A STATEMENT BY THE BOARD OF DIRECTORS OF HONKARAKENNE OYJ ABOUT THE PUBLIC TENDER OFFER MADE BY SISTEMA FINANCES S.A.

HONKARAKENNE OYJ Stock Exchange Release 9 December 2016 at 3:30 p.m.

A STATEMENT BY THE BOARD OF DIRECTORS OF HONKARAKENNE OYJ ABOUT THE PUBLIC TENDER OFFER MADE BY SISTEMA FINANCES S.A.

Not for publication or distribution, directly or indirectly, in the United States of America, Canada, Australia, New Zealand, South Africa, China, Hong Kong, Singapore or Japan or any other country where distribution or publication would be illegal.

1. Background information

Sistema Finance S.A. (“the Offeror”), a company established in accordance with Luxembourg law and a subsidiary of Sistema PJSFC (“Sistema” or, together with its subsidiaries “Sistema Group”) established in accordance with the law of the Russian Federation, announced in a bulletin from Nasdaq Helsinki Oy’s Helsinki Stock Exchange published on 3 November 2016 that it was making a voluntary public cash purchase tender offer (“Tender Offer”) to buy all A shares (“A shares”) and B shares (“B shares” and, together with A shares, “Shares”) issued by Honkarakenne Oyj (“the Company” and, together with its consolidated subsidiaries, “Honkarakenne”).

The Company announced in a bulletin from Nasdaq Helsinki Oy’s Helsinki Stock Exchange published on 4 November 2016 that the company had received a notice from its main owner, Saarelainen Oy, that Saarelainen Oy will not accept the proposed Tender Offer. At the time of the notice given on 4 November 2016, Saarelainen Oy’s ownership in the company amounted to 139,100 A shares and 665,560 B shares, representing 43.35% of all A shares and 13.55% of all B shares. In total, Saarelainen Oy’s direct ownership share of the voting rights in the Company was at that time 31.59%.

The Offeror announced in a bulletin from Nasdaq Helsinki Oy’s Helsinki Stock Exchange published on 11 November 2016 that it was initiating the voluntary public cash purchase tender offer that it previously announced on 3 November 2016, and at the same time published the Tender Offer Document (“Tender Offer Document”) dated 10 November 2016.

On 30 November 2016, in a bulletin from Nasdaq Helsinki Oy’s Helsinki Stock Exchange, the Company published a notice issued by Saarelainen Oy in accordance with Chapter 9 Section 5 of the Securities Markets Act, according to which Saarelainen Oy owns 498,299 B shares and 139,100 A shares. According to this notice, Saarelainen Oy’s direct ownership share of the voting rights in the Company is 30.06% at the moment of publication of this statement.

2. Tender offer in brief

The Tender Offer Document contains the conditions of the Tender Offer (“the Conditions”) concerning the company’s shares.

The Tender Offer Document specifies, among other things

  • the objectives of the Tender Offer
  • the pricing principles of the Tender Offer and
  • the Conditions of the Tender Offer.

The Tender Offer Document has been available since 11 November 2016 at the branch of Evli Bank at Aleksanterinkatu 19, 00100 Helsinki and since 11 November 2016 on the Internet at www.evli.com/honka. The Tender Offer Document in English has been available since 11 November 2016 on the Internet at www.evli.com/Honka-ENG.

The tender period began on 11 November 2016 at 9:30 AM (Finnish time) and will end on 16 December 2016 at 4 PM (Finnish time), unless the period is extended or the extended tender period is suspended (“Tender Period”).

The payment offered for the shares is €1.50 in cash for each A share and each B share, in respect of which the Tender Offer has been validly accepted (“Tender Price of Shares”).

A condition to the completion of the Tender Offer is that the requirements set forth below for the completion of the Tender Offer (the “Conditions to Completion”) are fulfilled on or by the date of the Offeror’s announcement of the final result of the Tender Offer in accordance with Chapter 11, Section 18 of the Finnish Securities Market Act (746/2012, as amended, the “Finnish Securities Market Act”) (the “Announcement Date”) or that the fulfillment of all or some of them is, to the extent permitted by applicable laws and regulations, waived by the Offeror:

a)the valid tender of Shares representing, together with any other Shares otherwise acquired by the Offeror prior to the Announcement Date, more than 67 percent of each of the issued Series A shares and each of the Series B shares of the Company on a fully diluted basis;

b) the receipt of all necessary regulatory approvals, permits and consents, including without limitation any competition law clearances, and that any conditions set in such permits, consents or clearances are reasonably acceptable to the Offeror;

    c) no legislation or other regulation having been issued or decision by a competent court or regulatory authority, including the FFSA, having been given that would wholly or partly prevent the completion of the Tender Offer or result in a material adverse change in respect of the Company and its subsidiaries, taken as a whole;

      d)no information made public by the Company being materially inaccurate, incomplete, or misleading, and the Company not having failed to make public any information that should have been made public by it under applicable laws and regulations;

      e) no fact or circumstance having arisen after the announcement of the Tender Offer that constitutes a material adverse change in respect of the general affairs, business, assets, financial condition, results of operations or prospects of the Company and its subsidiaries, taken as a whole;

        f) the Company not having passed a resolution that would materially impact the rights attached to the Series A shares and/or the Series B shares of the Company;

          g) the Company not having agreed upon a competing transaction involving all or a material part of the business and/or assets of the Company that would frustrate the purpose of the Tender Offer; and

            h) the Company having taken all steps necessary to permit the transfer in the Finnish book-entry securities system of Series A shares of the Company validly tendered in the Tender Offer to the Offeror in connection with the completion of the Tender Offer.

              The Offeror can only invoke any of the Conditions to Completion so as to cause the Tender Offer not to proceed, to lapse or to be withdrawn if the circumstances that give rise to the right to invoke the relevant Condition to Completion, have material importance to the Offeror in view of the Tender Offer, as referred to in the regulations and guidelines (9/2013) of the FFSA on Takeover Bids and Mandatory Bids and in the recommendation regarding the procedures to be complied with in takeover bids issued by the Finnish Securities Market Association (the “Helsinki Takeover Code”).

              The Offeror may, to the extent permitted by applicable laws, regulations and stock exchange rules, waive any of the above-mentioned Conditions to Completion that are not fulfilled. If all Conditions to Completion have been fulfilled or the Offeror has waived the requirement for the fulfillment of all or some of them on the Announcement Date at the latest, the Offeror will consummate the Tender Offer in accordance with its terms and conditions after the expiration of the Offer Period by purchasing Shares validly tendered in the Tender Offer and paying the Offer Price to the shareholders that have validly accepted the Tender Offer.

              By the time of issuing this statement, the Offeror has not waived any of the above-mentioned Conditions to Completion.

              3. Statement of the Board of Directors

              3.1 General  

              The Board of Directors of Honkarakenne Oyj (“the Board of Directors”) has today published this statement (“Statement”) concerning the Tender Offer in accordance with Chapter 11 Section 13 of the Finnish Securities Markets Act, regulations and guidelines 9/2013 of the Finnish Financial Supervisory Authority and recommendations in the Helsinki Takeover Code concerning procedures observed in public takeovers. This statement evaluates the Tender Offer from the perspective of the Company and its shareholders, such as the strategic plans of the Offeror and their probable impact on the Company’s business and employment in the Company.

              3.2 Preparation of statement

              In accordance with recommendation number 4 of the Helsinki Takeover Code, the Board of Directors has urged all its members to notify it about their commitments to the Offeror, Sistema and the completion of the Tender Offer, which are significant in terms of the members of the Board evaluating their possibilities to participate in the processing of the Tender Offer, free from side effects.

              All the members of the Board, Arto Tiitinen (Chairman of the Board), Mauri Saarelainen (Deputy Chairman), Anita Saarelainen, Jukka Saarelainen, Kati Rauhaniemi and Rainer Häggblom, have participated in the preparation of the statement in the absence of grounds for disqualification.

              In order to evaluate the Tender Offer, the Board of Directors has asked Aalto Capital Partners Ltd for an impartial fairness opinion (“Fairness Opinion”) concerning the reasonableness of the payment offered for the shares. Aalto Capital Partners Ltd is independent of the Company and of the Offeror.

              The Board of Directors has also asked representatives of the Company’s personnel for a statement in accordance with Chapter 11 Section 13 Subsection 5 of the Finnish Securities Markets Act about the impact of the Tender Offer on employment in the Company. The representatives of the personnel have not provided the said statement. 

              The Board of Directors has asked the Company’s main owner, Saarelainen Oy, for its opinion on the Tender Offer. As a consequence of this enquiry, Saarelainen Oy provided the notice presented in the paragraph above “Background information”, according to which Saarelainen Oy does not accept the Tender Offer. 

              The Board of Directors has evaluated possible alternative arrangements to the Tender Offer, and has also asked the Company’s Board of Executives and its President and CEO for their opinion. The statement by the Company’s Board of Executives declares that it does not see significant, possibly achievable synergy benefits with GC Segezha LCC (“Segezha”) and JSC Sokol Woodworking Plant (“Sokol Plant”) that belong to the Sistema Group. In connection with the Board of Executives’ expression of opinion, the Board of Directors also received a notice from the Company’s President and CEO that he does not accept the Tender Offer.

              Because the improvement programme announced in a bulletin of the Nasdaq Helsinki Oy’s Helsinki stock exchange on 2 May 2016 has still not been completed, the Board of Directors has not actively sought alternative or competing tenders. The Board of Directors has not received alternative or competing tenders from third parties, neither is it aware that such tenders are being prepared.

              With regard to the Tender Offer, the Company is committed to observing the Helsinki Takeover Code.

              3.3 Assessment of the Tender Offer from the perspective of the Company and its shareholders

              In the Tender Offer, each Series A share and Series B share in respect of which the Tender Offer has been validly accepted in accordance with its terms and conditions, will be offered at a Share Offer Price of €1.50 in cash, which is about 14.5% higher than the closing price for the Company’s Series B shares (€1.31) on the NASDAQ OMX Helsinki on 2 November 2016, the last trading day before the obligation to tender. After the publication of the Tender Offer, the price of Series B shares on the NASDAQ OMX Helsinki rose to €1.52 and the following day to €1.73. Since the publication of the Tender Offer, the price of Series B shares has remained above the offered price of €1.50.

              The Board of Directors notes that the Offer Price’s premium of 14.5% is lower than the average for tender offers in the Nordic countries, particularly in situations in which – as in the case of Honkarakenne Oyj – the liquidity of shares in the target companies has been low and, for this reason, the market price does not adequately reflect the financial prospects of the target companies.

              The Board of Directors notes that the Offer Price is the same for the Company’s Series A and Series B shares. In the opinion of the Board of Directors, it would be justified to value the Series A shares, which hold greater voting rights, as more expensive than the Series B shares, which possess only a small dividend benefit.   

              3.4 The conditionality of the Tender Offer

              As presented previously in this statement, the Tender Offer is conditional on the fulfilment of the following condition, amongst others: 

              ”the valid tender of Shares representing, together with any other Shares otherwise acquired by the Offeror prior to the Announcement Date, more than 67 percent of each of the issued Series A shares and each of the Series B shares of the Company on a fully diluted basis”

              The Board of Directors notes that, taking into account the notice published on 3 November 2016 by Saarelainen Oy, which owns 43.35% of the Company’s Series A shares, the said condition will not be met.

              The Board of Directors also draws attention to the fact that the paragraph “Strategic plans” in the Tender Offer Document repeatedly mentions the position of Sistema and the Offeror as the majority owner as a condition for the completion of the proposed plans.

              If, by majority ownership, Sistema and the Offeror mean the 67% shareholding set as a condition for completion of the Tender Offer, the Board of Directors repeats that, based on the notice given by Saarelainen Oy on 4 November 2016, this condition will not be met.  

              In addition to the above, Saarelainen Oy has brought it to the notice of the Board of Directors that none of the Company’s private shareholders who are party to Honkarakenne Oyj’s shareholder agreement has offered the Company’s Series A shares that he/she owns for Saarelainen Oy to purchase in the manner required by the pre-emptive right condition in the shareholders’ agreement. The said Series A shares together with the Series A and B shares directly owned by Saarelainen Oy represent a total of 47.76% of the Company’s entire voting rights.

              Together with the shareholding owned by the Company’s President and CEO, who has given notice that he rejects the Tender Offer, the above-mentioned shares form a total of 50.54% of the Company’s voting rights. 

              Because of this, the Board of Directors declares that it is improbable that, based on the Tender Offer, the Offeror will obtain a more than 50% majority of the Company’s voting rights.

              Based on the above, the Board of Directors therefore considers it improbable that the ownership-related requirements concerning the implementation of the strategic plan presented in the Tender Offer Document will be met.

              3.5 Assessment of the strategic plans presented in the Tender Offer Document and their probable impact on the Company’s business and personnel

              In the Tender Offer Document, the strategic plans are presented in a general manner, so it is practically impossible for the Board of Directors to form a detailed opinion on their probable impact on the Company’s business and personnel. The Board of Directors considers that the Company will not achieve significant synergies with Sistema Group’s forestry industry companies Segezha and Sokol Plant that are mentioned in the Tender Offer Document.       

              At the same time, the Board of Directors states that the Company is still continuing with the efficiency programme announced on 2 May 2016, the effects of which are expected to become evident during 2017.  

              4. Recommendation of the Board of Directors

              Taking into account the statements of the Offeror, the views of the Company’s Board of Executives and President and CEO and the Fairness Opinion statement presented, the Board of Directors considers that the Offer Price stated in the Tender Offer does not reflect the Company’s value creation potential. The Board of Directors also considers that there is uncertainty regarding the implementation of the general strategic plans presented in the Tender Offer and their positive effects – including the synergy benefits presented. Based on the above-mentioned assessments and facts, the Board of Directors does not recommend to shareholders the acceptance of the Tender Offer. The decision on the recommendation concerning the Tender Offer given to shareholders by the Board of Directors is unanimous.

              5. Information concerning this statement

              The Board of Directors points out, however, that its statement is not by its nature investment advice to shareholders or option holders, nor does it constitute investment or tax advice for any other party, nor can the Board of Directors be required to evaluate the general development of the share price or the risks generally related to investment activity. The acceptance or rejection of the Tender Offer is a decision that shareholders and option holders should consider and make independently, and which should be based on the information presented in the Offeror’s Tender Offer Document, and which should take into account all the available information, including the statements and information contained in this Statement.

              In the Fairness Opinion that it has given to support the Board of Directors’ decision-making, Aalto Capital Partners Ltd has assessed the reasonableness of the Tender Offer from the perspective of the Company’s shareholders. Eversheds Attorneys Ltd has acted as a legal adviser to the Board of Directors with regard to this statement.

              Helsinki, 9 December 2016

              Honkarakenne Oyj

              Board of Directors

               

              Further information:

              Arto Tiitinen

              Chairman of the board

              tel. + 358 400 566875

               

              Distribution:

              Sistema Finance S.A.

              Financial Supervisory Authority

              NASDAQ OMX Helsinki

              Key media

              www.honka.com

               

              THIS STATEMENT DOES NOT CONSTITUTE AN OFFER OR A REQUEST TO MAKE A SALES OFFER. ACCORDING TO THE OFFEROR, THE TENDER OFFER IS NOT BEING MADE DIRECTLY OR INDIRECTLY TO REGIONS WHERE TO DO SO WOULD BE ILLEGAL. THE TENDER OFFER IS NOT BEING MADE IN AUSTRALIA, SOUTH AFRICA, HONG KONG, JAPAN, CANADA, CHINA, SINGAPORE, NEW ZEALAND OR THE UNITED STATES OF AMERICA.