Private mergers and acquisitions in Sweden: overview

Q&A guide to private mergers and acquisitions law in Sweden.

The Q&A gives a high level overview of key issues including corporate entities and acquisition methods, preliminary agreements, main documents, warranties and indemnities, acquisition financing, signing and closing, tax, employees, pensions, competition and environmental issues.

To compare answers across multiple jurisdictions, visit the Private mergers and acquisitions Country Q&A tool.

This Q&A is part of the global guide to private acquisitions law. For a full list of jurisdictional Q&As visit www.practicallaw.com/privateacquisitions-guide.

Jon Ericson, Charles Andersson and Martin Prager, Hamilton Advokatbyrå KB
Contents

Corporate entities and acquisition methods

1. What are the main corporate entities commonly involved in private acquisitions?

The main corporate entity commonly involved in private acquisitions is the limited liability company, either a private company (privat aktiebolag) or a public company (publikt aktiebolag). A public company can offer shares to the public and have its shares listed on a stock exchange. The minimum share capital requirement is SEK50,000 (SEK500,000 for public companies) or an equivalent amount in euro.

 
2. Are there any restrictions under corporate law on the transfer of shares in a private company? Are there any restrictions on acquisitions by foreign buyers?

Restrictions on share transfer

A company's articles of association can restrict the transfer of shares by, for example, providing pre-emption rights. Alternatively, transferability restrictions can be contained in a shareholders' agreement. However, restrictions in a shareholders' agreement do not bind third parties.

Foreign ownership restrictions

There are no general restrictions. In specific sectors licences are, however, required. For example, the manufacture of certain military equipment requires a licence from the Swedish Inspectorate of Strategic Products. Conditions will usually be attached to the grant of such a licence, such as limits on the percentage of shares that can be owned directly or indirectly by non-Swedish investors.

Another example is that with respect to an air traffic operator licensed under the Aviation Act (luftfartslagen (2010:500)), parties domiciled outside the European Economic Area (EEA) must generally hold (directly or indirectly) less than 50% of the shares or votes in the operator.

 
3. What are the most common ways to acquire a private company? What are the main advantages and disadvantages of a share purchase (as opposed to an asset purchase)?

Share purchases are the most common way to acquire a private company. The following are only general advantages of a share purchase or asset purchase. The deal specific commercial objectives and benefits will influence the structure to be used.

Share purchases: advantages/asset purchases: disadvantages

The main advantages of a share purchase/disadvantages of an asset purchase are:

  • Simplicity (the entire business is transferred subject to change of control provisions). In an asset purchase, all the assets to be transferred must be identified and individually transferred and the transfer is generally subject to third party consents and approvals.

  • Business contracts are generally unaffected unless they contain change of control provisions.

  • If the target is land rich, lower transfer duties will apply since a transfer of real estate is subject to a 4.25% stamp duty (subject to certain exemptions).

  • There is a potential double tax charge for the seller on asset sales (on the sale of assets and the distribution of the proceeds of sale to shareholders).

  • Except in the case of the purchase of a business as a going concern, an asset purchase will attract VAT.

  • Unless there are specific information/consultation requirements under collective agreements or trade union recognition agreements, it is not necessary to inform or consult employees or unions on a share purchase. However, employee relations considerations still apply, especially if the buyer's agreement depends on its satisfaction with arrangements to retain key employees.

  • In an asset purchase of a business, both buyer and seller must comply with the rules under the Co-determination at the Workplace Act (lag (1976:580) om medbestämmande i arbetslivet), and inform and consult with relevant unions regarding significant changes at the workplace.

  • In an asset purchase of a business, the collective bargaining agreements operating in the acquired business can be automatically transferred, and expand to take effect with regard to the buyer's entire business.

Share purchases: disadvantages/asset purchases: advantages

The main disadvantages of a share purchase/advantages of an asset purchase are:

  • The buyer can pick and choose assets that it wishes to acquire and generally leave liabilities with the target company. This also protects the buyer from any hidden liabilities undiscovered by its due diligence.

  • The buyer can grant security to lenders over the assets acquired (on a share purchase, any security taken over the target company's assets may be prohibited financial assistance).

  • An asset purchase avoids trying to locate missing minority shareholders.

 
4. Are sales of companies by auction common? Briefly outline the procedure and regulations that apply.

Auction sales are common and broadly correspond to the processes for international M&A deals. The process should be structured as an offer to tender rather than an offer to buy and the seller must make clear in the process invitation letter and the disclaimer to the information memorandum (or other information package) that it is not obliged to accept the highest bid, nor to consider any offer tendered, and should generally reserve its discretion to vary the auction procedures. The seller should also expressly disclaim liability for, for example, any representations in the information memorandum or otherwise, and should emphasise the function of the final sale agreement in this respect.

 

Preliminary agreements

5. What preliminary agreements are commonly made between the buyer and the seller before contract?

Letters of intent

Letters of intent are commonly entered into. They typically record the main commercial points agreed and the basis on which the parties are prepared to proceed with the transaction. Key issues usually covered include:

  • Parties.

  • Shares or assets.

  • Price or price formula (often subject to assumptions to be confirmed by due diligence).

  • Conditions precedent.

  • Other major terms (for example completion audit, non-compete, representations and warranties and employment agreements for key management).

  • Timing.

  • Costs and expenses.

  • Whether legally binding.

  • Choice of law.

Letters of intent may also address confidentiality and exclusivity.

In Sweden, letters of intent are by definition not legally binding but, since substance rather than form determines legal status, terms such as "subject to contract" may not in themselves suffice to prevent a letter of intent from being legally binding where a court believes that the intention of the parties is that it should be. Consequently, the letter should explicitly address whether the letter, or part of it, is binding/non-binding.

Sometimes, the same letter of intent contains both legally binding provisions and non-legally binding provisions. For example, the confidentiality and exclusivity provisions in a complex letter of intent may be legally binding, whereas a general description of the parties' intent to deal with each other in good faith is usually not. Such letters of intent will contain an express provision setting out which clauses are intended to take legal effect.

Exclusivity agreements

Exclusivity agreements where the seller agrees not to negotiate with or provide information to another prospective buyer for a period of time are permitted under Swedish law. They may only apply to the seller or they may impose reciprocal obligations on both parties. As they are designed to protect the time and costs incurred during due diligence and negotiations, they are more common for large transactions which involve complex due diligence and a lengthy negotiation period. If the exclusivity provision is incorporated in a letter of intent, it should be explicitly expressed as legally binding.

The main remedy for a breach of an exclusivity agreement is damages for breach of contract. These are likely to be restricted to the costs of negotiations (for example, professional adviser's fees) rather than loss of bargain. A remedy in the form of liquidated damages is also conceivable.

Non-disclosure agreements

A non-disclosure agreement (also known as a confidentiality agreement) is commonly entered into at the outset of a transaction. It will provide that the prospective buyer will only use confidential information for the purpose of evaluating the acquisition and that both parties will keep negotiations confidential. The letter may provide that the existence of the proposed acquisition itself, or the buyer's interest in respect of it, should be kept confidential. It will also usually contain non-solicitation covenants in respect of employees, customers and/or suppliers.

Remedies for breach of a confidentiality agreement are generally damages. As a loss is typically difficult to establish, the agreement sometimes includes provisions for liquidated damages.

 

Asset sales

6. Are any assets or liabilities automatically transferred in an asset sale that cannot be excluded from the purchase?

Contracts of employees who work in the business at the time of the transfer of a going concern will automatically transfer to the buyer (as the new employer) who must employ the transferred employees on the same terms and conditions as the seller (Article 6b, Employment Protection Act (lagen om anställningsskydd (1982:80)).

Special rules apply to employment benefits that follow from collective bargaining agreements. Normally, the buyer has to apply such terms and conditions of employment to the transferred employees for at least one year following the transfer. Further, employees whose employment has been terminated due to redundancy by the seller within nine months before the transfer normally have a priority right to re-employment with the buyer. In respect of employment benefits that have accrued before the transfer, such as vacation and overtime compensation, there is a joint liability between the seller and the buyer in respect of them in relation to the employee (while the seller is responsible in relation to the buyer).

In relation to assets subject to a floating charge (företagshypotek), the charge will persist in relation to the acquirer unless released before the transfer.

 
7. Do creditors have to be notified or their consent obtained to the transfer in an asset sale?

There is no general requirement to obtain consent from creditors in connection with an asset sale. However, such obligations may exist under the terms of the underlying agreement (credit and/or pledge) that the assets may be subject to.

Even though there is no formal requirement under Swedish law to notify creditors or obtain their consent in connection with the transfer in an asset sale, it is customary that the seller notifies its creditor in connection with it, even if no such term is included in the relevant agreement. The liabilities to the creditors will remain with the seller, except where the liabilities have been explicitly transferred in an agreement between the buyer and the creditor.

 

Share sales

8. What common conditions precedent are typically included in a share sale agreement?

Conditions precedent may include:

  • Approval from authorities, most notably competition authorities.

  • No material adverse change.

  • Reorganisation of target business.

  • Key employees entering into new employment agreements/incentive programmes.

  • Any industry-specific consents.

  • Relevant third party consents (for example, change of control provisions in contracts).

Conditions are most commonly constructed as objective, but occasionally within the power of only one party to fulfil (in which case the relevant party will normally be required to use reasonable endeavours to fulfil the conditions). The contract will normally provide for a cut-off date for conditions precedent to be satisfied.

 

Seller's title and liability

9. Are there any terms implied by law as to the seller's title to the shares in a share sale? Is any specific wording necessary and do buyers normally impose a higher standard than is implied by law?

The sale agreement should include a statement as to the transfer of the ownership. However, there are no formal requirements as to the form of such statement. It is not uncommon for the transfer statement to include wording to the effect that the shares are transferred free from all charges, encumbrances and adverse rights, and that the transfer includes any resolved but unpaid dividends.

 
10. Can a seller and its advisers be liable for pre-contractual misrepresentation, misleading statements or similar matters?

Seller

Under the principle of culpa in contrahendo (negligence in connection with contract negotiations) a seller can theoretically be liable for fraudulent or negligent misrepresentations in pre-contractual negotiations, although such liability is rarely established. While liability due to culpa in contrahendo may occur despite entering into a contract, the debate among Swedish legal scholars mainly focuses on where no contract has been entered into, since a contract often includes provisions for the pre-contractual relationship between the parties.

Although the legal situation is not fully established, the main premise is that the seller's liability to compensate the buyer under the culpa in contrahendo regime is limited to the negative contract interest, that is, the pure financial loss incurred by the buyer due to the seller's fraudulent or negligent misrepresentation in the pre-contractual negotiation. Consequently, the buyer must be compensated to the extent that its financial position equals that it would have been if no contract negotiations had taken place between the parties. The seller's liability for negligent misrepresentation can be excluded by contract, for instance in a letter of intent. However, the seller's liability for fraudulent misrepresentation cannot be excluded.

Advisers

Under Swedish law, the main principle is that a contract only binds the parties to it and a financial loss caused by a third party is generally not compensated. However, according to Swedish case law, a third party may be liable in certain circumstances. For instance, if an adviser acts negligently in connection with making certain general statements (for example, valuations of real properties), which can be expected to be issued for the benefit of those other than its principals, the adviser may be liable in relation to a third party relying on such statements.

 

Main documents

11. What are the main documents in an acquisition and who generally prepares the first draft?

The main acquisition document is the share purchase agreement and the seller generally prepares the first draft. In asset transfers the main document is the business/asset transfer agreement.

Depending on the seller's intra-group relationships, a transitional service agreement is not uncommon. The first draft of this is often provided by the seller in a structured auction process, and otherwise generally by the buyer.

 

Acquisition agreements

12. What are the main substantive clauses in an acquisition agreement?

The key substantive clauses in a share purchase agreement are:

  • Date.

  • Parties.

  • Definitions (sometimes in a schedule to the agreement).

  • Agreement to purchase and sell.

  • Price and price adjustments.

  • Conditions precedent (such as clearance from competition authorities).

  • How the business is to be run if there is a gap between signing and closing.

  • Closing mechanics.

  • Post-completion undertakings (for example, discharge of directors' liability, keeping of books and records).

  • Warranties (often contained in a schedule to the agreement).

  • Indemnities (usually very limited).

  • Limitations on claims under warranties.

  • Third party claims (right for the seller to act on behalf of the target company post-completion, in relation to a third party claim that could impact on the seller's liability under the representations and warranties).

  • Non-compete.

  • Boilerplate, including:

    • entire agreement;

    • confidentiality and public announcements;

    • assignment;

    • costs;

    • amendments and waivers;

    • notices;

    • governing law and jurisdiction; and

    • execution clauses.

In addition to the above, an asset transfer agreement will include a detailed list/definition of the relevant assets.

 
13. Can a share purchase agreement provide for a foreign governing law? If so, are there any provisions of national law that would still automatically apply?

A share purchase agreement can provide for a foreign governing law.

Swedish laws relating to, for example, tax, employee protection, environment, competition, the mechanics of transfer and securities regulation will still apply (where relevant).

 

Warranties and indemnities

14. Are seller warranties/indemnities typically included in acquisition agreements and what main areas do they cover?

It is usual to include fairly extensive warranties in the share purchase agreement in bilateral deals while the warranties catalogue generally is more limited in auction sales. The warranties will usually cover all assets, liabilities and transactions of the target, that is:

  • Capacity and authority.

  • Incorporation.

  • Shares.

  • Accounts.

  • Constitutional (power to carry on business).

  • Solvency.

  • No changes since accounts date.

  • Contracts.

  • Effect of sale.

  • Assets.

  • Liabilities.

  • Properties.

  • Environmental matters.

  • Intellectual property.

  • Information technology.

  • Employment and pensions.

  • Permits.

  • Litigation and compliance with law.

  • Taxation.

  • Insurance.

  • Information (full and correct disclosure).

Indemnities are generally very limited and restricted to identified specific risks, as the warranties are given subject to disclosure and/or buyer's knowledge and often limitations.

 
15. What are the main limitations on warranties?

Limitations on warranties

Common limitations on warranties include:

  • Right to make disclosures against the warranties.

  • A cap on the total liability. Where there are multiple sellers, each may seek to limit its liability pro rata.

  • A minimum aggregate claim threshold ("basket") in the region of 1% of the consideration.

  • Exclusion of de minimis claims, normally in the region of 0.2% of the consideration.

  • Time limits for bringing claims.

  • Obligation to mitigate loss.

  • Prevention of double recovery under warranties, indemnities and insurance policies.

  • Limited to direct loss, as opposed to indirect and consequential loss.

  • A conduct of claims provision.

  • A qualification that some warranties are made "so far as the seller is aware".

The limitations are not likely to apply in the event of intent or gross negligence attributable to the seller.

Qualifying warranties by disclosure

Warranties are usually qualified by disclosure. The seller usually states in the share purchase agreement that warranties are subject to disclosures, often with reference to due diligence material or a separate disclosure letter.

The buyer will usually try to include a clause in the sale agreement stating that the warranties are only qualified by matters specifically disclosed and not by any other information of which the buyer has knowledge. From case law, the ability of the buyer to rely on this type of provision, and to sue for breach of warranty where he has actual knowledge of a qualification, is doubtful.

 
16. What are the remedies for breach of a warranty? What are the time limits for bringing claims under warranties?

Remedies

The following remedies can be sought for breach of warranty:

  • Damages for breach of contract or reduction of the purchase price (subject to proving loss resulting from the breach and the duty to mitigate unless the warranties are given on an indemnity basis).

  • Rescission (although this is often excluded by the agreement).

Time limits for claims under warranties

For general commercial warranties the time limit is usually between 6 and 18 months. Buyers generally argue for cover until the upcoming annual accounts have been completed and audited.

Time limits for other serious risks, such as environmental claims, can sometimes be longer. For tax warranties the time limit is usually linked to time bars for claims from tax authorities. Title and authority warranties are often limited by the statutory time bar of ten years.

 

Consideration and acquisition financing

17. What forms of consideration are commonly offered in a share sale?

Forms of consideration

The most common form of consideration is cash, funded out of the buyer's own resources and/or by debt. Sometimes shares in the buyer or its parent, or loan notes issued by the buyer, are used, often combined with a cash element.

Factors in choice of consideration

The most relevant factor for the seller in the choice of consideration is whether it wants cash and a complete exit from the target business or to retain an interest in the combined business.

If a buyer has insufficient cash (from its own resources) or is unable to raise what it requires from third parties, it may have to satisfy some or all of the consideration in shares or loan notes. The buyer may also see value in issuing shares as consideration, to ensure that the seller (particularly where the seller is a key individual manager) has a continuing commitment to the combined business.

 
18. If a buyer listed in your jurisdiction raises cash to fund an acquisition by an issue of shares, how is the issue typically structured? What consents and regulatory approvals are likely to be required?

Structure

The structure depends on the size and terms of the issue. A large issue (broadly more than 5% of the company's existing issued share capital) is likely to be structured as a pre-emptive rights issue to existing shareholders sometimes underwritten by institutions. Smaller issues (broadly less than 5%) are often done by (non-pre-emptive) cash placings with institutions. A vendor placing is also possible.

Consents and approvals

Consents and approvals may be required depending on the structure of the issue. Shareholder consent may be required to give directors the authority to allot shares (also by simple majority) and disapply statutory pre-emption rights (by two-thirds majority of voting shareholders). Standard limited resolutions are commonly obtained for these approvals at a company's annual general meeting. The standard resolutions permit small non-pre-emptive issues and pre-emptive rights issues done in accordance with, among others, the Companies Act and the Financial Instruments Trading Act (lag (1991:980) om handel med finansiella instrument).

Requirements for a prospectus

A prospectus is required when there is an offer of securities to the public or when securities are admitted to trading on a regulated market. There are a number of exclusions, including:

  • Offers made to fewer than 150 people.

  • Offers only made to qualified investors.

  • Where the shares to be admitted represent, over a period of 12 months, less than 10% of the number of shares of the same class already admitted to trading on the same regulated market.

Also, there may be information requirements under relevant listing rules in respect of significant acquisitions.

 
19. Can a company give financial assistance to a potential buyer of shares in that company?

Restrictions

There is a strict prohibition for a limited company on providing financial assistance in connection with a takeover of the company (Chapter 21, section 5, Companies Act (aktiebolagslagen (2005:551)). A Swedish limited company cannot grant an advance, provide loans or security for the benefit of a debtor, for the purpose of financing the debtor's (or any related party's, as defined in Chapter 21, section 1 of the Companies Act) acquisition of shares in the company.

Exemptions

Advances, loans or security provided to employees of the company or another company in the group are exempt provided that certain mandatory conditions are satisfied:

  • The value of the advance, loan or security must be limited to SEK89,000 (2013) and the offer must be directed to at least one half of the employees of the company.

  • The granted advance or provided loan requires the offered amount to be repaid within five years through regular repayments.

  • Granting an advance, providing loans or security for loans is not allowed if there is insufficient coverage in the company's restricted shareholders' equity thereafter. This calculation is based on the demands relating to the size of the shareholders' equity, taking into consideration the nature, scope and risks associated with the operations, and the company's need to strengthen its balance sheet, liquidity and financial position in general.

A person who acquires or holds a unit in an investment fund is not deemed to be an acquirer of shares.

The Swedish tax authorities may in very specific circumstances, on a case-by-case basis, grant an exemption to the prohibition against financial assistance in connection with a takeover of the company. If the company is under the supervision of the Financial Supervisory Authority, this exemption is granted by the Financial Supervisory Authority.

 

Signing and closing

20. What documents are commonly produced and executed at signing and closing meetings in a private company share sale?

Signing

Documents commonly produced and executed at signing meetings include:

  • Acquisition agreement (the agreement to sell and purchase shares).

  • Board resolutions of the parties approving the transaction and giving authority to enter into the transaction documents.

  • Legal opinion (if there is a foreign party).

  • Power of attorney (if an attorney needs to be appointed to execute documents in the absence of one of the parties).

Closing

Documents commonly produced and executed at closing meetings include:

  • Closing agenda.

  • Irrevocable powers of attorney in favour of the buyer (to enable the buyer to exercise all voting and other rights attached to the shares sold, pending registration of the transfer of shares).

  • Share certificates for consideration shares/indemnities for lost share certificates.

  • Updated share ledger.

  • Resignation letters for the existing directors, company secretary (if any) and auditors.

  • Shareholder resolutions for the target (for example, adopting new articles of association.

  • Release of any security and/or guarantees (if applicable).

  • Retention agreement/escrow agreement (if applicable).

 
21. Do different types of document have different legal formalities? What are the formalities for the execution of documents by companies incorporated in your jurisdiction?

As a general rule, Swedish law does not stipulate any formal requirements for entry into agreements. Consequently, an oral agreement is generally just as binding as a written agreement. However, certain types of agreements are by law subject to specific formalities for their execution, for example the sale and purchase of real property. Such agreements must, to be legally binding, be executed in accordance with the formalities set out in the relevant statute. Also, oral or written form may affect the legal effect of certain documents, most notably powers of attorney.

In relation to the execution of a document:

  • A company can be the named party to an agreement which is signed by a person with authority (express or implied) to act on the company's behalf.

  • Alternatively, the company can execute an agreement itself by the signature of an authorised signatory (or authorised signatories, when more than one authorised signatory is required) or by the chief executive officer (verkställande direktör) on day-to-day management matters.

  • Also, the company can be represented by an attorney (if empowered by the company), either generally or in respect of specific matters, to execute documents on its behalf.

 
22. What are the formalities for the execution of documents by foreign companies?

No specific formalities apply in relation to foreign companies under Swedish law. Specific requirements may apply under the law of the relevant jurisdiction.

 
23. Are digital signatures binding and enforceable as evidence of execution?

As a general rule, Swedish law does not stipulate any formal requirements for entry into agreements. Consequently, an oral agreement is generally just as binding as a written agreement. This means that agreements can generally be concluded using digital signatures, as they are binding and enforceable as evidence of execution.

However, certain types of agreements are by law subject to specific formalities for their execution, for example the sale and purchase of real property. Such agreements must, to be legally binding, be executed in accordance with the formalities set out in the relevant statute, and digital signatures can only be used for such agreements if explicitly permitted. For the sale and purchase of real property, digital signatures are not binding and enforceable as evidence of execution.

 
24. What formalities are required to transfer title to shares in a private limited company?

The following formalities are required to perfect the transfer of title to shares in a Swedish private company:

  • An agreement in respect of the share transfer between the buyer and the seller (for which there are no formal requirements, that is, an oral agreement is sufficient).

  • Either of the following:

    • if share certificates have been issued, the share certificates must be physically transferred and duly endorsed to the buyer, and the share register of the company must be updated to this effect through the buyer presenting the share certificates to the board of directors of the company; or

    • if no share certificates have been issued, the buyer must notify the board of directors of the company of the share transfer and provide evidence of the transfer, normally by presenting the transfer agreement, which in turn updates the company's share register to this effect.

 

Tax

25. What transfer taxes are payable on a share sale and an asset sale? What are the applicable rates?

Share sale

There are no transfer taxes payable on a share sale.

Asset sale

Except for real property, there are no transfer taxes on an asset sale. The sale of real property by a legal entity is generally subject to a 4.25% transfer tax.

 
26. What are the main transfer tax exemptions and reliefs in a share sale and an asset sale? Are there any common ways used to mitigate tax liability?

Share sale

Not applicable. There are no transfer taxes payable on a share sale.

Asset sale

There are no transfer tax exemptions on a sale of real property to a third party. The payment of transfer tax on a sale of real property between companies in a group may be deferred.

 
27. What corporate taxes are payable on a share sale and an asset sale? What are the applicable rates?

Share sale

A gain on the sale of shares in a Swedish unlisted company by a Swedish limited company is exempt from corporate taxation.

Asset sale

A gain from the sale of assets by a company is subject to corporate tax at a rate of 22%.

 
28. What are the main corporate tax exemptions and reliefs in a share sale and an asset sale? Are there any common ways used to mitigate tax liability?

Share sale

A gain on the sale of shares in a Swedish unlisted company by a Swedish limited company is exempt from corporate taxation.

Asset sale

There are no general corporate tax exemptions or reliefs for the sale of assets. It is therefore not uncommon that an asset deal is restructured into a share deal by pre-sale intra-group restructuring. It is, provided certain requirements are met, possible to transfer the assets to a subsidiary at below fair market value without triggering taxation. The subsidiary could then subsequently be sold, tax-exempt.

 
29. Are other taxes potentially payable on a share sale and an asset sale?

The transfer of assets is subject to value added tax (VAT) at a rate of 25% but may be exempt in case of a transfer of a going concern or of real estate.

 
30. Are companies in the same group able to surrender losses to each other for tax purposes? For example, can interest expenses incurred by a bid vehicle incorporated in your country be set off against profits of the target before tax?

It is possible to set off profits in one group company against losses in another group company through group contributions.

A group contribution is tax deductible to the contributing company and taxable to the recipient. There is a 90% ownership requirement that must be met throughout the entire financial year of both companies. It is therefore possible to use interest expenses by a Swedish bid company to set off taxable profits of the target in the year after the acquisition. However, any tax losses incurred in the bid company in the first year can normally be carried forward and used to offset profits in the target's subsequent years.

In this context, Sweden recently introduced fairly strict rules regarding interest expenses on loans between related parties. However, there are no restrictions regarding the deduction of interest on loans from third parties. The use of group contributions to set off tax losses carried forward may also be restricted where there has been a change of control.

 

Employees

31. Are there obligations to inform or consult employees or their representatives or obtain employee consent to a share sale or asset sale?

Asset sale

Both buyer and seller must comply with the rules under the Co-determination at the Workplace Act (Act) to inform and consult with the unions regarding significant changes at the workplace, such as an asset sale.

Within a reasonable time before the asset sale, the company should inform the employees of the planned sale, and consult with the unions with which the company has entered into a collective bargaining agreement (or, if the company is not bound by a collective bargaining agreement, all the unions represented among the affected employees).

The intention of the union consultations is that the unions should be part of the decision-making process at the company but the unions do not have a veto, therefore the consultation does not require an actual agreement between the parties. During the consultations the seller and the buyer must inform the unions of the reasons for the transfer and, for example, the legal, economic and social implications of the transfer for the employees.

In the event of failure to comply with the information and consultation obligations under the Act, the employer may be liable to pay damages to the unions.

The employees transfer automatically to the buyer in an asset sale, which means that no employee consent is necessary. However, employees under Swedish law have a right to refuse to transfer to the buyer.

Share sale

In a share sale, the employer does not change, so the individual employment contract is not affected. Therefore there is normally no obligation to inform or consult employees or their representatives or obtain employee consent in connection with a share sale.

 
32. What protection do employees have against dismissal in the context of a share or asset sale? Are employees automatically transferred to the buyer in a business sale?

Business sale

To terminate an employment contract the employer must show an objective ground (saklig grund) for the termination. An objective ground is either based on redundancy or personal reasons. Redundancy covers shortage of work or the closedown of a business, whereas personal reasons are attributable to the employee personally.

In an asset sale, an employee (relating to the relevant business) transfers automatically to the buyer on the same terms and conditions of employment as contained in the individual employment contract (Employment Protection Act (lagen om anställningsskydd (1982:80)). The employee is entitled to object to the transfer to the buyer and remain employed by the seller.

The Employment Protection Act also states that employment cannot be terminated solely due to a business sale. However, this does not prevent the employer from terminating employment due to economic, technical or organisation reasons that include changes to the workforce. If an employee is terminated due to redundancy within the nine-month period before an asset sale, the employee normally has a priority right to re-employment with the buyer of the business.

If the employee is unfairly dismissed due to redundancy caused by the transfer, the employer may be liable to pay damages to the employee. The damages are established in relation to the total length of employment, and are:

  • 16 months' salary, for less than five years' employment.

  • 24 months' salary, for at least five but less than ten years' employment.

  • 32 months' salary, for at least ten years' employment.

This should be seen as maximum amounts, as deduction could be made for any new income the employee has earned, and so on.

Share sale

In a share sale, the employer does not change, so the employment protection rules in a business transfer do not apply. Instead, the mandatory rules on objective grounds for dismissal based on either redundancy or personal reasons apply. If there is a redundancy situation in the company the basic principle when deciding who should be terminated is that the employee with the longest aggregate service with the company is entitled to stay the longest. A list of priority based on this "last in first out" principle should be prepared for each location of the company and for each area regulated by a collective bargaining agreement, if any. An employer with a maximum of ten employees is entitled to exclude two employees who are, according to the employer, particularly important, from the list of priority.

If the employer deviates from the strict application of the "last in first out" principle and the employer cannot justify the deviation, the employer may be liable to pay damages on the same terms.

 

Pensions

33. Do employees commonly participate in private pension schemes established by their employer? If an employee is transferred as part of a business acquisition, is the transferee obliged to honour existing pension rights or provide equivalent rights?

Private pension schemes

In addition to the national retirement pension, most employees are entitled to a pension paid by their employers, but it is only mandatory for employers bound by a collective bargaining agreement (about 90% of workplaces in Sweden are covered by a collective bargaining agreement).

The employer either makes payments into a pension trust established by the company or pays premiums to an occupational pension insurance company. The employer's obligations under a pension trust, if the employee has been with the company for a long period, could be relatively extensive.

Pensions on a business transfer

In an asset sale, an accrued pension claim linked to a pension trust will not transfer to the buyer. In contrast, the buyer must honour payments to an occupational pension insurance company. In a share sale the buyer has to honour all pension obligations, since the employer has not changed.

 

Competition/anti-trust issues

34. Outline the regulatory competition law framework that can apply to private acquisitions.

The Swedish Competition Authority safeguards competition in Sweden. The main legislation is the Competition Act (Konkurrenslag (2008:579)), Regulation (EC) 139/2004 on the control of concentrations between undertakings (Merger Regulation) and the Treaty of the Functioning of the European Union (TFEU). The substantive assessment under the Competition Act is equal to the assessment under the TFEU.

A concentration occurs when one or more persons, already in control of at least one undertaking, acquire direct or indirect control over one or more other undertakings, irrespective of the means by which this is done. For a concentration to arise at the acquisition of a part or an activity of an undertaking, the part or activity must have an own operation to which it is possible to tie a turnover.

Certain assets can be regarded as activities, such as brands, personnel, inventory and goodwill. A joint venture, which on a lasting basis fulfils the functions of an autonomous economic entity, can in turn be a concentration. The key factor is whether the concerned undertakings, parts, activities or joint ventures can be considered to be part of the same economic entity.

Triggering events/thresholds

A concentration must be notified to the Competition Authority when control is gained if both:

  • The undertakings' aggregate turnover in Sweden in the preceding financial year exceeds SEK1 billion.

  • At least two of the undertakings concerned each had a turnover in Sweden in the preceding financial year which exceeded SEK200 million.

If the first bullet point above is fulfilled but the turnover does not exceed the amount in the second bullet point, the Competition Authority can, if there are particular grounds, require a party to notify the Competition Authority. Particular grounds may occur if a new smaller competitor is acquired by an already dominant undertaking. Gradual acquisitions are added to the turnover calculation, and can meet the turnover tests above, even if acquired over a period of two to three years.

Notification and regulatory authorities

Notification to the Competition Authority is required if the turnover tests are met or if the Competition Authority so requires based on particular grounds.

Substantive test

The substantive test corresponds to the significant impediment to effective competition (SIEC) test of the EC Merger Regulation. It can result in a prohibition if the concentration is likely to significantly impede the existence or development of effective competition in the country as a whole, or a substantial part of it, providing that a prohibition can be issued without significantly setting aside national security or essential supply interests.

 

Environment

35. Who is liable for clean-up of contaminated land? In what circumstances can a buyer inherit and a seller retain liability in an asset sale and a share sale?

The polluter pays principle applies under the Environmental Act (Miljöbalk (1998:808)). This means that whoever is engaging in, or has engaged in, an activity or has taken action that has contributed to pollution damage or serious environmental damage (Operator), is responsible for the required remediation. However, this is limited to the actual operation of hazardous activities conducted by the Operator after 30 June 1969.

A property owner's liability is secondary to the Operator's, and occurs when no Operator can be held responsible. However, the liability is restricted to properties acquired after 31 December 1998 and acquirers that, at the time of the acquisition, were or should have been aware of the pollution.

Consequently, the buyer in a share deal will be liable if the acquired company has contributed to pollution damage or serious environmental damage. However in an asset sale, it has to be assessed whether the buyer of the acquired assets can be considered to conduct the same business and therefore be related to the Operator from an organisational perspective and, based on this, be considered as the Operator. A buyer of real property (through an asset transfer or share transfer) will have secondary liability (see above).

 

Online resources

Swedish Government website

W www.riksdagen.se

Description. The legislation referred to in this article is available in Swedish on the website of the Swedish Government.

English language translations are available on the websites set out below. Only the Swedish versions are authentic. The English translations are unofficial versions of the legislation and may not at all times be up-to-date.

Swedish Government English version

W www.government.se

Description. English translations of the following are available on the Swedish Government website:

  • The Co-determination at the Workplace Act.

  • The Employment Protection Act.

  • The Environmental Act.

Competition Authority

W www.kkv.se

Description. An English translation of the Competition Act is available on the website of the Swedish Competition Authority.



Contributor profiles

Jon Ericson, Partner

Hamilton Advokatbyrå KB

T +46 8 407 24 56
F +46 8 505 501 01
E jon.ericson@hamilton.se
W www.hamilton.se

Professional qualifications. University of Umeå, Sweden, LLM 2000.

Areas of practice. Public and private M&A and equity capital markets.

Recent transactions

  • Blueair Holding on its sale of Blueair to Unilever (2016).
  • Felleskjøpet on its acquisition of Granngården from EQT (2016).
  • TeliaSonera on its acquisition of Perspektiv Bredband's Swedish fibre business (2016).
  • Fairford Holdings on its sale of Safegate to PAI Partners/ADB (2016).
  • Danske Bank (acting as bookrunner) on Matse Holding's SEK100 million private placement (2016).
  • Investment AB Kinnevik (publ) on its sale of 24.5% of the shares in Transcom WorldWide AB (publ) to funds advised by Altor Equity Partners (2015).
  • TeliaSonera on its acquisition of Transit Bredband (2015).
  • Avincis Mission Critical Control on its acquisition of Scandinavian Air Ambulance AB (2014).
  • Herkules Capital on its acquisition of Sensia AB (2014).

Languages. Swedish and English

Professional associations/memberships. Member of the Swedish Bar Association (advokat)

Charles Andersson, Partner

Hamilton Advokatbyrå KB

T +46 8 407 24 54
F +46 8 505 501 01
E charles.andersson@hamilton.se
Wwww.hamilton.se

Professional qualifications. Uppsala University, Sweden, LLM 2005

Areas of practice. Public and private M&A and equity capital markets.

Recent transactions

  • Fairford Holdings on its sale of Safegate to PAI Partners/ADB (2016).
  • MTG on the sale of Viasat Ukraine's DTH and internet businesses to 1+1 Media (2016).
  • Modern Times Group MTG AB (publ) on its add-on investment in Splay AB, through which a majority stake was obtained (2015).
  • Nilörngruppen in connection with its IPO on Nasdaq First North Premier (2015).
  • Tomra Systems ASA on its divestment of the recycling equipment company Tomra Compaction Group AB, including its subsidiaries in Sweden, Poland and Japan (2014).
  • Etrion Corporation on its US$80 million private placement (2014).

Languages. Swedish, English.

Professional associations/memberships. Member of the Swedish Bar Association (advokat).

Martin Prager, Partner

Hamilton Advokatbyrå KB

T +46 8 505 501 27
F +46 70 092 43 14
E martin.prager@hamilton.se
Wwww.hamilton.se

Professional qualifications. University of Stockholm, Sweden, LLM 2001

Areas of practice. Private M&A.

Recent transactions

  • Advised Distil Networks, Inc. in connection with the acquisition of security services provider ScrapeSentry.
  • Advised General Electric in connection with the sale of its international rail-signalling business to Alstom, for about US$800 million.
  • Advised Ceder Capital in connection with the acquisition of the majority of Viametrics AB. Viametrics was founded in 1994 and developed the first visitor counting system in Sweden. Today, the company is present in 50 countries and is one of the world's five largest companies in the market.
  • Advised FSN Capital in connection with the parallel acquisitions of five high quality technical installation companies to form Instalco.
  • Advised the seller in connection with the divestment of Fågelviksgruppen, a leading Nordic taxi services provider, which through its well-known and trusted brands and technology serves taxi firms in all the major cities in Sweden and Norway. Fågelviksgruppen has over 30 years built up a market leading position in all market segments, consumer, corporate and public contracts, and pioneered new technology such as apps and B2B process integration.

Languages. Swedish, English.

Professional associations/memberships. Member of the Swedish Bar Association (advokat).


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