242 5 Equity and Shareholders’ Capital
get’s shareholders or the target’s business organisation will control the buyer after
the takeover.^527
For legal reasons, reverse takeovers are always friendly. A reverse takeover re-
quires issuing new shares and the waiving of existing shareholders’ pre-emptive
rights. It can be achieved with or without a formal merger.
Privately-owned companies sometimes use a reverse takeover as a way to avoid
admission requirements. This will work only provided that the reverse takeover
will not lead to the cancellation of the listing under the governing law.
According to the MiFID, the operator of the stock exchange (regulated market)
may suspend or remove from trading a financial instrument which no longer com-
plies with its rules of the regulated market unless such a step would be likely to
cause significant damage to the investors’ interests or the orderly functioning of
the market.^528 Member States’ competent authoritites may require the suspension
of trading in a financial instrument or require the removal of a financial instrument
from trading.^529 For example in England, the FSA will generally cancel the listing
of a listed company’s securities when it completes a reverse takeover.^530
Reverse takeovers can be illustrated by the reverse takeover of the logistics business of
John Nurminen Oy, a Finnish company. In 2007, John Nurminen Oy was a large privately-
owned limited-liability company. Kasola Oyj was a small but listed company that manufac-
tured safes. The controlling shareholders of John Nurminen and Kasola agreed that: all cur-
rent business activities of Kasola would be sold to its controlling shareholders; Kasola
would buy the logistics business activities of John Nurminen; Kasola would pay for the lo-
gistics business by issuing new shares to John Nurminen; John Nurminen would become
the new controlling shareholder of Kasola; and the name of Kasola Oyj would be changed
to Nurminen Logistics Oyj. In other words, the logistics business of (the old) John Nurmi-
nen Oy was listed without (the old) John Nurminen Oy having to comply with any admis-
sion requirements. This case raised several questions of corporate governance, the protec-
tion of the interests of minority shareholders, expropriation of assets by controlling
shareholders, and the dilution of minority shareholders’ holdings.
Company law and securities markets law. If one of the parties is a company whose
shares have been admitted to trading on a regulated market (a listed company), the
parties must comply with securities markets laws.
As regards EU securities markets law, merger offers and share exchange offers
(tender offers) are basically governed by the same rules addressing both the offer-
ing of securities to the public in general and takeovers of listed companies in par-
ticular.
Rules implementing legal instruments adopted by Community institutions are
complemented by national laws and stock exchange rules. For example, the City
(^527) In England, a reverse takeover has been defined in the City Code on Takeovers and
Mergers: “A transaction will be a reverse takeover if an offeror might as a result need to
increase its existing issued voting equity share capital by more than 100%.” Notes on
Rule 3.2 of the City Code.
(^528) Article 41(1) of Directive 2004/39/EC (MiFID).
(^529) Article 50(2)(j) and (k) of Directive 2004/39/EC (MiFID).
(^530) LR 5.2.3 G.