This blog series puts the spotlight on legal issues relevant to activist shareholders and event-driven institutional investors in Swiss target companies and introduces market participants from abroad to the pillars of Switzerland's legal framework.
Current high levels of activist campaigns and tender offers in Switzerland 2017 was another eventful year for shareholder activism in Switzerland. Skadden reports that, while nine Swiss listed companies being publicly subjected to activist demands in 2017 is a slight reduction from the previous year, current levels are still among the highest in recent years. Similarly, there were a number of tender offers for Swiss listed companies that launched and/or closed in 2017, including the highly publicized takeover of Syngenta, which ultimately took an extraordinary 16 months to complete. The ongoing takeover battle for Sika is still making headlines.
Introducing the Shareholder Activism Series None of this takes place in a legal vacuum, of course. What is permissible for, and sometimes demanded of, target companies on the one hand and shareholders on the other during the different phases of an activist campaign or a corporate event is to a considerable extent determined by the various areas of law and self-regulation. Familiarity with these rules is not only required to avoid distracting - and possibly costly - exposure, but also helps market participants understand, con-textualize, and to some extent even predict the relevant players' behavior.
Over the coming months, a series on the VISCHER blog will touch upon the most important of these rules and provide an opportunity to learn more about the mainstays of Switzerland's legal framework. The series will broadly follow the lifecycle of an equity investment in a Swiss listed target company, starting with an overview of what buying shares in such a company means for a shareholder.
Disclosure and Market Conduct Rules The key obligation of a shareholder in a company listed on a Swiss stock exchange is compliance with the disclosure and market conduct rules pursuant to the Swiss Financial Market Infrastructure Act (FMIA). The disclosure rules will be covered in more detail in an upcoming post. Essentially, a shareholder who – alone or acting in concert with third parties – acquires a stake of three percent or more in shares, purchase or sale rights in relation to a relevant company must make a disclosure to the company and the stock exchange. Further disclosure obligations may be triggered from time to time until the relevant shareholder(s) no longer hold(s) any relevant positions.
The market conduct rules apply to all market participants and ban certain behavior that is considered detrimental to the integrity of the financial markets. They prohibit market manipulation, i.e. transactions, trade orders or public dissemination of information which create false or misleading signals regarding the supply, demand or price of listed securities. Also, insider information, i.e. confidential information which has the potential to significantly affect the price of listed securities, may not be shared, or used for trading or trading recommendations. It is readily apparent why the market conduct rules can be front and center during a public campaign or when an event-driven investor seeks to outperform the rest of the market.
The Swiss Financial Market Supervisory Authority FINMA polices infringements of the market conduct rules. It has a range of enforcement tools at its disposal, including the publication of its final order (so called 'naming and shaming') and the confiscation of profits. That said, non-compliance with the market conduct rules can also constitute a criminal offence and lead to proceedings involving the Office of the Attorney General.
Mandatory Offer Duty and Enhanced Disclosure Regime The FMIA also contains rules on public tender offers, enforced by the Swiss Takeover Board, which can come into play in different scenarios. On the one hand, a shareholder may be required to make a mandatory tender offer for all listed shares of the target company. Essentially, the mandatory offer duty is triggered when someone – alone or acting in concert with third parties – acquires shares corresponding to more than one third of the voting rights in the target company. That said, the rule does not apply uniformly to all Swiss listed companies. Some have made use of the possibility to raise the threshold to up to 49 percent of the voting rights or to exclude the mandatory offer duty altogether.
On the other hand, a tender offer not only triggers obligations for the bidder, but also for other significant shareholders. In particular, during the period of a tender offer, shareholders with a stake of three percent or more are subject to an enhanced disclosure regime involving detailed reporting of trades. The rules on public tender offers will be covered later in the series.
Self-Regulation of the Stock Exchange The stock exchanges in Switzerland, the single most important one being the SIX Swiss Exchange, have enacted a comprehensive self-regulatory regime. The disclosure office of the stock exchange is an important point of contact for shareholders regarding the disclosure of shareholdings and issues the relevant forms.
That said, for activist shareholders and event-driven investors the self-regulation of the stock exchange has created useful sources of information. It sets out the regular reporting obligations for Swiss listed companies, for instance on financials and corporate governance. It also contains rules on the ad hoc disclosure of price-sensitive facts arising in an issuer's sphere of activity and on the reporting of management transactions. The relevant reports are a helpful starting point for the evaluation of a target company and subscribing to the company's release feed should be high on the to-do-list.