Honkarakenne Oyj - Company Announcement

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Not for publication or distribution, directly or indirectly, in the United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.