target in an M&A process.

The third report deals with the implementation of the Market Abuse Regulation and includes proposals under which the STA rules governing market abuse have been expanded. These include, among others, a proposal for new rules concerning market sounding that occurs in preparations for a potential transaction. It is also proposed that primary insiders will be personally obligated to publish information about their trading activities in listed financial instruments. On 12 June 2019, the Norwegian Parliament adopted a bill implementing MAR into Norwegian law by amending Chapter 3 of the STA, and this bill entered into force on 1 March 2021.

The fourth report was published in January 2018 and concerns the implementation of supplementary regulations regarding MiFID II and MiFIR. In 2019, the Norwegian Parliament adopted a bill implementing these rules into Norwegian law.

A fifth report was published in June 2018 concerning the implementation of the new Prospectus Regulation and rules regarding national prospectus requirements. On 12 June 2019, Parliament adopted a bill implementing the Prospectus Regulation into Norwegian law by amending Chapter 7 of the STA.

The sixth report was published in 2019, proposing certain amendments to the Norwegian rules on voluntary and mandatory offers (see below). The seventh and final report was published in January 2021 (see below).

ii MAR implemented into Norwegian law

Prior to MAR coming into force, a prospected listed target company being approached by a potential bidder could resolve to delay disclosure of its negotiations with such bidder in order to avoid prejudice or cause harm to legitimate business interests during a negotiation and planning phase, provided that: (1) postponement did not mislead the public; (2) the inside information was kept in strict confidence between the parties; and (3) the OSE (in its capacity as takeover supervisory authority) was informed about the target's decision to delay disclosure. Following the MAR entering into force, a prospective target's decision to delay disclosure of inside information has now been amended, so that the target (issuer) only has to notify the takeover supervisory authority about such delay after the relevant information has been disclosed to the market.

iii New takeover rules expected

In addition to the five reports referred to above, on 23 January 2019, the Committee has also submitted a report concerning the Norwegian rules on voluntary and mandatory offers, with a particular focus on the current limited regulation of the pre-offer phase. This Committee report does not arise out of changes to EU rules, but rather the need to review and update the Norwegian takeover rules on the basis of past experience and market developments.

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 a 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 that it be clarified that the Norwegian Takeover Supervisory Authority (now the OSE) shall publish such notification immediately. Furthermore, a new requirement is proposed that bidders 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 be extended from at least two to at least four weeks.

It is proposed that the existing general 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 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 general rule or where it is not possible or reasonable to use the general rule for calculating the offer price. In this regard, it is also proposed that the offer price should be adjustable if the Takeover Supervisory Authority considers that the stock prices during the period in question are being kept at an artificial level, the stock purchase that is the basis for the offer price was not carried out on normal commercial terms or the mandatory offer obligation is being triggered in connection with a restructuring of a company in serious financial distress. In that case of adjustments of the offer price where stock prices have been kept at an artificial level, or where the stock purchase that 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 three-month volume-weighted average stock prices.

Further, the Committee proposes introducing a general requirement that information published on a planned or submitted takeover offer must be correct, clear and not misleading. The scope of application is intended to be broad, and comprises the preparation phase, the phase after a bid is launched and the bidding phase.

The Committee also proposes 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.

Furthermore, the Committee proposes new rules on amending a tender offer, so that a bidder prior to the expiry of the offer period may amend the terms of such an offer in favour of the stockholders and also extending the offer period, provided the bidder has reserved such rights in the offer document itself and that such amendments are approved by the Takeover Supervisory Authority.

The Committee does not propose to implement rules regulating the type of transaction agreements used in connection with takeovers of listed companies or similar commitments between a bidder and a target company. Nevertheless, it proposes implementing a rule into the new legislation that authorises the government to issue more detailed rules in a separate regulation to govern the use of such agreements in connection with mandatory and voluntary offers.

It is also proposed that the takeover rules are amended to clarify the scope and applicability of such rules on companies domiciled in another country having issued stocks traded on a Norwegian regulated market. Further, the introduction of an obligation for companies domiciled outside the EEA is proposed to ensure that, if such non-EEA company's stocks are listed on a Norwegian regulated market, the company will have a special obligation to provide information on its website about the rights of its minority stockholders.

According to the proposal, the Takeover Supervisory Authority will be authorised to issue fines of up to 10 million kroner for natural persons and up to 20 million kroner for legal entities for violation of a number of key rules, or up to 2 per cent of the total annual turnover in the last annual accounts for the same. If approved by the Parliament in its proposed form, this will, inter alia, apply to:

  1. the obligation to provide accurate, clear and non-misleading information in connection with an offer;
  2. prerequisites for presenting an offer;
  3. the obligation to provide notification of a mandatory offer or voluntary offer;
  4. the obligation to make a mandatory or voluntary offer; and
  5. the requirement for a minimum offer price in mandatory offers.

It is currently unclear when the Parliament can be expected to adopt these amendments into Norwegian legislation. We do not expect the proposed changes to be implemented until 2022 at the earliest. However, earlier in 2020, the Parliament adopted a rule under which a regulation can be issued 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. At the same time, it resolved to repeal the 'market-pricing' alternative with a more balanced rule set out in a separate regulation. However, the repeal of the market-pricing alternative has not yet entered into force. Due to the covid-19 pandemic, a temporary regulation for calculating the offer price was implemented with effect from 20 May 2020, expiring on 1 January 2022.

A seventh report was published in January 2021. The report contains proposals for certain amendments to the rules on supervisory authority, sanction competence and appeal schemes. The report proposes, inter alia, that the task, as offering authority, be transferred from the OSE to the Norwegian FSA, and that the delegation of the supervision with the ongoing duty to provide information and the deferred publication cease. The committee proposes that the Stock Exchange Appeals Board be closed down and that an appeals board be established under the Ministry of Finance for cases in the securities market area. We expect that the proposed amendments at the earliest will be implemented into Norwegian law in 2022.

iv Changes to the OSE's issuer rules, etc.

Throughout 2020 and per 1 March 2021, the OSE has also implemented a set of changes to the issuer rules on the OSE, Euronext Expand (formerly Oslo Axess) and Euronext Growth Oslo (formerly Merkur Market). It should be noted in this respect that the OSE has updated its relevant rule books for the various exchanges (formerly 'continuing obligations of stock exchange listed companies'). In contrast to the former situation, where the OSE had its own rule books for various financial instruments and its own rules for admission and current liabilities, respectively, all these sets of rules have now been collected in Rule Book II.

v Proposed amendments to the National Securities Act

In October 2021, the Ministry of Justice and Public Security and the Ministry of Defense published a joint consultative paper proposing certain amendments to the Norwegian National Security Act. The Ministries now propose to broaden the scope of the ownership control provisions by, inter alia, introducing a notification obligation for acquisitions of qualified ownership interests in suppliers with facility security clearance, as well as proposing to lower the threshold for the notification obligation from one-third of the shares, interests or votes in an undertaking to 10 per cent. In addition, the Ministries propose an automatic implementation ban of acquisitions that is subject to notification. The proposed ban shall be in effect from the time the notification is sent until the relevant ministry has notified the notifying party that the transaction has been approved or that the matter has been considered by the King in Council.

Foreign involvement in M&A transactions

Foreign nationals were relatively active in the Norwegian financial markets until a noticeable retreat in 2015, largely as a result of a collapse in oil prices. However, from 2016 and throughout 2019 foreign bidders returned and, so far in 2021, foreign appetite for Norwegian assets continues to be relatively high even under the covid-19 pandemic.

In the first half of 2020, 124 Norwegian M&A transactions were announced with a deal value of more than €5 million, of which 41.9 per cent involved foreign buyers.2 Overall, in 2020, the total number of M&A transactions with a deal value of more than €5 million was 325, of which 43.7 per cent involved foreign buyers.3 Six of the 10 largest inbound M&A deals during 2020 involved foreign buyers, while eight of the 10 largest inbound PE transactions involved foreign funds investing in a Norwegian target company.4

See Section V for examples of inbound cross-border M&A deals during 2020.

Foreign investors' appetite for Norwegian assets in the first half of 2021 continued to stay strong and increased significantly compared with the same period in 2020.Nine of the 10 largest M&A transactions involved a foreign buyer, six more than in the first six months of 2020, while for the same period in 2019, six of the 10 largest M&A transactions involved foreign buyers. For the first half of 2020, 228 Norwegian M&A transactions were announced with a deal value of more than €5 million, of which 49.6 per cent involved foreign buyers. This is a slight decrease in terms of the percentage of the total deal volume compared with 2020, in which 52 per cent involved foreign buyers. In terms of the number of cross-border deals, there was an increase of 146 per cent in volume compared with 2020. Examples of inbound cross-border transactions so far in 2021 include SoftBank Group Corp's €2.4 billion acquisition of a 40 per cent stake in AutoStore AS and Nordax Bank AB's €1.9 billion voluntary offer for Norwegian Finance Holdign ASA (Bank Norwegian).

Significant transactions, key trends and hot industries

i Technology, media and telecommunications

In 2020, the technology, media and telecommunications (TMT) sector was largest in terms of acquisitions in Norway, accounting for a record 26.1 per cent of the total deal count for the year. This represented a 0.05 per cent decrease in the total deal volume compared with 2019. The increase in percentage within this sector was due to a slight decrease in the overall deal volume for 2020 compared with 2019, and in terms of the actual number of deals, the deal count for the TMT sector was actually identical both for 2020 and 2018. The strength of M&A activity during 2020 within this sector continued to be driven by global trends such as digitalisation, AI, the IoT, data analytics, infrastructure light business models and augmented reality. The increase in average deal value within the TMT sector also continued to increase in 2019. The most notable TMT transaction in 2020 was Autodesk, Inc's acquisition of Spacemaker AS, a Norwegian cloud-based, AI developer that helps architects, urban designers and real estate developers make early-stage design decisions faster, in a cash transaction valued at €212 million. The purposes of the transaction were to help Autodesk to offer a platform to drive user-centric automation – powered by artificial intelligence – and accelerate outcome-based design capabilities for architects. Also worth mentioning were Visma AS's €196 million sale of a Visma Commerce, a Norway and Sweden-based provider of public procurement information and monitoring software to Mercell Holding AS and Francisco Partners' €140 million acquisition of Consignor Group AS (now nShift AS), a shipping software company from the founder and CEO of Consignor Peter Thomsen.

As in previous years, the majority of deals in this sector were rather small, since several target companies originate from venture capital (VC) investments reaching a stage in their development where investors are seeking an exit. Since the post-crisis cool-down, there has been relatively moderate interest in VC investments in the Norwegian market, which to a great extent has resulted in the VC market lagging behind when compared to more mature companies. However, the trend of more people being attracted to innovative tech investments has continued.

The volume of deals within the TMT sector accounted for 25.9 per cent of the total deal volume during the first half of 2021. However, with the exception of SoftBank Group Corp's acquisition of a 40 per cent stake in AutoStore AS, a Norway-based robotics and software company providing automation technology to warehouse and distribution facilities, from Thomas H Lee Partners, LP and EQT Partners AB, for a consideration of €2.3 billion, and Quorum Software's agreement to acquire TietoEVRY's entire oil and gas software business, for an enterprise value of €155 million, the transactions have been relatively small.

Based on current market sentiment, there are likely to be relatively high numbers of TMT deals throughout the remainder of 2021, thanks largely to a domino effect whereby corporates that were inactive in 2015, 2016, 2017, 2018, 2019 and 2020 will continue to replicate peer deal success and related advantages. However, there are some concerns, including that the pricing of companies within this sector has been on the rise for some time, and some commentators feel that there could be a lack of robustness for development. We believe the trend within the TMT sector is likely to continue irrespective of the current covid-19 situation, simply because this was one of the very few sectors in which deals were actually closed even if the rest of the world's deal activity went into mute for some months during 2020.

ii Industrials and manufacturing

The industrial and manufacturing sector was another busy sector in 2020, accounting for approximately 13.9 per cent of the total deal count. This is slightly more than the 12.6 per cent of the total deal count for 2019, and the industrial sector was one of the most active sectors, with a total of 45 transactions, four more than in 2019. The strength of M&A activity during 2020 continued to be driven by this sector benefiting from a weakening Norwegian krone. However, most of the transactions were small. One exception was Tronox Holdings plc's acquisition of TiZir Titanium & Iron AS for €278 million consideration which was announced in May 2020. Another exception was Aker Solutions ASA's €186 million spin-off of Aker Carbon Capture AS (ACC), a Norway-based company engaged in providing solutions, services and technologies covering the entire CCUS value chain from capture, transport, utilisation through to storage of CO2 and enhanced oil recovery, into an independent newly listed company.

The momentum within the industrial and manufacturing sector has continued upon entering 2021, with 27 deals announced in the first six months, representing 11.8 per cent of the total deal count for the period. The most notable of these deals were KPS Capital Partners' acquisition of the rolling business from Norsk Hydro ASA, for a consideration of €1.38 billion, and Alussa Energy Acquisition Corp's (a US-listed special purpose acquisition vehicle (SPAC)) €344.8 million acquisition of Freyr AS, a Norway-based developer of clean, next-generation battery cell production capacity, announced in January 2021.

iii Services

The strong momentum within the services sector continued throughout 2020, accounting for 10.5 per cent of the total deal count for the year. However, this was a decrease from the 17.3 per cent of the total deal count for 2019, but still the services sector was one of the most active sectors in 2020 with a total of 34 transactions, eight less than in 2019. Many corporates in the business services sector continue to experience margin pressure. Technology-led disruptive innovations have the potential to transform the way business service providers operate, with the potential for becoming more global. With opportunities for global growth, M&A delivery scale, improved geographical footprint and capability, these are considered an attractive way for creating revenue and cost synergies.

One of the most notable transactions within the services sector in 2020 was announced in December 2020, when Geveran Trading Co, Ltd, announced its €1 billion acquisition of a 55.69 per cent stake in Axactor SE, a Norway-based debt collection and debt purchase company listed on the Oslo Stock Exchange.

During the first half of 2021, 21 deals were related to the services sector. The most notable was the acquisition by Alfa Laval Corporate AB of StormGeo AS, from EQT Partners AB and DNV GL AS, for a consideration of €363.862 million, on a debt-free and cash-free basis.

iv Consumer

The consumer and retail sector accounted for 9.9 per cent of the total transaction volume in 2020, a slight decrease compared with 2019 (11.4 per cent). In terms of number of transactions, the sector showed a 13.57 per cent decrease compared with 2019. The most notable public takeover deal within the consumer sector announced during 2020 was Altia Plc's €387 million acquisition of Arcus ASA, the Norway-based and listed producer and supplier of wines and spirits through a statutory cross-border absorption merger whereby Arcus will be merged into Altia and dissolved.

Other major deals were NTS ASA's acquisition of a 12.79 per cent stake in Norway Royal Salmon ASA, for €109 million, and Gjeldsten's/Sport 1 acquisition of Gresvig AS, on of Norway's largest sports retailers for an undisclosed consideration from Gresvig AS's insolvency administrator.

In the first half of 2021, 28 of a total of 228 deals were related to the consumer and retail sector, 20 more than in the first half of 2020.

v Energy (including oil and gas)

Following the end of April 2020, the oil and gas prices started to improve. The investments within the oil and gas sector continued to decline throughout 2020, at least in number of deals compared to 2020. Overall, 11.4 per cent of all deals in 2020 were related to energy and oil services and the offshore sector, of which the oil and gas segment accounted for merely 1.8 per cent. The oil and gas industry continued to reconfigure its business model to sustain and grow in a lower oil price environment. Reduced oil prices until mid-2016 led to many sponsors taking an interest in exploration and production (E&P) assets at favourable prices, which continued into 2017, 2018 and 2019, resulting in increased interest in such assets in general. However, during 2020 most of the energy focus in the Norwegian M&A market shifted to renewables, which in total accounted for 9.54 per cent of the total deal count for 2020. The most noteworthy energy transaction was announced in December 2020, when Scatec ASA agreed to acquire SN Power, a Norway-based hydropower company and a commercial investor, developer and operator of hydropower projects, from Norfund AS for a cash purchase price of €1.01 billion.

Notable transactions within the E&P segment included Sval Energi AS's €244 million acquisition of Edison Norge AS from Edison SpA. The acquisition aimed to increase Sval's reserve base, adding 25 mmboe (with 57 per cent gas), which is in line with the company's growth ambition. The transaction was also in line with Edison's divestment plan of its hydrocarbon exploration and production activities and focus on sustainable development. Worth mentioning is also Lundin Energy Norway AS's acquisition of Idemitsu Petroleum Norge AS's Norwegian assets in the North Sea for €106 million.

Within the renewable market we witnessed a significant step-up in number of deals from 2019 to 2020 with a total of 31 M&A deals announced in 2020 compared to only 14 deals announced in 2019. In August 2020 it was announced that Aker Solutions ASA has agreed to spin off its offshore wind development business into a new listed company Aker Offshore Wind Holding AS, the listed Norway-based company operating as offshore wind developer with focus on assets in deep waters in Asia, North America and European region. In June 2020, it was announced that Cloudberry Clean Energy AS (Cloudberry) has agreed to acquire a 34 per cent stake in Forte Energy Norway AS (Forte Energy), the Norway-based company that owns and operates 13 Norwegian small-scale hydro power plants from FONTAVIS AG. Following this, Cloudberry announced a string of four additional acquisitions within this segment, of which the two last were announced in December 2020, when it became known that Cloudberry had acquired a 15 per cent stake in Odal Vindkraftverk AS, a Norway-based windfarm, for an undisclosed consideration as well as 100 per cent of Selselva Kraft AS, a Norway-based owner and operator of hydropower plant, for an undisclosed consideration. In October 2020, it was further announced that Norsk Hydro ASA and Lyse AS have agreed to form 25.6:74.4 joint venture to be based in Norway and engaged in production of hydropower.

In the first half of 2021, this trend continued with only five announced M&A transactions related to the oil and gas sector, but with 19 M&A deals announced within the renewable energy sector. We expect that the increased M&A activity within the renewable energy segment will continue for some time, while the oil and gas segment is expected to be more muted. The reason being that many financial sponsors due to an increase in the environmental awareness among their investors have slowly started to shift away from oil and gas as an arena where they want to be placing funds.

vi Private equity

The number of transactions involving PE sponsors either on the buy side or sell side decreased 4.6 per cent in 2020. Regarding buyout investments by volume, Sweden saw the highest volume with 44.9 per cent, followed by Denmark with 23.4 per cent, Norway with 17.9 per cent and Finland with 13.8 per cent.

Norway's PE industry is largely driven by new investments and add-ons, but in 2020 there was a significant decrease in the number of exits and a significant increase in the number of new investments. Of all the transactions during 2020, 79.5 per cent were new investments and add-ons, 3.6 per cent were secondary and 16.9 per cent were exits. However, of the deals involving PE sponsors, the average reported deal size took a significant dive from €346 million in 2019 to €130 million in 2020. Of the 10 largest disclosed transactions in 2020, only six had a deal value exceeding €100 million (four less than in 2019), and only one of the 10 largest announced and completed transactions involved PE.

Among the most notable PE deals in 2020 were EQT Partners AB, a Sweden-based listed and private equity firm's acquisition of Torghatten ASA, a Norway-based company that offers shipping, ferry and express boat services, as well as bus services for a total deal value of €1.27 billion and Inflexion Private Equity Partners LLP €276 million tender offer to acquire all outstanding shares of Infront ASA. In July 2020, it was also announced that Francisco Partners acquired Consignor Group AS for €140 million. This was among the largest PE deals in the Norwegian market in 2020.

The PE market experienced significant increase in activity at the beginning of 2021, with a 207 per cent increase in announced deals compared with the first half of 2020, and also a significant increase in average deal size. PE funds continue to look actively for opportunities in the Norwegian market.

The most notable private equity transactions so far in the first half of 2021 have been: Thomas H Lee Partners, LP and EQT Partners AB's €2.34 billion sale to SoftBank Group Corp of a 40 per cent stake in AutoStore AS, a Norway-based robotics and software company providing automation technology to warehouse and distribution facilities, and KPS Capital Partners, LP's acquisition of the rolling business from Norsk Hydro ASA, for a consideration of €1.38 billion, and the agreement to merge Unifaun AB, a portfolio firm of Marlin Equity Partners, LLC and Consignor Group AS, a portfolio firm of Francisco Partners.

We expect continuing strong momentum for new PE deals within particular sectors, such as TMT, healthcare, pharmaceuticals, and the industrial and manufacturing sector. There is still much cash is waiting to be invested. The number and size of deals involving PE sponsors will depend on market developments and volatility.

Financing of M&A: main sources and developments

The high-yield bond market recovered from a period in the doldrums and until the beginning of 2020 was quite buoyant. Higher and more stable oil and gas prices, combined with capital continuing to be inexpensive and plentiful, contributed to a significant strengthening of the credit markets. In 2021, the bond market has once again recovered after a temporary shutdown during the covid-19 pandemic. Currently the issuance of both green (environmental and climate) and blue (water) bonds is increasing and PE sponsors are once again considering bond financing as a means for acquisition financing.

The presence of alternative lenders and institutional investors in the form of collateralised loan obligations funds (CLOs) flooding the international financing markets with ever-more borrower-friendly documentation, combined with an improved bond market, continues to create a relatively borrower-friendly environment. The trend of unitranche or term loan B-style (TLB) loans spreading globally seems to continue and funds offering these types of loan products are marketing their products particularly towards PE sponsors.

i M&A financing

Traditionally, third-party financing of acquisitions is provided by way of bank loans. In large transactions, the senior loan will be governed either by Norwegian or English law, with one bank acting as agent for the syndicate of lenders. In syndicated transactions, the senior loan agreements used will normally be influenced by the forms used internationally, in particular the standard forms developed by the Loan Market Association. Acquisition financing (in particular for PE transactions) tends to be provided by way of two or sometimes three layers of debt, with subsequent seniority. In recent years, generally we have witnessed a greater variety of combinations of debt layers and lenders involved, especially in larger LBO transactions.

Increasing competition from the high-yield bond market, unitranche funds (see below) and mezzanine providers, which ask for high interest rates, has made mezzanine financing less competitive than other options. It is rarely seen for new deals, although some traditional mezzanine funds are starting to adapt to the new market situation by offering products similar to unitranche loans. There is an increasing use of second lien facilities instead.

Using debt securities such as high-yield (junk) bonds for acquisitions has not been common in Norway, mainly because, compared with financing an acquisition with a credit facility, financing through a high-yield bond debt involves coordinating the closing of a transaction with what is, in fact, public financing. In most cases, the acquisition will be subject to various conditions, typically including various forms of regulatory approval. Funding an acquisition through a traditional credit facility is generally more feasible than a high-yield bond. Historically, larger listed corporations have dominated acquisition financing obtained through the Norwegian bond market. Such corporations have frequently been willing to take a practical approach by issuing bonds and uploading debts on their balance sheet to have dry powder easily available for future acquisitions without necessarily having to take into consideration how to coordinate a drawdown with the conditions precedent under a pending sale and purchase agreement. Such instruments would generally be documented under New York or English law, or Norwegian law for issue in the local market. However, from 2012 to September 2014, acquisition financing raised in the Norwegian debt capital market was increasingly popular. During this period, it also became fairly common among sponsors to attempt to refinance acquisition debt post-completion by using the Norwegian bond market. Bonds governed by Norwegian law are usually issued pursuant to the standard terms of Nordic Trustee ASA, which acts as the trustee for the majority of bonds issued by Norwegian companies.

Between May 2016 and the beginning of 2019, the bond market improved significantly. Bidders were again raising financing in the high-yield bond market in connection with Norwegian leveraged acquisitions. During this period we also observed an increasing number of sponsors refinancing acquisition debt post-completion at favourable coupon rates by using the bond market. However, in the middle of the covid-19 pandemic, this trend came to a halt. Following this market turbulence, the high-yield bond market's popularity for raising acquisition financing is on the rise.

In the past year, there has been increased activity from non-bank (alternative) lenders and funds that are offering to replace or supplement traditional senior secured bank loans to finance M&A transactions. The products these lenders are offering typically include TLB facilities and unitranche loans.

Vendors may occasionally also be willing to bridge the valuation gap by offering a bidder to finance parts of the purchase price to achieve the price the vendors are asking. If structured as vendor loan notes, these will sometimes (but not always) be subordinated to the other elements of the acquisition financing. Vendor loan notes will then normally be on similar terms (or senior) to the subordinated loan or preferred equity capital provided by the PE sponsor, but are usually priced to give a lower rate of return. The split between debt finance and true and quasi-equity will be determined on a transaction-by-transaction basis, and particularly by reference to the underlying business and its funding requirements.

Other forms of debt financing that may be used in acquisitions, such as securitisations, are relatively rare in Norwegian business combinations.

ii Financial assistance and debt pushdown

A buyer may also want to borrow funds from a target company (or its subsidiaries, following completion of a transaction). While as a general rule there are no major obstacles in this regard, in an asset deal where the business assets are bought by the entity financing the deal, a debt pushdown is substantially more difficult in a share transaction. Public and private LLCs have been prohibited from providing upstream financial assistance in connection with the acquisition of shares in a target company (or its parent company).

Since 1 July 2013, the former prohibition on financial assistance has been eased by the introduction of a type of whitewash procedure. Under this rule, both private (AS) and public (ASA) limited liability target companies can, subject to certain conditions, provide financial assistance to a potential buyer of shares in the target company itself. This must be granted based on normal commercial terms and policies, and the buyer must deposit adequate security for his or her obligation to repay any financial assistance received from a target company.

Effective from 2013, the Norwegian Parliament introduced a type of 'whitewash' procedure allowing, both public and private target companies, to provide financial assistance to a potential buyer of shares in such target (or its parent company), provided, inter alia, such financial assistance did not exceed the funds available for distribution of dividend. Such financial assistance had to be granted on normal commercial terms and policies, and the buyer also had to deposit adequate security for his obligation to repay any financial assistance received from the target. The rule's requirement for depositing 'adequate security' for the borrower's obligation to repay any upstream financial assistance provided by a target in connection with M&A transactions would, however, mean that it was quite impractical to obtain direct financial assistance from the target company in most leveraged buyout transactions, due to the senior financing banks' collateral requirements in connection with such deals. The reason for this was that the banks normally request extensive collateral packages, so that in practice, there would be no 'adequate security' left, or available, from the buying company (or its parent company) for securing any financial assistance from the target group, at least for the purchase of the shares.

However, with effect from 1 January 2020, and provided the target company is a Norwegian private limited liability company, an exemption from the dividend limitation rule has now been implemented, allowing such companies to grant financial assistance to a bidder exceeding the target company's funds available for distribution of dividend. This exemption rule will only apply if the bidder (as borrower) is domiciled within the European Economic Area (EEA) area and is part of, or after an acquisition of shares, will form part of a group with the target company. This group exemption will, however, not apply if the target company is a Norwegian public limited company.

From the same date, the former 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 policies, 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 absence of any security, as of 1 January 2020 it is now possible for a target company to grant financial assistance to a bidder without this security.

Any financial assistance must still be approved by the general meeting, resolved by at least two-thirds of the aggregate vote cast and the share capital represented at the meeting (unless otherwise required by the target company's articles of association). In addition, the board must ensure that a credit rating report of the party receiving the financial assistance is obtained, and also that the general meeting's approval is obtained prior to any financial assistance being actually granted by the board. The board shall also prepare and execute a statement, which must include: (1) information on the background for the proposal of financial assistance; (2) conditions for completing the transaction; (3) the price payable by the buyer for the shares (or any rights to the shares) in the target; (4) an evaluation about to what extent it will be in the target's best interest to complete the transaction; and (5) an assessment of the effect on the target's liquidity and solvency.

From 1 July 2014, private equity sponsors must also observe the anti-asset stripping regime that is set out in the Act on Alternative Investment Fund Managers. These rules may limit the sponsor's ability to conduct debt pushdowns depending on the status of the target company (listed or non-listed), the number of employees in the target company and the size of such target company's revenues or balance sheet.

iii Corporate benefit

The power of an entity to grant security or guarantees is limited by the doctrine of corporate benefit in some situations. Under Norwegian law, a board of directors has a general duty to act in the best interests of the company and all its shareholders. There is currently limited case law to determine the boundaries of the corporate benefit requirements, but it has been assumed that boards enjoy fairly wide discretion to consider the corporate benefit. If a board, following due consideration, concludes that a transaction is in a company's interests, it will be difficult to challenge a well-documented resolution to this effect.

However, under Norwegian law it is uncertain to what extent a group benefit is sufficient when there is no benefit to the individual group company, for example, in connection with granting a guarantee or providing a security. In principle it is assumed that a Norwegian company is able to provide upstream and cross-stream guarantees and security provided that:

  1. this will not jeopardise its continuing existence;
  2. its corporate objects are not transgressed by such transactions;
  3. it can be argued that cross guarantees benefiting the company exist or that the relevant group company receives any type of guarantee fees; and
  4. guarantees and securities are not in breach of the financial assistance propitiation (see Section VI.ii).

The Public Limited Liability Companies Act and the Private Limited Liability Companies Act now both contain a provision in Section 8-7(3) No. 3 stating that a loan or security to the benefit of another legal entity within the group is not included in the prohibition on loans or security to a company's shareholders, provided that the loan or security will economically benefit the group. This provision indicates that a group benefit may be sufficient when issuing intragroup guarantees, even if there is no direct benefit to the individual group company that is issuing the guarantees.

The validity of a legal act entered into by a legal entity can be set aside if, as a result, its objects are transgressed and the counterparty was or ought to have been aware of the transgression. Lenders will typically require the submission of corporate resolutions in which the borrower's board of directors confirms that the transactions contemplated by the finance documents to be entered into by the Norwegian company are beneficial to the interests of the company. On this basis, lenders can argue that they did not know or could not have known that the corporate objects had been transgressed.

iv Need for shareholder approval

With effect from 1 January 2020, the authority to approve agreements between a company and a shareholder, the shareholder's parent company, a director or the general manager, a shareholder's related party or someone who acts according to an agreement or understanding with any of the aforementioned parties, is now transferred from the company's general meeting to the board of directors. Provided the actual value of such agreements exceed 2.5 per cent of the company's balance sheet amount, such agreements shall be approved by the company's board of directors. It must be assumed that the rules in principle also apply to loans and guarantees, provided the interests and fees paid exceed these thresholds. With effect from 1 January 2021, the above threshold value may be based on an interim balance sheet that is registered in, and made public by, the Register of Company Accounts. If the company has not adopted an annual financial statement or an interim balance sheet, the threshold value shall be 2.5 per cent of the total nominal value of, and premium on, the shares issued by the company. Regardless of the limit above, the provisions do not apply to agreements with a maximum value of 100,000 kroner. Prior to the above amendment, these agreements had to be approved by the company's general meeting if the consideration to be paid by the company has an actual value exceeding 10 per cent (AS) or 5 per cent (ASA) of the company's share capital at the time of the transaction.

If the rules apply, the board of directors must issue a report to the shareholders, including a statement that there is a reasonable correlation between the value of the consideration to be paid by the company and the value of the consideration received by it. In addition, an auditor must issue a statement confirming that the board's statement is correct.

Certain exemptions apply, such as agreements entered into following the rules governing the incorporation or share capital increase against a contribution in kind, certain management remuneration arrangements, transfers made according to publicly quoted prices, and what are referred to as 'agreements entered into as part of the company's normal business and that contain price and other terms that are customary for such agreements'. An exemption rule exists for intragroup agreements entered into between a parent company and a subsidiary provided that the parent owns all shares in the relevant subsidiary and the loan or security is to the benefit of the group, or the parties have adopted the new whitewash procedures relating to financial assistance.

As long as a parent company controls all shares in the relevant subsidiary issuing the intragroup loans and guarantees used, it can now be argued that there will no longer be a need for banks to request that loans and guarantees have to be approved by the shareholders or the board. Approval may still be necessary in cases as referred to in Section VI.ii or where the parent does not control all shares in the relevant group companies issuing the loans or securities. Intragroup loans may trigger a need for approval from the receiving subsidiaries, unless they are entered into as part of the relevant subsidiaries' ordinary business activity and contain prices and other terms that are normal for such agreements. In legal theory, it has been argued that intragroup loan agreements entered into in connection with M&A transactions very often must be considered as falling outside the normal business activity of the respective company receiving the financing and, therefore, under all circumstances need to be approved by the company's shareholders.

v Pricing of credit

At the time of writing, the pricing of credit in the Norwegian leveraged finance market seems to be relatively similar to the situation in 2020, except that the banks under the covid-19 pandemic have increased the prices slightly with around 25 to 50 basis points. To be competitive, Nordic banks are now offering TLB for 400 to 450 basis points over the Norwegian interbank offered rate (NIBOR). There has been a move away from the traditional senior A/B tranches (with even amortisation on the A tranche and bullet repayment on the B tranche) to an all-TLB structure with minimal front-end amortisation. Typically, the margin on the A tranche will be 50 basis points lower than for the B tranche. On some smaller deals where the banks' acquisition financing department has not been involved, margins have been more favourable. A tranches throughout 2020 and into 2021 have been less frequent than in previous years. When banks insist on an A/B tranche structure, they can seldom expect to achieve more than a 20/80 split, compared to a 40/60 split, or sometimes 50/50 split, as was the norm in the years immediately following the credit crunch.

Leverage multiples have continued to increase since 2015, all depending on each individual investment case, but decreased slightly during 2020/21 as a result of the covid-19 pandemic. During 2019, we observed everything from 2.5 to 6.7 times EBITDA (all senior) and combinations of senior, 2nd Lien or high-yield bonds around 7.5 times EBITDA, even if most banks would hold back on accepting an increase in leverage multiples above six times EBITDA. For some large Norwegian targets with attractive cash flow, there were indications that some international banks were willing to support more than seven times leverage (potentially 7.5 times if cash flows or valuation were supportive), while most Nordic banks would, subject to credit committee approval, be willing to accept a debt structure of seven times EBITDA with senior debt leverage between 5.5 to 6.5 times EBITDA. During the pandemic, banks have been reluctant to accept debt structures of more than 6.5 times EBITDA, with senior leverage between 4.5 to 5.5 times EBITDA. Many banks seem to want to conitue this practice into 2021.

Throughout 2017, 2018 and 2019, most Nordic banks seem to have attempted to resist equity contributions below 35 per cent. This trend has continued throughout 2020 and 2021. There has been a clear increase in acquisition multiples and banks prefer that a borrower finances parts of the increase itself by contributing more equity to the structure. Sponsors may still attempt to circulate draft term sheets to the banks with financing ideas with only a 20 to 30 per cent equity contribution from the sponsor; there were deals of this kind in both 2016, 2017, 2018 and 2019.

In general, in our view the arrangement fee in bilateral transactions in October 2021 was between 225 and 275 basis points. In syndicated deals, the arrangement fee now seems to be standard at 250 basis points for medium-sized transactions. If a syndicate consisted of two or three banks, of which one is a foreign bank, this very often increased the arrangement fee by 50 to 75 basis points compared with a bilateral transaction. Agency fees have also increased.5 The banks blame this, inter alia, on more cumbersome obligations to comply with know your customer guidelines.

For larger deals, unitranche structures combining senior and subordinated debt into one debt instrument at a blended price seem to have replaced traditional mezzanine. Throughout 2020/2021, we observed some international banks willing to propose term B, C, D, E and F-style loan facilities for financing Norwegian assets at very favourable rates.

vi Financial covenants, mandatory prepayments and excess cash sweep

A full suite of financial covenants more or less used to be the norm in the leveraged debt market, usually comprising leverage, interest cover, cash-flow cover and restrictions on capital expenditure, and such covenants would be tested frequently. Borrowers would seek to amend the interest cover covenants to provide additional headroom.

However, there has been an explosive development in financing provided by high-yield bonds issued in the debt capital market. Bond financing may still retain incurrence-based financial covenants (i.e., compliance with a fixed-charge covenant test or leverage test measured at the time debt is incurred, investments are made or dividends are issued). Nowadays, most Norwegian banks are willing to grant acquisition financing only based on leverage and cash flow cover covenants.

Throughout 2019 and into 2021, in larger deals with an international banking syndicate, it has become the norm to use terms of a covenant-lite nature for LBO transactions, but banks will normally seek to resist such terms on small to medium-sized transactions. To meet increased competition on smaller deals, banks continue to ease back on some of their terms, and there has been a move towards more relaxed terms (covenant-loose) for senior debt in the leveraged market for mid-market deals. Typically, interest cover and capital expenditure covenants are not seen very frequently in leveraged finance transactions.

Equity cure rights (the right to cure breaches of financial covenants by injecting additional equity) are generally accepted among banks. However, permitted amounts, their use in consecutive financial quarters and the application of equity cure proceeds to repay debt are subject to negotiation. Banks will generally tend to restrict equity cures and will try to ensure that as much as possible of the equity cure amount is being applied to prepayments. By mid 2021, there seemed to be a general consensus among the larger banks that they would be prepared to accept equity cure rights of up to four times the terms of the facilities, even though it was known that, for occasional deals, banks had been willing to move to up to five times. This is one less the same as for 2019. We have now also started to see increased pressure on banks to accept EBITDA cures, and there have now been deals in Norway conducted with this type of cure. On large transactions, up to a 5 times EBITDA cure is fairly frequent, while for mid-sized deals, 1 to 2 times EBITDA cures should now be possible to achieve even if the banks started to cut back on such cure rights during the pandemic.

The scope of agreed carve-outs and de minimis thresholds for mandatory prepayment in cases of disposal proceeds, acquisition proceeds, insurance proceeds and excess cash flow continue to be the subject of hard negotiations, and will vary according to the deal. However, since 2013, the sweep percentage has steadily gone down, and the downwards ratchet leverage levels at which a cash sweep ceases to apply have started to increase.

It now seems that banks' terms and conditions in the leveraged finance sector have been forced to return to those of the pre-crisis era. Obviously, banks will seek to hold back this development as long as possible. How far sponsors are able to drive the banks further in this respect remains to be seen.

Employment law

Under Norwegian law, employees are afforded protection through legislation, mainly the Workers' Protection Act (the Act), which implements the Acquired Rights Directive6 and collective bargaining agreements. The Act further includes protection against, inter alia, unlawful dismissals and mass layoffs.

Private acquisitions of or public offers for shares in a target company will not generally affect the terms of an individual's contract of employment with the target company. A transaction will not itself trigger any duties towards the target company's employees for the new shareholder. However, the target company is duty-bound to inform the employees.

When a business (asset) is acquired, according to the Act, employees as a general rule have the right to have their employment contracts transferred to the purchaser, and the purchaser will therefore assume all rights and obligations of the transferor, provided that the unit being transferred is an independent economic unit that keeps its identity subsequent to the transfer. Certain exceptions apply to pension regimes. An employee may refuse the transfer of his or her employment to the new employer. The former and the new employer shall, as early as possible, provide information concerning the transfer, discuss it with the employees' elected representatives and then inform each employee. Similar provisions are often provided for in collective bargaining agreements, and the provisions in these agreements may therefore also apply to share transactions.

Employees are protected against termination based on a transfer of business, but terminations resulting from rationalisation measures may take place. The rules for asset transfers also apply in cases where the identity of the employer changes after a merger.

The Act sets out detailed rules that must be observed with respect to, inter alia, workforce reductions, dismissals and redundancy notices, and transferring and relocating employees, in particular in a business combination that takes place as an asset deal. These rules are supplemented by notification and discussion obligations in connection with a business combination set out in collective bargaining agreements (if applicable) with some of the labour unions.

As from 1 January 2020, the Reorganisation Act of 2008 was abolished, thus removing certain cumbersome consultation and notification obligations on the owner of a business if it is considered to conduct a workforce reduction that comprises more than 90 per cent of the company's workforce or if the business activity is considered to be closed down.

In March 2015, the Conservative government surprisingly reintroduced a Bill proposal implying changes to the rules relating to restrictive covenants in employment relationships. The Ministry of Labour under the previous government had introduced the basis for the proposed amendments in 2010. The Bill proposal was never put forward. However, the proposed changes have now been reintroduced and, in spite of objections from several employer and business organisations, Parliament has resolved to adopt the proposal.

From 1 January 2016, non-recruitment clauses between an employer and other businesses will be invalid except when such undertakings are agreed in connection with takeover situations. Since 1 January 2016, however, in takeover situations, a non-recruitment clause can only be agreed for a maximum of six months from the date on which the parties resolved to terminate negotiations if negotiations fail. Non-recruitment clauses can further be agreed for a maximum six-month period from the date of transfer of a business provided the employer has informed all affected employees in writing.

It is not obvious if the letter of the new law also prohibits a seller and a buyer in a share purchase transaction from agreeing non-recruitment clauses for longer periods, provided the target company itself (as the employer of the relevant employees) is not a direct party to the agreement. It can be argued that a non-recruitment clause in a share purchase agreement does not violate the new legislation as long as the non-recruitment clause only refers to the target company's employees, and the target company itself is not a party to the agreement. There is a risk that non-recruitment clauses agreed for longer periods in share sale and purchase transactions may still be invalid. The basis for this is that even if the target company is not a direct party to the sale and purchase agreement, the effects of the clauses in share purchase agreements may still turn out to be the same as if a target company had become a party to the agreement. Consequently, it can be argued that non-recruitment clauses agreed for longer durations in share purchase agreements at least violate the spirit of the new legislation, and thus must also be considered prohibited.

Tax law

i Acquisition of shares

Norwegian shareholders, as LLCs and certain similar entities (corporate shareholders), are generally exempt from Norwegian tax on capital gains upon the realisation of, shares in domestic or foreign companies domiciled within EU and EEA Member States. There is no minimum interest or holding period requirement to qualify for the exemption. Losses related to such realisation are not tax-deductible. Costs incurred in connection with the purchase or sale of shares are not tax-deductible. Certain restrictions apply for tax exemption on shares in foreign companies not located in EU or EEA Member States. Further, restrictions also apply for shares in companies located in low-income tax states within EU and EEA Member States, that are not genuinely established and conducting businesses out of such countries. Capital gains on shares in foreign companies subject to the Norwegian (NOKUS rules) CFC taxation are not exempted, but subject to adjustment rules. Capital gains from the realisation of shares in Norwegian limited liability companies (including companies with mainly real estate assets) by a foreign corporate shareholder are not subject to tax in Norway unless the shares are allocated to a Norwegian permanent establishment and the shares do not qualify for exemption as described above. The extent of the tax liability of foreign shareholders in their country of residence will depend on the tax rules applicable in that jurisdiction.

Dividends received by a Norwegian company on business-related shares in group subsidiaries within the EEA, held directly or indirectly with more than 90 per cent inside the EEA, are exempt from Norwegian corporate tax in the hands of the receiving corporate shareholders. A 3 per cent clawback rule will, however, apply to dividends received by corporate shareholders owning not more than 90 per cent of the shares. These rules also apply for foreign corporate shareholders with a permanent establishment in Norway that receive dividends from Norwegian companies, subject to such foreign corporate shareholders participating in or carrying out business in Norway to which such shareholdings are allocated. Under these circumstances, 3 per cent of dividends are subject to taxation as ordinary income at a rate of 22 per cent giving an effective tax rate of 0.66 per cent).

Dividends received or capital gains derived from realisations of shares by shareholders who are Norwegian private individuals (personal shareholders) are taxable as ordinary income. The amount derived from such distributions or capital gains, less an annual deductible risk-free return since the investment, must be multiplied by 1.44, and this grossed-up amount is thereafter to be taxed as ordinary income for private individuals at a rate of 22 per cent. In effect, this increases the effective tax rate on distributions and gains to 31.68 per cent. Any losses are grossed up in the same way and tax-deductible against a personal shareholder's ordinary income.

Normally, an acquisition of shares in a Norwegian target company will not affect the target's tax position, including losses carried forward, and such attributes normally remain with the target unless the tax authorities can demonstrate that the transfer of shares is primarily tax-motivated.

ii Acquisitions of assets

Capital gains derived from the disposal of business assets or a business as a whole are subject to 22 per cent tax and losses are deductible. A Norwegian seller can defer taxation by gradually entering the gains as income according to a declining balance method. For most assets, the yearly rate is a minimum of 20 per cent, including goodwill.

The acquirer will have to allocate the purchase price among the assets acquired for the purposes of future depreciation allowances. The acquirer will be allowed a stepped-up tax basis of the target's asset acquired. The part of the purchase price that exceeds the market value of the purchased assets will be regarded as goodwill. However, the tax authorities may dispute the allocation to goodwill instead of other intangible assets with a considerably longer lifetime.

As gains from the disposal of shares in LLCs are generally exempt from tax for corporate shareholders, this will, in many instances, make the sellers favour a share transaction over an asset transaction. This will not, however, be the case in transactions involving a loss for the seller, as a loss will still be admitted for the sale of assets.

iii Mergers

Under Norwegian law, an enterprise can be acquired through a tax-free statutory merger in return for the shareholders in the transferor company receiving shares as consideration. Such a transaction will be tax-exempt for both the shareholders and the merging companies. To qualify as a tax-exempt merger, all companies involved need to be domiciled in Norway; however, cross-border mergers and demergers between Norwegian companies and a company domiciled within the EEA (subject to certain conditions being fulfilled) can also be carried out as tax-free mergers under Norwegian law.

To qualify as a tax-free merger, all tax positions will have to be carried over without any changes, both at the company level and at the shareholder level. The shareholders' tax cost basis of shares must nevertheless be split between the number of shares received as compensation in the merger.

A cash element may be applied as consideration in addition to shares in the transferee company, but may not exceed 20 per cent of the total merger consideration. Cash payments will be considered as dividends or as capital gains, both of which will be taxable if the receiver is a personal shareholder. If cash compensation shall be considered as dividends, it must be divided between the shareholders in accordance with their ownership in the transferor company. Dividends or gain will be tax-exempt if the shareholder is a corporate shareholder, except for the tax on 3 per cent of their dividend income derived from shares in the merging companies, which is taxed at a tax rate of 22 per cent if the shareholder owns not more than 90 per cent of the shares in the merging companies.

Share-for-share transactions, where more than 90 per cent of the shares in a Norwegian company is exchanged into shares in a foreign company can also be carried out tax neutral for Norwegian shareholders, subject to certain conditions.

Also, demergers can be carried out with tax continuity for a Norwegian company and its shareholders subject to similar conditions as described for tax-neutral mergers.

iv Distribution of dividends and interest

No withholding tax (WHT) is imposed on dividends or liquidation dividends paid by a Norwegian LLC to an EEA-resident corporate shareholder provided that the shareholder is genuinely established and conducts a real business activity in the relevant jurisdiction. No minimum requirements for interest or holding period apply. The EEA-resident corporate shareholder must be comparable to a Norwegian LLC. In this context, an assessment would need to be performed to determine whether the company is genuinely established pursuant to a business motive and that the establishment is not purely tax-motivated. The assessment will differ according to the nature of the company in question, and it must be assumed that assessments of a trading company and a holding company will not be the same. The above is an anti-avoidance rule, hence if one can document that no tax motive exists, the rule shall not apply. If the required criteria are not met, the WHT rate in the applicable double taxation treaty for the involved jurisdictions will apply. If a foreign holding company is considered an agent or nominee for another real shareholder (not a legal and economic owner of the dividends) or a pure conduit company without any autonomy to decide what to do with its income, the tax authorities may apply the default 25 per cent WHT rate (i.e., not accept treaty protection). Foreign buyers of Norwegian assets should thus be cautious when setting up acquisition structures and include tax reviews of any prior holding structures when conducting due diligence.

Paid-in capital is a tax position which follows the shares in non-listed companies. A paid-in premium (either by the former or current shareholder) can be repaid to the current shareholder with no risk of dividend WHT. In case of a dividend distribution where there is a risk for WHT, a shareholder with a paid-in capital tax position can opt to allocate the distribution to its individual paid-in capital account hence avoid dividend WHT.

Interest payments are currently not subject to WHT, even if payments are made outside the EEA; however, the government has introduced a standard 15 per cent WHT on interest payments to related parties resident in low tax countries effective from 1 July 2021. The obligation to pay WHT will apply to interest payments from Norwegian tax resident companies, transparent partnerships and similar entities, including non-resident companies with a permanent establishment, if the interest payments are allocated to the permanent establishment in Norway. The recipient is considered a related party if it owns or controls (directly or indirectly) at least 50 per cent of the debtor paying the interests or if the debtor paying the interest owns or controls at least 50 per cent of the recipient of the interests, at any point in time during the relevant fiscal year. The recipient is considered resident in a 'low tax country' if the general corporate income tax on the company's total net income is less than two thirds of the tax that would have been imposed on the company had it been resident in Norway. Also, interest payments to a company resident in a low tax country within the EU/EEA is comprised of the obligation to pay WHT unless the company is genuinely established and performing genuine economic activities within the EEA. Norway's right to impose WHT on interest will be limited by tax treaties concluded with the recipient's country of residence (often zero per cent, 5 per cent or 10 per cent).

v Deducting losses on receivables between related companies

A company may finance its subsidiaries either by loans or by equity. If using a relatively high amount of loan financing, the parent company could deduct the losses on receivables (bad debt) in the case of an unsuccessful investment while realising a tax-exempt gain on shares where an investment is successful. However, a parent company's right to deduct losses on receivables on related entities subject to the exemption method (see Section I), where the creditor has ownership of more than 90 per cent, is restricted. However, the limitation will not apply to losses on trade receivables, losses on debts that represent previously taxed income by the creditor, or losses on receivables arising from mergers and demergers.

vi Thin capitalisation and transfer pricing

The arm's length principle is broadly laid down in Norwegian domestic legislation. The Norwegian regulations follow the OECD principles, and any documentation prepared in line with the OECD Guidelines will generally meet Norwegian requirements. BEPS Action 13 has not been formally adopted, but a master file and local file format is accepted as long as the information is also in line with current Norwegian regulations. Country-by-country reporting (CbCR) filing and notification requirements apply basically in line with the OECD Guidelines. Norway requires the preparation of transfer pricing (TP) documentation annually. However, companies have 45 days to submit TP documentation upon request from the tax authorities. There is a requirement to retain TP documentation for 10 years. There is a materiality threshold for TP documentation. Documentation requirements do not apply to enterprises with controlled transactions totalling less than 10 million kroner during the tax year and intergroup outstanding values below 25 million kroner. Further, there is an exemption for smaller groups with less than 250 employees and either group revenue of 400 million kroner or less, or balance sheet total of 350 million kroner or less.

Norway does not have statutory thin-capitalisation rules, hence there is no fixed debt-to-equity ratio requirement. Based on the arm's-length principle, the tax authorities may deny an interest deduction on a case-by-case basis if they find that the equity of the company is not sufficient (for example, the Norwegian debtor company is not able to meet its debt obligations or the interest rate is not on market terms). This principle applies in parallel with the interest limitation rules in Norway.

Significant restrictions on the deduction of interest paid to both related parties and to non-related parties have been implemented. For the purpose of calculating net interest paid, which may be subject to limitations, the term interest includes any payment considered as interest for Norwegian tax purposes, including certain premiums and discounts. The same applies to gains and losses on receivables issued at a higher or lower price than the strike price. However, gains and losses are not regarded as interest income or interest expenses for the person who has acquired the debt in the secondary market. Currency gains or losses are not considered as interest; nor are gains or losses on currency and interest derivatives. Interest cost disallowed under the limitation rules can be carried forward for 10 years, but subsequent deduction is also dependent on capacity for interest deduction (i.e., within 25 per cent of taxable EBITDA). Interest received shall be classified as taxable income for the creditor company, even if the debtor company is denied deductions due to the proposed limitation. Group contributions and losses carried forward may not be used to reduce deemed income resulting from interest limitation. Interest limitation will thus result in a net tax payable and possibly asymmetry between taxability for the recipient and deductibility for the payer.

With effect from 1 January 2019, interest payable on bank facilities and other external debt have become subject to a similar interest deduction limitation regime as interest paid to 'related parties', for companies within a 'group'. The group definition includes all companies which could have been consolidated if IFRS had been applied. The original 'separate entity rule' will exist in parallel with the new 'group rule'. The 'group rule' applies if the annual net interest expenses exceed 25 million kroner in total for all companies domiciled in Norway within the same group. Where the threshold amount is exceeded, deductions are limited to 25 per cent of taxable EBITDA on a separate company basis. Note that the 'separate company rule' also applies for a group company when interest is paid to a related party outside of the consolidated group (typically where the related lender is an individual or a company not belonging to the consolidated group for accounting purposes). Two escape rules allowing deduction of interest payments on loans from third parties not forming part of any tax evasion scheme have been implemented. Under the first rule, which applies to each Norwegian company in a group separately, the equity ratio in the balance sheet of the Norwegian company is compared with the equity ratio in the consolidated balance sheet of the group. A group company established in the fiscal year or a surviving company in a merger during the fiscal year cannot apply this rule to obtain interest deduction. Under the second escape rule, which applies to the Norwegian part of the consolidated group as a whole, the equity ratio for a consolidated balance sheet of the Norwegian part of the group is compared with the balance sheet of the group. In both cases, the Norwegian equity ratio must be no more than two percentage points lower than equity ratio of the group as a whole. Companies qualifying for the equity escape clauses may deduct net interest expenses in full, except for interest expenses to related parties outside of the group. Several adjustments have to be made to the balance sheet of the Norwegian company or the Norwegian part of the group when calculating the equity ratio. If different accounting principles have been applied in the local Norwegian accounts and group accounts, the local accounts must be aligned with the principles applied in the group accounts. Further, goodwill and its absence as well as other positive or negative excess values in the group accounts relating to the Norwegian company or the Norwegian part of the company group must be allocated to these entities. The local balance sheets must also be adjusted for intra-group shares and claims which are consolidated line by line in the group accounts. Shares in and claims against such group companies shall be set off against debt and total assets when calculating the group's equity ratio. The adjusted group accounts and the adjusted local accounts for the Norwegian company or the Norwegian part of the group, must be approved by the companies' auditor.

The 'separate company rule' applies only if the total interest expenses (both internal and external) exceeds 5 million kroner. This rule caps the interest deductions on loans from related parties to 25 per cent of the borrower's 'taxable earnings before interest, tax, depreciations and amortisations'. The term 'related-party' covers both direct and indirect ownership or control, and the minimum ownership or control required is 50 per cent (at any time during the fiscal year) of the debtor or creditor. Also, a loan from an unrelated party (typically a bank) that is secured by a guarantee from another group company (i.e., a parent company guarantee), will also be considered as an intra-group loan under this rule. Nevertheless, interest paid under a loan secured by a related-party is not subject to the 'separate entity rule' if the security is a guarantee from a subsidiary owned or controlled by the borrowing company. The same exemption applies on loans from a third party secured by a related-party of the borrowing company if such related-party security is either: (1) a pledge over that related-party's shares in the borrowing company; or (2) a pledge or charge over that related-party's outstanding claims towards the borrowing company. For security in the form of claims towards the borrower, it is not required that such claim is owned by a parent company. Negative pledges provided by a related-party in favour of a third-party lender are not deemed as security within the scope of the interest limitation rule. Consequently, in a situation where the acquisition vehicle is excessively leveraged from a tax point of view, any interest over and above the limitation rules will be non-deductible.

vii Taxation of carried interest

Under current tax law, there is no explicit rule for taxation where managers of investment funds receive profit, interest or carried interest in exchange for their services and receive their share of the income of a fund. The former prevailing view has been that, as long as such managers invest capital into funds, the carried interest will be considered a capital gain and taxed at capital gains rates, and if the managers are organised as LLCs, the corporate shareholders' income in the form of dividends and gains on shares or ownership interest in other companies would be exempt from taxation in accordance with the exemption method. However, the tax authorities have challenged this view by seeking to treat such capital gains as income, subject to ordinary income taxation as salary at a higher tax rate.

In November 2015, the Supreme Court concluded in a specific case that the carried interest should be considered as ordinary income from business taxed at the then-prevailing tax rate of 28 per cent (now 22 per cent), but that such income could not be considered as salary income for the relevant key executives. In such carry arrangements, one may thus expect that the income will be subject to ordinary income (not exempted income), with a potential challenge with respect to transfer pricing if the tax authorities consider that the management fee is lower than arm's length facilitating a higher allocation of capital income to the unlimited partner or sponsor companies owned by the managers.

viii Group contributions

Norwegian companies cannot file consolidated tax returns or form fiscal unities, but a transfer of taxable income within an affiliated group of Norwegian entities is possible through group contributions to offset taxable profits against tax losses in another Norwegian entity. It is possible to grant more group contributions than taxable income, but the grantor company will not be able to deduct the excess amount. Such excess amount, which is not deductible for the grantor, would correspondingly not be taxable for the recipient. The distributable reserves form the limit for total group contributions and dividend distributions. By way of circular group contributions, a company may receive non-taxable contributions to increase its own distributable reserves followed by a taxable contribution which allows for tax deduction. To enable group contributions, the contributing and receiving entities must be corporate entities taxable in Norway, an ultimate parent company must hold more than 90 per cent of the shares and voting rights of the subsidiaries (either directly or indirectly) at the end of the parent's and the subsidiaries' fiscal year, and the companies must make full disclosure of the contribution in their tax returns for the same fiscal year. Furthermore, the Norwegian group contribution rules are, under certain conditions, also applicable to Norwegian branches of foreign companies that are resident within the EEA. Further, a Norwegian grantor company may also deduct group contributions to a recipient resident within the EEA, provided the recipient has a tax loss carried forward from previous business activity in Norway, subject to the recipient reducing the tax loss carried forward with an amount equal to any group contributions received.

ix Stamp duty and capital duties

Norway does not levy capital duties. Stamp duty is triggered only if real property is acquired. If the shares in a company owning real property are acquired, no stamp duty is levied.

x Other Norwegian tax developments

Effective from 2020, Norway has introduced a statutory general anti-avoidance rule (GAAR). The GAAR will apply if it is determined that the main motive of the transaction or arrangement is to achieve tax effects; and the transaction giving rise to the tax benefit is abusive. This was in many respects a legislation of the previous non-statutory anti-tax avoidance doctrine. However, the threshold for disregarding the normal tax effects of a transaction is in practice assumed to be lower as the consideration should be based on a more objective analysis of the motive behind a transaction, saving tax abroad is not an acceptable prevailing motive and the fact that the legislator has been aware of a loophole should not exempt the possibility to disregard the tax effects if this is applied. Further, the GAAR can be applied on more tax types than previously, including VAT. If the GAAR can be applied, the transaction shall be taxed as if the transactions had been completed in a manner that reflects the financial substance.

New WHT rules are effective from 2021. In addition to WHT on interest as described above, 15 per cent WHT can be imposed on royalty and also certain lease payments (e.g., ships, rigs, aeroplanes and helicopters) when paid to related parties in low-tax jurisdictions. The obligation to pay WHT will apply to royalty and lease payments from Norwegian tax resident companies, transparent partnerships and similar entities, including non-resident companies with a permanent establishment, if the costs are allocated to the permanent establishment in Norway. The recipient is considered a related party if it owns or controls (directly or indirectly) at least 50 per cent of the debtor paying the interests or if the debtor paying the interest owns or controls at least 50 per cent of the recipient of the interests, at any point in time during the relevant fiscal year. The recipient is considered resident in a low-tax country if the general corporate income tax on the company's total net income is less than two-thirds of the tax that would have been imposed on the company had it been resident in Norway. Also, payments to a company resident in a low-tax country within the EU/EEA are comprised of the obligation to pay WHT unless the company is genuinely established and performing genuine economic activities within the EEA. Norway's right to impose WHT on royalties and lease payments may be limited by tax treaties concluded with the recipient's country of residence. The obligation to withhold tax on royalty payments was effective from 1 July 2021, while WHT on lease payments is effective from 1 October 2021. It has been proposed that Norwegian investors subject to CFC taxation shall be allowed a tax deduction for WHT on interest, royalty, etc., that the company has paid, provided all the shareholders are taxed according to the NOKUS (CFC) rules.

Competition law

Under Norwegian law, an acquisition, merger or other concentration involving businesses must be notified to the NCA if the following conditions are met: the undertakings concerned on the target side have a group turnover in Norway exceeding 100 million kroner; the acquirer has a group turnover in Norway exceeding 100 million kroner; and the combined group turnover of the acquirer and the target in Norway is 1 billion kroner or more. The NCA is empowered to issue decrees ordering that business combinations that fall below these thresholds still have to be notified, provided that it has reasonable cause to believe that competition is affected, or if other special reasons call for such investigation. Such a decree has to be issued no later than three months after the date of a transaction agreement or the date when the control was acquired, whichever comes first. In 2020, the NCA has on two separate occasions ordered parties to submit notification of concentration with competitors below the thresholds:

On 1 January 2014, Norway implemented a more comprehensive form of notification (more similar to a Form CO), though more limited in substance than the former complete filing form. However, the Ministry of Trade, Industry and Fisheries has also adopted a simplified procedure for handling certain transactions that do not involve significant competition concerns within the Norwegian market – a short-form notification that is similar to the EU system. In March 2016, Parliament adopted amendments to the simplified merger control procedure, which now covers:

  1. joint ventures with no or de minimis actual or foreseen business activities within Norway. A turnover and asset transfer test of less than 100 million kroner is used to determine this;
  2. the acquisition of sole control over an undertaking by a party that already has joint control over the same undertaking; and
  3. concentrations under which one or more undertakings merge, or one or more undertakings or parties acquire sole or joint control over another undertaking, provided that:
    • none of the parties to the concentration is engaged in business activities in the same product and geographic market (no horizontal overlap), or in a product market that is upstream or downstream from a product market in which any other party to the concentration is engaged (no vertical overlap);
    • two or more of the parties are active on the same product or geographical market (horizontal overlap) but have a combined market share not exceeding 20 per cent (previously 15 per cent) (horizontal relationships); or
    • one or more of the parties operates on the same product market that is upstream or downstream of a market in which the other party is active (vertical overlap), but none of the parties individually or in combination has a market share exceeding 30 per cent (previously 25 per cent).

After receipt of a filing under the new rules, the NCA now has up to 25 working days to make its initial assessment of the proposed transaction, allowing, however, for pre-deadline clearance, so that at any time during the procedure, the NCA can state that it will not pursue a case further. The NCA must, prior to expiry of this deadline, notify the parties involved that a decision to intervene may be applicable. If it issues such a notice, it has 70 working days from the date the notice was received to complete its investigation and reach a conclusion. This basic period can be extended under certain circumstances. Since an amendment in 1 July 2016, the statutory timetable for clearance under the Norwegian merger control regime allows 145 working days total case handling time.

There is no deadline for filing a notification, but a standstill obligation will apply until the NCA has cleared a concentration. The NCA has granted a number of exemptions from the standstill obligation on a case-by-case basis. As under EU merger rules, a public bid or a series of transactions in securities admitted to trading on a regulated market such as the OSE can be partly implemented, notwithstanding the general standstill obligation. For such exemption to be effective, the NCA must be notified about the acquisition immediately (normally the day on which control is acquired).

A simplified notification may, under the new regime, be submitted in Danish, English, Norwegian or Swedish, whereas a standardised notification has to be submitted in Norwegian. Since 1 July 2016, the substantive test (which was previously based on a substantial lessening of a competition test) has now been aligned with the same substantial impediment to efficient competition test as applicable under the EU rules, meaning that Norway must now apply the same consumer welfare standard as the Commission instead of the previous total welfare standard.

From 1 April 2017, the power previously held by the King Council to intervene in merger control cases has been abolished. These powers have been transferred to an independent appeal board, which now handles appeals in merger control cases.

Failure to comply with the notification duty leads to administrative fines. The NCA may issue fines of up to 10 per cent of the undertaking's worldwide turnover. The highest fine so far amounted to 25 million kroner and was issued to Norgesgruppen in 2014. In principle, breaches can also be subject to criminal sanctions, but this has not yet occurred.


Norwegian M&A activity for 2020 increased significantly at the end of that year, and at that time we expected Norwegian M&A would return to higher levels once there was more certainty around the ramifications of the covid-19 pandemic on businesses and the Norwegian economy. In retrospect, that view turned out to be correct, with the number of deals more or less exploding at the end of 2020 and beginning of 2021.

As at the end of September 2021, the Norwegian economy has now regained all the ground lost during the pandemic. Unemployment has dropped sharply with the reopening of society. The number of job vacancies is at a record high and signs of mismatch in the labour market are emerging. The housing market rally seems over and prices will likely flatten going forward, due to the Norwegian Central Bank now starting to normalise interest rates.

A lot of cash is waiting to be invested, and even if we have seen a number of private equity exits over the past few years, there continues to be an exit overhang in some equity sponsors' portfolios approaching end-of-life for the funds holding such investments. It is safe to assume that some of these sponsors are experiencing increasing pressure to find solutions to the situation which, in the end, in most cases, will lead to some sort of M&A transaction.

We also believe that many investors continue to view Norway as a good place to invest owing to its highly educated workforce, technology, natural resources and well-established legal framework for M&A transactions. Consequently, the total M&A deal volume in the Norwegian market should increase for 2022. We expect continuing strong momentum for new deals within particular sectors such as TMT and industrial and manufacturing.

Many businesses continue to be driven by rapid technology changes and the battle for customers. Consequently, businesses are fighting to stand out from their competitors, and cross-sector convergence (i.e., expanding beyond traditional core activities to acquire new capabilities) is one way to be differentiated, typically by adding new technology through acquisitions. This is an important factor currently spurring M&A activity around the world, which is also influencing the Norwegian M&A market. Many Norwegian businesses possess important technology and intellectual property rights that may be useful in sectors and businesses other than those for which they were originally developed. An increase in interest from foreign investors wanting to acquire Norwegian technology through M&A has recently been observed, and we believe that this is likely to continue irrespective of how the covid-19 pandemic continues to develop globally.

Nevertheless, no one should disregard the fact that, for the moment, Norway has become more exposed to the force of world events than in previous years, and the views we have expressed all depend on global macroeconomic developments.


1 Ole K Aabø-Evensen is a founding partner of Aabø-Evensen & Co Advokatfirma.

2 Source: Mergermarket (based on announced deals above €5 million where the target is Norwegian. Excludes lapsed or withdrawn bids).

3 Source: Mergermarket.

4 ibid.

5 In a syndicated loan agreement, one bank will act as an agent on behalf of the other banks in the syndicate according to a clause in the agreement. For this, the borrower will have to pay an annual agency fee.

6 Council Directive 2001/23/EC.

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