Highlights: 

• Under Section 27 of the Danish Securities Trading Act, inside information must be disclosed by an issuer at the earlier of (i) the coming into existence of the relevant circumstances or occurrence, albeit not yet formalised, (ii) the disclosure of the inside information to a third party, or (iii) a leakage of the inside information.
• This Danish implementation of Article 6(1) of Directive 2003/6/EC is broader than the inter­pretation of other European countries and could lead to more extensive and earlier disclosure.

1.             Introduction

1.1            This article presents the Danish regulations on the disclosure obligations of listed companies and the most recent amendment – the “Rule on Leakages.” The article presents the implications of the Danish regulations to how parties and advisors should structure cross border mergers and acquisitions involving a Danish issuer of shares listed on NASDAQ OMX Copenhagen A/S or another regulated market (an “Issuer”) and to the relating documentation.

2.             Executive Summary

2.1            In any potential or ongoing transaction involving an Issuer, the involved parties should prepare publicity guidelines specifying the procedure for any disclosure of information and the responsible parties.

2.2         The foreign party should take extra care when dealing with the press both domestically and abroad. Particular care should be given to the wording of non-disclosure agreements and confidentiality clauses in order to address the disclosure obligations of the Issuer under the Danish Securities Trading Act (consolidated Act no. 883 of 09-08-2011, the “Act”), including the Rule on Leakages found in Section 27 (2)(3) of the Act.

2.3         The Issuer must have a procedure for immediately publicly disclosing the inside information and should in cases involving a high risk of leakage (mainly transactions) keep a draft company announcement ready.

3.              Danish and  EU provisions on disclosure and leakage

3.1            Under Section 27 (1) of the Act, any Issuer shall publicly disclose inside information immediately upon the coming into existence of the relevant circumstances or occurrence, albeit not yet formalised. This implements the Danish interpretation of Article 6 (1) of Directive 2003/6/EC on insider dealing and market manipulation (the “Market Abuse Directive”); that the Issuer as a starting point is obligated to disclose inside information only when the inside information has been realised. Other member states interpret the article to mean that all inside information must be published, regardless of whether the inside information relates to something which is a fact.

3.2            Inside information must be publicly disclosed simultaneously with the disclosure of the inside information to a third party, unless such third party is considered an insider and is subject to a duty of confidentiality, see Section 27 (2) of the Act, or immediately after the Issuer becomes aware or should have become aware of having disclosed the said inside information. The wording of Section 27 (2) is an implementation of Article 6 (3)(1),(2) in the Market Abuse Directive, which is likely implemented the same way in all the member states.

3.3            On 1 January 2011 the so-called “Rule on Leakages” was implemented as a new Section 27 (2)(3) of the Act. The amendment was implemented to ensure information parity in the market and to some extent to protect the market from being affected by rumours. The Rule on Leakages is not an implementation of any EU directive or regulation, but is implemented following a dispute regarding the interpretation of the Danish disclosure obligations (see below).

3.4            The Rule on Leakages stipulates that the Issuer must publicly disclose any inside information no longer held confidential (leakage of inside information), regardless of whether the source of the breach can be identified.

3.5            The Issuer’s disclosure obligations may be illustrated as follows:

4.             Leakage case

4.1            In mid-July 2005, major Danish tele-, broadband and cable-TV supplier TDC A/S (“TDC”) was approached by a club of private equity funds (Apax, Blackstone, KKR, Permira and Providence) with the purpose of submitting a voluntary takeover bid for minimum 90 % of the outstanding share capital.

4.2            Negotiations continued during 2005 and very specific rumours concerning the transaction began to circulate in the media. On 17 August 2005, the transaction and the names of all the potential buyers were published on the front page of The Wall Street Journal, citing “sources close to the transaction” as the source. TDC published a company announcement confirming only that TDC “continually receives inquiries from interested buyers.” On 30 November 2005, TDC published a company announcement confirming that the five funds mentioned above were issuing a joint offer for TDC.

4.3            The Danish Securities Council ruled – on recommendation of the Danish Financial Services Authority (the “FSA”) – that TDC had failed to comply with its disclosure obligations under the Danish Securities Trading Act applicable at the time. According to the FSA’s interpretation of the Danish Securities Trading Act, the Issuer should publish any inside information as soon as the Issuer became aware of it, regardless of whether the inside information had become a fact. The ruling was never published because the high-profile case could not effectively be made anonymous.

4.4            On 19 April 2007, the FSA published a memo describing the above-mentioned interpretation of the Act. This interpretation was highly debated in Danish capital markets law and was eventually overturned by a ruling from the Danish Companies Appeals Board of 11 September 2008, incidentally in another case concerning TDC.

4.5            In accordance with the decision above, the interpretative notes of the Rule on Leakages reaffirm that the Danish Companies Appeals Board’s interpretation of Section 27 (1) of the Act, see clause 3.1 above, is in accordance with the Market Abuse Directive, and that the Danish rules are now supplemented with the obligation to disclose inside information in case of a leakage.

4.6         Today, the Rule on Leakages would imply that the issuer is forced to immediately disclose inside information confirming the leaked inside information. Such premature disclosure of course increases the risk of serious negative implications to the transaction and of the attraction of event driven hedge funds.

5.         The Rule on Leakages and cross-border public M&A

5.1            The Danish disclosure obligations, including the new Rule on Leakages, are highly relevant to both cross-border and domestic mergers and –acquisitions.

5.2            In any transaction involving a Danish Issuer, the involved parties should carefully consider preparing publicity guidelines specifying the procedure for any disclosure of information and the responsible parties.

5.3            In a cross-border transaction, the foreign party should take extra care when dealing with the press both domestically and abroad to prevent that the Issuer is obligated to publicly disclose inside information about the potential transaction.

5.4            Under Section 27 (1) of the Act, the board of directors of the Issuer may be obligated to disclose a particularly firm indication by a potential offeror or merger partner of an upcoming public tender offer or merger proposal. Therefore, it is in the interest of a potential offeror that the Issuer is bound by a non-disclosure agreement as early as possible, and the initial contact with the Issuer should specify that the decision to put forward a public tender offer or merger proposal is not a certainty as well as what factors the decision will depend on, e.g. satisfactory due diligence.

5.5            Particular care should be given to the wording of non-disclosure agreements and confidentiality clauses in order to address the disclosure obligations of the Issuer under the Danish Securities Act (including the Rule on Leakages), which may differ from the disclosure obligations under the foreign party’s domestic regulations. In relation hereto, a foreign party in the EU should be aware of whether the foreign party’s home country employs the Danish interpretation of Article 6 (1) of the Market Abuse Directive, see clause 3.1 above.

5.6            These procedures and documents should be in place in order to (i) disclose inside information to as few people as possible, especially external persons, and on a need-to-know basis only and (ii) complete any confidential transactions as soon as possible, both in order to minimize the risk of a leakage of inside information.

5.7            Any leakage or true rumour in the market will obligate the relevant Issuer to disclose the leaked inside information, which could be very detrimental to a potential or ongoing transaction. Danish Issuers must have a procedure for immediately publicly disclosing inside information which is no longer held confidential and should in cases involving a high risk of leakage (mainly transactions) keep a draft company announcement ready.