– A clear victory for minority shareholders – impact on aspects of future public tender offers (KKO:2025:94)
Fresh out of the oven: the Supreme Court has given a precedent-setting decision regarding the valuation of the redemption price in squeeze-outs.
The Supreme Court considered that while the offer price is presumed to represent a fair price in squeeze-outs, in the Ahlstrom-Munksjö case the offer price and consequent market price could not be considered to reliably indicate a fair price.
The Court considered different alternative valuation methods and expert witness statements and deemed that a fair redemption price is 21 euros per share whereas the offer price and consequent market price had been 17.84 euros per share.
Key facts
Ahlstrom Holding 3 Oy (previously Spa Holdings 3 Oy) published a voluntary bid for all shares of Ahlstrom-Munksjö Oyj (“target”) on 24 September 2020. The consortium behind the offer consisted of Bain Capital, Ahlström Invest B.V. (“AIBV”), Viknum and Belgrano. Said entities and the Ahlström family members owned over 68% of the target’s outstanding shares at the time of the voluntary bid.
The offer was 18.10 euros but was adjusted to 17.84 euros based on future dividends. It included a 24% premium on the closing price of the day prior to the bid. Key facts on the general structure of the bid included the following:
- The offer entered into force on 22 October 2020, with the initial offer period ending on 30 December 2020.
- On 4 November 2020, AIBV published an exchange offer for shares of the target to only certain shareholders that were part of the Ahlström family. This exchange offer had an extremely high acceptance rate: 96% of the Ahlström family owners chose the exchange offer instead of the voluntary bid.
- On 8 December 2020, the offer period was continued to 14 January 2021.
- On 15 January 2021, the shares acquired via the voluntary bid, on the market, and those acquired via the exchange offer represented 81.1% of the target’s shares.
- On 20 January 2021, it was announced that Ahlstrom Holding 3 Oy would complete the bid. A prolonged offer period was published.
- On 25 January, the target published an invitation to an extraordinary shareholders meeting. The agenda included a proposal to increase the board’s authority to issue shares.
- The prolonged offer period ended with Ahlstrom Holding 3 Oy reaching an ownership of 90.6%.
Arbitral Tribunal and District Court decisions
The offeror initiated redemption proceedings in March 2021. The redemption price was set by an Arbitral Tribunal in first instance in February 2022 and after appeal by the Helsinki District Court in August 2023.
The proceedings focused on the interpretation of Section 7 of Chapter 18 of the Limited Liability Companies act. Pursuant to the section, where the rights of squeeze-out have arisen in the context of a voluntary bid and the redeemer has on the basis of that bid obtained no less than nine tenths of the shares targeted in the bid, the offer price serves as the fair price, unless there is a special reason to determine otherwise.
The Arbitral Tribunal argued that there were several reasons to consider that special reasons existed to disregard the presumption of considering the tender offer price as a fair price: the exchange offer to only certain shareholders, the invitation to an extraordinary general meeting during the tender offer period, the significant holdings of the consortium members in the target, and the low proportion of independent acceptances of the tender offer.
The Arbitral Tribunal held that the determination of the fair price of the share could not be based on the market price which had followed the offer price. The Arbitral Tribunal set the redemption price of the shares at 21.55 euros per share on the basis of the valuation analyses submitted by the minority shareholders.
The District Court agreed with the Arbitral Tribunal’s position that special reasons existed to deviate from the offer price as a fair price. However, the District Court held that the market price of the shares, even though corresponding to the offer price, demonstrated the fair price of the share better than any other valuation method. It further concluded that there were no exceptional circumstances related to the market price that would have made it clearly unreliable. The District Court thus set the redemption price of the shares at 17.84 euros per share based on the market price formed in public trading prior to the initiation of the redemption proceedings.
The Supreme Court’s decision
The Supreme Court did not find it necessary to review whether special reasons existed. It took this as a starting point, accepting the District Court’s finding in this regard, and therefore focused solely on the determination of a fair price.
The Supreme Court concluded that the market price can form the basis for the determination of a fair price even when special reasons exist to deviate from the offer price. The Court considered that it must be independently reviewed whether special reasons, or other factors, weaken the reliability of the market price.
The Supreme Court considered several factors when determining whether in this case the market price could be considered reliable. It notably made the following observations.
- The target’s stock exchange price had closely followed the offer price.
- There had been significant positive development in the industry and in comparable companies between the publication of the bid and the redemption proceedings which was not reflected in target’s share price.
- The strong position of the consortium and the exchange offer to certain shareholders signified that a competing bid was unlikely.
- The acceptance of the initial offer was slow, and it only picked up (during a prolonged offer period) after the target company issued an invitation to an extraordinary shareholder’s meeting. Via issuing additional shares it would have been possible to dilute the holdings of the minority shareholders to under 10%. The Supreme Court asserted that this also affected the overall trade of the target’s shares, not only the acceptance of the bid.
Fairness of the offer price
Overall, the Supreme Court considered that market operators did not base their view of the likelihood of the bid going through on the offer price itself nor its fairness. Prior to the redemption proceedings, the target’s market price had been materially formed based on the bid and information concerning the bid. The Supreme Court further asserted that the price was not affected by market information nor company specific information based on which the market price is usually determined. The share’s market price was therefore not formed freely through transactions between independent parties. The market price anchoring to the offer price was not indicative of the offer price being considered fair.
The Supreme Court therefore considered that the reliability of the market price as an indicator of the fair price had overall been weakened and could not be taken as the basis for the determination of a redemption price. Instead, alternative valuations had to be considered.
Determination of fair price
Of special interest is how the Supreme Court decided how the fair price should then be valued.
First, the Court considered that valuations based on discounted cash flows (DCF) are theoretically sound. It reviewed different expert witness statements regarding different valuation models and considered two of them to be more reliable than others, notably based on the chosen weighted average costs of capital. However, the Court stated that DCF analyses tend to lead to valuations that are slightly higher than stock exchange prices, and it considered that one of the more reliable valuations omitted information that would have led to a slightly higher fair price. It appears that the Court then simply set the redemption price somewhere in between the two valuations it considered most reliable, in this case 21 euros.
Key takeaways on aspects of future public tender offers
The Supreme Court’s decision clarifies the relationship between offer price, market price, and fair price in squeeze-out proceedings. Going forward, parties should especially consider the following:
- The presumption of the market price as fair price is strong. Even when special reasons exist to deviate from the offer price, it can still indicate fair value, but only if it has been formed reliably.
- The process and the context of the bid matter as much as the price itself. The manner in which an offer is structured and executed can significantly impact not only whether special reasons exist, but whether the market price will be considered reliable.
- In particular, offerors should avoid arrangements that i) can be considered to favour certain shareholders (such as exchange offers to select shareholders that are more valuable) or ii) appear to be coercive in relation to the minority shareholders’ acceptance of the bid (such as threats of dilutive share issuances), especially when combined with a prolonged offer period and an initial slow acceptance rate.
- When the reliability of the market price is undermined, DCF-based valuations provide a theoretically sound alternative, though courts may account for DCF valuations’ asserted tendency to produce slightly elevated valuations. Importantly, courts may be willing to set the fair price by reconciling the results of different expert witness statements if they consider several to be credible. This approach, whilst flexible, reduces the predictability of outcomes and underscores the importance of engaging experienced advisers and credible expert witnesses.