Livonian War
Danish and Swedish interventions

In return for a loan and a guarantee of Danish protection, Bishop Johann von Münchhausen signed a treaty on 26 September 1559 giving Frederick II of Denmark-Norway the right to nominate the bishop of Ösel–Wiek, an act which amounted to the sale of these territories for 30,000 thalers. Frederick II nominated his brother, Duke Magnus of Holstein as bishop, who then took possession in April 1560. Lest Danish efforts create more insecurity for Sweden, Denmark-Norway made another attempt to mediate a peace in the region. Magnus at once pursued his own interests, purchasing the Bishopric of Courland without Frederick's consent and trying to expand into Harrien – Wierland (Harju and Virumaa). This brought him into direct conflict with Eric.

In 1561, Swedish forces arrived and the noble corporations of Harrien–Wierland and Jerwen (Järva) yielded to Sweden to form the Duchy of Estonia. Reval (Tallinn), similarly, accepted Swedish rule. Denmark dominated the Baltic, and Sweden wished to challenge this by gaining territory on the Eastern side of the Baltic. Doing so would help Sweden control the West's trade with Russia. This helped to precipitate the Northern Seven Years' War since in 1561, Frederick II had already protested against Swedish presence in Reval (Tallinn), claiming historical rights relating to Danish Estonia. When Eric XIV's forces seized Pernau (Pärnu) in June 1562, his diplomats tried to arrange Swedish protection for Riga, which brought him into conflict with Sigismund.

Sigismund maintained close relations with Eric XIV's brother, John, Duke of Finland (later John III), and in October 1562 John married Sigismund's sister, Catherine, thereby preventing her marrying Ivan IV. While Eric XIV had approved the marriage, he was upset when John lent Sigismund 120,000 dalers and received seven Livonian castles as security. This incident led to John's capture and imprisonment in August 1563 on Eric XIV's behalf, whereupon Sigismund allied with Denmark and Lübeck against Eric XIV in October the same year.
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