Completing the transactionHostile transactions
What are the special considerations for unsolicited transactions for public companies?
A bidder intending to launch a takeover offer may disclose its intention to the public or launch the offer without first having approached the target company’s board of directors. If a bidder discloses its intention to potentially launch a takeover offer, the Swiss Takeover Board may request it to proceed with an offer or to refrain from launching an offer for six months (the ‘put up or shut up’ rule).
Prior to publication of the pre-announcement (if any) or the offer prospectus, a listed company can adopt defensive measures, even if a takeover offer is imminent, unless these measures clearly breach Swiss corporate law. A potential target can, among other things, adopt the following measures:
- Percentage limitation on registration of registered shares: the articles of incorporation of a listed company with registered shares can provide for a percentage limit (usually between 2 and 5 per cent) above which registration in the share register with voting rights may be refused by the board of directors. However, the percentage limitation does not stop a shareholder from acquiring shares beyond this threshold. A tender offer can be made subject to the condition that the bidder be registered with respect to any shares acquired in the offer, or that such restriction be removed.
- Restriction on the exercise of voting rights: the articles of incorporation can provide that no shareholder, directly, indirectly or acting in concert with third parties, may cast more than a certain percentage of votes (eg, 5 per cent). A bidder can make the tender offer subject to the prior removal of such restriction. The shareholders’ vote on the removal is itself subject to the corresponding voting restriction.
- Requirements for amending the articles of incorporation: the above provisions on share transfers and voting restrictions can be further entrenched by imposing qualified majority voting requirements for their removal.
- Poison puts or change-of-control provisions: in the terms of its financial instruments, such provisions make immediately repayable a part of the company’s debt in the event of a takeover.
- Poison pills, share placements with white knights or friendly investors: poison pills are hardly used in Switzerland and would only be lawful in limited circumstances. However, Swiss takeover law permits the use of authorised capital under the exclusion of subscription rights of the existing shareholders in the context of a takeover if the articles of incorporation expressly provide for this use.
Further, the board of directors may build up a loyal shareholder base, which would not tender its shares into a hostile tender offer.
A company can also issue registered shares with different nominal values or split existing shares and stipulate in its articles of incorporation that each share entitles its holder to one vote irrespective of its nominal value, thereby effectively creating shares with increased voting power. However, the nominal value of common shares must not exceed 10 times the nominal value of shares with increased voting power.
Swiss law does not allow for staggered boards, as directors of a listed Swiss corporation must be (re)elected on an annual basis.
Once a (friendly or hostile) tender offer has been publicly launched (or formally pre-announced) and until publication of its final result, the target board must not take any action that may frustrate the offer unless the target’s shareholders’ meeting approves the action. In particular, the board of directors must not, without shareholder approval:
- buy or sell assets that represent more than 10 per cent of the target’s assets or earnings (‘scorched earth’ tactics) or assets that the bidder has designated as being its main target (the ‘crown jewels’);
- issue shares without granting pre-emptive rights to shareholders;
- deal in own shares or related financial instruments or shares offered by the bidder in exchange for the target shares; or
- issue option or conversion rights.
Any intended defensive measures must be reported to the Swiss Takeover Board.
The search for a white knight is in any event permissible (but not required).
Special payments to the management of the target company in the case of an unfriendly takeover may be deemed unlawful defensive measures under the Financial Market Infrastructure Act (FMIA) if the payments are excessive. Golden parachute payments may be prohibited for members of the board of directors and executive management of listed Swiss corporations.Break-up fees – frustration of additional bidders
Which types of break-up and reverse break-up fees are allowed? What are the limitations on a public company’s ability to protect deals from third-party bidders?
There are no statutory or judicially determined limits as to whether break-up or reverse break-up fees are permissible in principle and, if so, what amount would be acceptable. Therefore, break-up and reverse break-up fees are mainly restricted in light of the board’s fiduciary duties and shareholder rights.
In a public tender offer, a break-up fee is permissible if it does not deter potential competing bidders or coerce shareholders into tendering and it approximately serves to cover for the costs incurred by the bidder in connection with the offer. Break-up fees are often payable if the offer is unsuccessful owing to the target breaching any laws and regulations applying to the offer, its failure to satisfy the offer conditions, or the successful completion of a competing offer. Defensive measures against hostile or competing tender offers are subject to various limitations.
In a statutory merger or another transaction requiring shareholder approval (eg, for a capital increase), the board of directors may not agree to a break-up fee in an amount that would coerce the shareholders to approve the transaction. Again, break-up fees that correlate to the approximate costs should be permissible.
Reverse break-up fees payable by the bidder are still relatively rare (but increasingly agreed) in public M&A transactions.Government influence
Other than through relevant competition regulations, or in specific industries in which business combinations or acquisitions are regulated, may government agencies influence or restrict the completion of such transactions, including for reasons of national security?
Under Swiss law, there are no foreign investment control mechanisms or other general legal instruments that would allow governmental agencies to influence or restrict the completion of business combinations or acquisitions.
There are also generally no restrictions on foreigners or foreign companies acquiring shares in Swiss companies, other than in specific sectors such as financial services and insurance, radio and television, telecommunications and transportation, or with respect to real estate. Further, sanctions imposed against certain countries, groups or individuals may bar individuals and entities from investing in Switzerland.Conditional offers
What conditions to a tender offer, exchange offer, merger, plan or scheme of arrangement or other form of business combination are allowed? In a cash transaction, may the financing be conditional? Can the commencement of a tender offer or exchange offer for a public company be subject to conditions?
Voluntary public tender offers (including voluntary offers that, when closed, would result in the threshold triggering a mandatory offer being exceeded) can be made subject to conditions if the satisfaction of such conditions is beyond the bidder’s control and the terms are clear. The bidder can reserve the right to waive certain conditions. Where the bidder’s cooperation is required to satisfy the conditions, the bidder must take all reasonable steps to ensure their satisfaction. Once the main offer period expires, the bidder must publicly announce whether the conditions have been satisfied (or waived). With the approval of the Swiss Takeover Board, the offer can also be made subject to conditions that can only be satisfied after the offer period.
Typical conditions include:
- minimum acceptance level (which can generally not be set higher than two-thirds of the outstanding shares, unless the bidder already holds a significant stake in the target);
- regulatory approvals and no injunction;
- no material adverse change (specific amounts or percentages have to be mentioned, for example, loss or reduction of 10 per cent in earnings before interest and taxes, 5 per cent in turnover or 10 per cent in net equity);
- no major dividends or other changes of capitalisation above a certain threshold;
- conditions ensuring control of the target (eg, registration of the bidder in the share register with voting rights, election of directors nominated by the bidder); and
- in an exchange offer, issuance and listing of the shares offered as consideration.
Financing conditions (other than with respect to exchange offers) are not permissible.
Mandatory tender offers generally cannot be subject to conditions other than:
- regulatory approvals and no injunction; and
- registration of the bidder in the share register with voting rights.
In other transactions not governed by the FMIA, any conditions are permissible, subject to the general principles of the law such as the principle of good faith.Financing
If a buyer needs to obtain financing for a transaction involving a public company, how is this dealt with in the transaction documents? What are the typical obligations of the seller to assist in the buyer’s financing?
In a public tender offer, funding must be secured no later than at the time of publication of the offer prospectus (certain funds requirement), which needs to be confirmed by an independent review body. The offer prospectus must contain details of the sources of financing and the confirmation by the independent review body. Commitment letters from banks in support of the offer usually suffice for the independent review body to issue its confirmation, provided that the conditions set out in such letters correspond to the conditions of the offer or are under the sole influence of the bidder.
No such requirements apply in a statutory merger or other transaction structures.Minority squeeze-out
May minority stockholders of a public company be squeezed out? If so, what steps must be taken and what is the time frame for the process?
Following a public tender offer pursuant to the FMIA, the bidder can request the squeeze-out of the remaining shareholders if, after completion of the public offer, it holds more than 98 per cent of the voting rights in the target. To that end, the bidder must file a request for cancellation of the remaining equity securities with the competent court within three months of expiration of the offer period. The court orders the cancellation of the remaining equity securities (including derivatives issued by the target) and the target company must allot them to the bidder against payment of the offer consideration. Dissenting shareholders have no appraisal rights.
Irrespective of a prior public tender offer, the Federal Act on Mergers, Demergers, Transformations and Transfers of Assets allows a merger in which the minority shareholders receive cash or shares other than of the surviving company if approved by at least 90 per cent of all outstanding voting rights. Typically, the bidder would merge the target company into a wholly owned subsidiary of the bidder, and the minority shareholders of the target would receive the same consideration as the shareholders who had tendered their shares. Dissenting shareholders can challenge the merger or the adequacy of the merger consideration in court, and therefore do have de facto appraisal rights.Waiting or notification periods
Other than as set forth in the competition laws, what are the relevant waiting or notification periods for completing business combinations or acquisitions involving public companies?
Tender offers are subject to certain time periods. Once the offer prospectus has been published, a mandatory cooling-off period of 10 trading days applies. The offer must be open for acceptance for a minimum of 20 and a maximum of 40 trading days. Once the main offer period has expired, an additional acceptance period of 10 trading days starts, where all shareholders who have not yet tendered may tender their shares. The Swiss Takeover Board may grant exemptions or allow for extensions (eg, to allow the alignment of parallel offers in Switzerland and foreign jurisdictions).
In a statutory merger, prior to the approval of the merger by the shareholders of the involved companies, the merger agreement, the board report, financial statements and the auditors’ report must be made accessible to shareholders for review for at least 30 calendar days.