In light of the considerable interest and publicity in this matter, the Copenhagen Stock Exchange finds it appropriate to publicly define its opinion on the proposed stipulated right of redemption to be inserted in TDC’s articles of association.
The Copenhagen Stock Exchange assesses that there is nothing to prevent TDC from adopting the proposed amendments to the articles of association regarding the right of redemption in relation to the Danish Securities Trading Act, cf. below. It is of course a prerequisite that such stipulated right of redemption may be lawfully implemented under Danish company law and that its rules on minority protection do not prevent this. The Copenhagen Stock Exchange has no authority to make decisions in matters governed by company law. Thus, it is up to the authorities to decide whether the proposed amendment of the articles of association can be made in compliance with the Danish Companies Act.
Hans-Ole Jochumsen, President and CEO of the Copenhagen Stock Exchange said: “The TDC case challenges a matter of significance to the Danish equity market, namely the protection of minority shareholders. This uncertainty is totally unsatisfactory for a stock market. My assessment is that the general interpretation in the market of the minority provision is that if a shareholder holds 90 percent or more of the shares and votes, then the shareholder may compulsorily redeem the remaining shares. If the amendments to the articles of association are approved, it does not make any sense to talk about a 90 percent rule. It can be questioned whether in fact the intention by politicians has ever been to introduce a 90 percent rule if it has no effect on listed companies.”
The Copenhagen Stock Exchange’s presentation of the problem
In connection with the convening of an extraordinary general meeting in TDC A/S, the intention of inserting a stipulated right of redemption in TDC’s articles of association was announced. This has raised the question of whether such a stipulation may be adopted in a company where no shareholder holds more than 90 percent of the shares. Based on the proposal to amend TDC’s articles of association, the Copenhagen Stock Exchange has further examined - from the perspective of Danish stock exchange law - whether any provision prevents listed companies from the possibility of compulsorily redeeming the minority shareholders via a stipulation in the articles of association. Given the present regulation in the area of securities trading, the assessment by the Copenhagen Stock Exchange is that it is possible.
This is the first time that it is being attempted to insert a stipulated right of redemption in a situation where no majority shareholder holds more than 90 percent of the shares and votes. The Copenhagen Stock Exchange has on a previous occasion made a decision in a situation where a stipulation was inserted in the articles of a listed company giving a majority shareholder owning more than 90 percent of the shares and votes the possibility to redeem the remaining shareholders. In this connection, the Copenhagen Stock Exchange emphasized that an adoption of a stipulated right of redemption should serve as a replacement for compulsory redemption where subsequently the company would request that its shares be delisted from the Copenhagen Stock Exchange.
The Copenhagen Stock Exchange has assessed this question from the perspective of stock exchange law in compliance with its obligations laid down in the Danish Securities Trading Act to ensure that stock exchange business is conducted in an adequate and appropriate manner. One of the governing principles for stock exchange listed shares it that they are freely negotiable. Free negotiability is essential to a stock market and shall not be limited by restrictive stipulations in the articles of association of a company. In the opinion of the Copenhagen Stock Exchange the requirement that shares must be freely negotiable is a requirement intended to ensure the free transfer of shares from buyer to seller without it being obstructed by provisions in the articles of association. The prohibition of trading restrictions is therefore motivated by the protection of the well-functioning of the market.
In the eyes of the Copenhagen Stock Exchange a stipulated right of redemption generally restricts the free negotiability. If, however, the purpose of such stipulated right of redemption is to obtain a 100 percent stake in the company immediately with the purpose of subsequently delisting the company, such stipulated right of redemption will not disturb the daily stock exchange trading. Thus, the requirement set out in the Danish Securities Trading Act which provides that shares must be freely negotiable, is not violated in a situation where the share is delisted immediately upon the implementation of compulsory redemption. In so far as the Danish company law permits the adopting of such stipulation also in a situation where no shareholder holds more than 90 percent of the shares, the Copenhagen Stock Exchange is of the opinion that the Danish Securities Trading Act does not prevent this. As mentioned it is, however, a prerequisite that compulsory redemption of the remaining shares is effected immediately upon the adoption of such provision and that in connection with the compulsory redemption the company requests that the shares be delisted. Thus, it is ensured that there is no uncertainty as to whether or not the shares will remain listed on the stock market.
Thus, the conclusion by the Copenhagen Stock Exchange is that an insertion of a stipulated right of redemption as the one proposed does not conflict with the Danish Securities Act provided that it is applied immediately following the adoption and provided that it is not in conflict with Danish company law.
