NORWAY Law and Practice Contributed by: Karoline Ulleland Hoel, Sigurd Opedal, Ole Henrik Wille and Daniel Nygaard Nyberg, Wikborg Rein Advokatfirma AS
8. Management Incentives 8.1 Equity Incentivisation and Ownership In Norway, equity incentivisation of management is a common feature of private equity transactions, to ensure that the interests of portfolio companies’ sen - ior management or key personnel align with those of the private equity fund, motivating them to create fur - ther value and maximise returns on successful exits. The size of management’s investment varies depend - ing on whether they are rolling over existing shares or injecting new capital. Management must have capital at risk in order to achieve a tax-efficient structure and typically subscribes at the same price as the private equity sponsor, although with different allocations of preference shares and ordinary shares. Selling mem - bers of management are often required to re-invest a significant portion of their sale proceeds (20–50%, or higher for key persons), subject to negotiations and individual exceptions. Any gains realised by management on re-investments are, in principle, subject to capital gains tax. If, how - ever, management holds the initial investment through separate holding companies and re-invests through that holding company, tax would be avoided (or more precisely postponed until distributions are made from the holding entity). It is important both for management and for the pri - vate equity fund that management’s investment is made at fair market value, although the tax authorities have historically recognised that the shares acquired by management can be transferred at a reduced mar - ket value (typically a 20–30% reduction) to reflect the value impact of lock-up provisions, minority position and illiquidity. These reductions are typically calcu - lated based on the Black-Scholes-Merton approach. If the incentives for the management are not granted at market price, any benefit achieved by management on the (re)investment would typically give rise to pay - roll tax as opposed to tax on capital gains (payroll tax is higher) for the management in question and also trigger social security contributions for the employer entity of up to 19.1%.
tion. In the event of a superior offer, the target’s board normally retains the option of withdrawing or amend - ing its recommendation. It is permissible to charge break fees up to a certain level; see 6.6 Break Fees . 7.6 Acquiring Less Than 100% If an offer closes with less than 90% acceptance rate, repeated mandatory offer obligations may apply (see 7.3 Mandatory Offer Thresholds ), but no additional governance rights beyond those triggered by the level of shareholding are granted. Effective control of a Norwegian company’s opera - tions and dividend levels is achieved through board control which is achieved at more than 50% of the votes cast. Effective control over new share issues, capital structure changes, mergers and de-mergers is achieved at two-thirds of the votes cast. A bidder can squeeze out remaining shareholders if the bidder successfully acquires 90% or more of the target shares. A squeeze-out procedure usually takes one or two business days, with the consideration, as the general rule, being the cash equivalent in NOK of the tender offer price. Debt pushdown is usually facilitated through dividend payments from the target being resolved after the bid - der has conducted a squeeze-out and acquired 100% of the shares in the target. 7.7 Irrevocable Commitments It is common for the principal shareholder(s) to obtain irrevocable commitments to tender and/or vote if the bid premium is acceptable. These agreements are usually negotiated shortly before the announcement of an offer from a selected group of shareholders. Undertakings usually provide the shareholder with the opportunity to withdraw if a superior offer is made. It is possible, however, to obtain unconditional undertak - ings if the principal shareholder(s) believes the offer is attractive.
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