M&A and Exchange of Information

 INFORMATION EXCHANGE AND INTEGRATION STEPS IN ACQUISITION AND MERGERS IN NORWAY – BEST PRACTICE PURSUANT TO THE COMPETITION RULES

During negotiations and due diligence investigation prior to an acquisition or merger (“consentration”), the parties will exchange business and corporate information in order to evaluate whether the undertaking is a suitable acquisition candidate or merger partner. Until the transaction is completed, the undertakings must continue to operate independently in the market. This may limit the parties’ actions during the process.

Exchange of competitively sensitive information may be caught by the prohibition of anti-competitive cooperation set forth in Section 10 of the Competition Act, which mirrors Article 101 TFEU/53 EEA. This is particularly relevant if the companies are competitors. However, disclosure of information in connection with acquisitions and mergers is permitted, provided that the nature and scope are limited to what is necessary for the purpose of the transaction, and adequate measures are taken to ensure that sensitive information cannot be used in the other party’s market decisions and strategy.

Concentrations where the parties together obtain more than NOK 1 billion in Norwegian sales and at least two parties have sales exceeding NOK 100 million must be notified to the Norwegian Competition Authority. Similar to the rules of the EU Merger Regulation, section 19 of the Competition Act prescribes a standstill obligation, so that the transaction may not be consummated until cleared by the authority. Certain exchange and coordination of information and cooperative steps have been deemed by the Competition Authority to constitute illegal consummation, or “gun jumping”. 

A PROPER NON-DISCLOSURE AGREEMENT

In order to ensure that access to information does not breach the competition rules, the parties should agree in writing procedures for access to and the use of information. Standard confidentiality agreements are useful, but often do not cover all aspects needed in a transaction. The agreement should:

•         Specify the information to be made available, preferably at what level (aggregated)

•         Contain an obligation to only use the information for assessing the transaction

•         Specify the persons and the specific information they are being granted access to

•         If relevant, specify any limitations on the personnel’s subsequent roles in active operations

•         Ensure that proper safety mechanisms are in place in order to prevent unauthorized access to sensitive information, including physical and electronic security, as well as commitment from relevant persons

•         The consequences of breach of confidentiality

SAFEGUARD ALL INFORMATION AS CONFIDENTIAL

All information received in connection with negotiations and due diligence investigation should as the clear starting point be considered confidential, and treated according to the guidelines set forth here. Only if the information obviously is not confidential, for example generally available through websites and public records, should it be considered non-confidential.

Procedures must be established for secure disclosure, storage and deletion of confidential information. The material (in electronic or physical form) should be stored or made available in an easily verifiable folder structure that is protected against unauthorized access through lock, password, local storage on a protected PC, or equivalent.

Authorized personnel granted access must confirm in writing that they are familiar with the contents of the confidentiality obligation and that they are bound by it.

ACCESS ON NEED TO KNOW BASIS – CLEAN TEAMS

Access to confidential information should only be granted to persons who have a defined and necessary role in the decision-making process of the transaction. Access should be granted on a need to know basis, team personnel should only be granted access to information necessary for the performance of their duties in the project. This may lead to that team members may only access parts of the material.

Particularly sensitive information, typically market-related information such as strategy, market plans and detailed sales and customer information, should be restricted to personnel not in positions where information may be valuable in their daily tasks. For example, personnel that have operational sales and marketing responsibilities should not be granted access to sensitive market information. The parties should create “clean teams” consisting of personnel in other functions or being external advisors. These may in turn report aggregated and less sensitive information.

An updated list of all persons granted access to confidential information should be kept. The list must contain:

• Name and position, role in the project

• Date of access

• For partial access, for which parts of the information access is granted

• If the access concerns particularly sensitive information, (“clean team”)

USE OF CONFIDENTIAL INFORMATION, REPORTS

Confidential information made available should be used only for the purpose of evaluating a prospective transaction. Reports from authorized personnel to decision makers should be submitted in a proper format with aggregated information that excludes the recipients from using the information in the undertaking’s market operations. Reports on particularly sensitive market information, such as from “clean teams”, must be subject to special assessment before release.

 
STANDSTILL OBLIGATION

The standstill obligation implies that the exchange of consideration, physical integration, acquisition of operational control and influence, market coordination and access to information beyond what is necessary for assessment of the concentration, constitutes a serious breach of the Competition Act. It is important that the parties operate independently until the transaction is cleared by the Competition Authority. However, obligations to continue business as usual are accepted.

According to Competition Authority decisional practice, certain actions will be considered “gun jumping”:

• Paying for shares, registration of the new owner in the company’s share register

• Voting at the general meeting, election of a new board of directors

• Joint marketing, change of presentation on home site, letterhead etc.

• Coordination of administrative functions

• Coordination of and termination of customer relationships

Harald Evensen, competition law specialist and Erlend Balsvik, M&A specialist