Review of acquisition structures for private cross-border transactions
Under Swiss law, as for other jurisdictions, transactions are formally structured as a two-step process consisting of:
- entering into a binding agreement (normally a share purchase agreement or an asset purchase agreement), typically in writing (signing), in which the mutual obligation of the parties to give effect to the deal, in particular the obligation to transfer a company or business, are agreed; and
- the closing, in which the parties give effect to the transactions agreed at signing (ie, the transfer of shares or assets or the execution of other transfer instruments against payment of the consideration).
From a Swiss legal perspective, signing and closing may occur on the same day, if there are no conditions precedent (eg, antitrust approvals) that need to be satisfied prior to closing.
Signing requirements for share deals and asset deals
The most common forms for the acquisition of privately owned businesses in Switzerland are share deals and asset deals. Swiss share deals and asset deals are governed by Swiss statutory law on the acquisition and sale of securities and property. Except for the sale of real estate, which requires a written agreement legalised by a public notary, there are typically no formal signing requirements (unless the contract directly includes a (conditional) assignment, it does not have to be in writing ('in writing' under Swiss law meaning a written document, bearing the signatures of the persons authorised to sign on behalf of the parties). Swiss statutory law on the acquisition and sale is flexible, includes only minimal mandatory provisions and allows the integration of customary M&A clauses for global deals. However, as the law includes some default provisions (that govern if the agreement remains silent on the relevant question), Swiss transaction agreements explicitly amend, replace or waive certain statutory provisions, such as the scope and limitations of the representations, the inspection and notice periods, the time limitations or the rights for rescission, to ensure that default law does not inadvertently come into play if undesired. Consideration can consist either of shares or other assets of another company, cash, or a combination thereof. The consideration is payable to the shareholder in the case of a share deal and to the company in the case of an asset deal.
Approval requirements for share deals and asset deals
Share deals and asset deals require approval of the relevant internal authority level, deals of strategic importance or magnitude typically approval by the board of directors, or, if a company wants to transfer substantially all of its shares or assets leading to a factual termination or liquidation of its operations, approval by at least two-thirds of the votes represented and the absolute majority of the par value of the shares represented at a shareholders’ meeting.
With respect to very limited assets (mainly residential real estate), entering a binding agreement by a foreign or foreign-controlled buyer may already require government approval or exemption.
Closing requirements for share deals
In a share deal, at closing, shares are transferred by way of execution of a written assignment declaration, endorsement on the share certificate(s), handover of the share certificate(s) to the acquirer or instruction of the central custodian of intermediated securities, or a combination thereof, depending on the type and form of shares issued. The transfer of shares in a stock company may be subject to the consent of the board of directors, the transfer of shares in a limited liability company may be subject to the consent of the shareholders’ meeting, each if so provided for by statutory law or in the articles of association of the company. The exercise of the voting rights in the acquired company is subject to the registration of the acquirer in the company’s share registry. Further, as a requirement under Switzerland’s anti-money laundering legislation, new shareholders may be under the obligation to notify their beneficial owners to the company. In the case of limited liability companies only, shareholders need to be registered in the commercial register.
Share deals do not trigger any legal requirement for employee consultation or consent. There are no Swiss statutory laws that would generally impede cross-border share deals or make them subject to government approval (ie, no general foreign investment regulations). However, certain industries may require a specific approval (in addition to other approvals that may be industry-specific) prior to effecting a share deal with a foreign buyer (eg, the acquisition of a bank).
General structuring of closings of asset deals
In an asset deal, at closing, the assets, agreements and liabilities pertaining to the business can either be transferred one by one (principle of singular succession) or uno actu based on a statutory asset transfer pursuant to the Federal Act on Mergers, Demergers, Transformations and Transfers of Assets (Swiss Merger Act) (principle of universal succession).
Closing requirements for asset deals in singular succession
In an asset deal following the principle of singular succession, for each class of transferred assets the respective closing formalities have to be respected. The transfer of claims, patents, designs and trademarks requires the execution of a written assignment (which can be embedded in the transaction agreement). Real estate can only be transferred based on a written agreement which needs to be legalised by a public notary and registered with the land registry office.
As a general principle, Swiss law agreements can only be transferred with the counterparty’s consent, such consent to a transfer or assignment can be included in the initial agreement or obtained at a later stage. As an exception to this rule, employment agreements transfer by operation of law with the business. Employment agreements with employees who object to the transfer are also assumed by the acquirer, but are terminated with the applicable statutory notice period. The seller needs to inform or, if measures affecting the employees are contemplated, consult the transferred employees or, if existing, an employee representative well before effecting the transfer.
Besides applicable laws on data protection that may restrict the cross-border transfer of personal data, there are no Swiss statutory laws that would generally impede the cross-border transfer of most assets. Nevertheless, acquirers typically use a Swiss subsidiary as formal acquirer under an asset deal by way of singular succession or the transaction is effected by way of a two-step demerger (see 'Alternative spin-off structures').
Closing requirements for asset deals in universal succession
Statutory asset deals following the principle of universal succession have to respect the formal procedure pursuant to the Swiss Merger Act and are completed with registration of the asset transfer agreement in the commercial register. The asset transfer agreement has to be in writing and, if real estate forms part of the transferred assets, legalised by a public notary. The transfer agreement replaces all closing formalities that would otherwise apply to the transferred assets and the transfer is effected in one go with registration. However, the transferring company remains jointly and severally together with the acquirer liable for transferred liabilities for a period of three years (unless the statute of limitations restricts such liabilities earlier than that). Given that information registered in the commercial register is publicly accessible, the economic terms of the asset transfer can be included in a separate asset purchase agreement while the written, or if real estate forms part of the transferred assets, legalised asset transfer agreement serves as a transfer instrument for the closing only. The asset transfer becomes effective with registration in the commercial register. If employees are transferred, the employees or, if existing, an employee representative, need to be informed or, if measures affecting the employees are contemplated, consulted before the registration of the asset transfer in the commercial register. Also, for asset deals under the Swiss Merger Act, it is common to obtain the consent of important contractual counterparties.
Cross-border immigration statutory asset transfers are permissible under Swiss law provided that the jurisdiction of the foreign company recognises a cross-border transfer of assets and liabilities to the Swiss company by operation of law with registration in the foreign commercial register, such as Luxembourg and Belgium. In addition to the foreign law, Swiss law will apply on the asset transfer. In particular, the transfer agreement has to comply with the Swiss formal requirements. Pursuant to Swiss law, the asset transfer will become effective with its registration in the foreign commercial register competent for the foreign company.
Cross-border emigration statutory asset transfers are permissible under Swiss law provided that the jurisdiction of the foreign company recognises a cross-border transfer of assets and liabilities from the Swiss company by operation of law with registration in the Swiss commercial register. Swiss law will apply on the asset transfer and, on aspects concerning the foreign company, foreign law.
Cross-border asset transfers by universal succession are hardly ever seen in practice. Typically, if the parties prefer to use a statutory asset transfer, the assets and liabilities are transferred to a Swiss subsidiary of the foreign acquirer or the transaction is effected by way of a two-step demerger (see 'Alternative spin-off structures').
For a seller who is a Swiss tax-resident legal entity, share deals are more attractive from a tax perspective since Swiss tax law offers participation exemption on capital gains from qualified participations while (at the level of the company operating the transferred business) gains in an asset deal from the realisation of hidden reserves on all other types of assets are taxable at normal rate.
If the shares in the company operating the transferred business are held by a Swiss tax-resident private individual as private assets, a share deal is usually more attractive since capital gains on the sale of such shares are, subject to certain exceptions, not taxable in Switzerland. In contrast, the subsequent distribution of the proceeds from an asset deal to the individual shareholder (by dividend or liquidation of the selling company) would be taxable income. Under the concept of indirect partial liquidation, however, private capital gains from the sale of participations in a company can be requalified into taxable income provided that the respective conditions are fulfilled. In a nutshell, the concept applies if excess cash in the target company is directly or indirectly used to finance or refinance, including by way of a merger with the acquiring company, (during a waiting period) the acquisition price. Swiss private sellers often request an indemnity for the income tax consequences of a requalification to be included in the transaction agreement.
If the company holding the business has certain tax benefits such as losses carried forward or capital contribution reserves that can be distributed free of Swiss withholding taxes, a share deal may be more attractive for the acquirer since this acquisition structure allows the acquisition of such tax benefits.
Domestic asset deals, including to Swiss subsidiaries of a foreign acquirer, are in principle subject to value added taxes, whereby the tax liability can be settled by way of a notification (similar to the concept of the transfer of a business as a going concern).
Preferred transaction structures for acquisition of Swiss banks
While in recent years banking transactions in Switzerland have been effected using both share deals and asset deals, asset deals seem to be the preferred structure for acquirers as they allow the isolation of legal risks from the rest of the transferred business. Also, mainly in domestic private banking transactions where consolidation has been the main driver, the acquirers wanted to acquire the assets under management and certain key employees only and did not want to also acquire the infrastructure of the acquired business, such as the banking licence or the IT platform. Sellers typically prefer share deals as, after an asset deal, they have to unwind and liquidate the company and deal with problem cases, such as dormant accounts or legally tainted accounts. For foreign buyers, a share deal is often the only realistic option, unless they already have a subsidiary with a banking licence in Switzerland. Bank acquisitions require notification or approval of the Swiss Financial Market Supervisory Authority (FINMA), and acquisitions by foreign or foreign-controlled entities require specific approval.
Cross-border statutory merger structures Statutory mergers – basics
Companies may also be acquired or combined by means of a statutory merger pursuant to the Swiss Merger Act (see, for example, the merger between Novartis and Alcon in 2011). Statutory mergers are subject to a formal procedure and can involve two forms: either one company is dissolved and merged into another company (merger by absorption), or the two combining companies are both dissolved and merged into a newly incorporated company (merger by combination). In both cases, the assets and liabilities of the dissolved company or companies are transferred to the surviving or newly incorporated company by operation of law. The merger consideration must, as a rule consist of shares of the surviving or the newly incorporated company. The merger requires approval by at least two-thirds of the votes represented and the absolute majority of the par value of the shares represented at the shareholders’ meeting of the two entities. If the merger consideration comprises any compensation other than shares of the surviving company, 90 per cent of all voting securities outstanding need to approve the merger.
The companies need to inform or, if measures affecting the employees are contemplated, consult the employees or, if existing, an employee representative before the shareholders’ meeting resolving on the merger. The merger agreement, the merger report by the board of directors, the auditor confirmation and the financial statements of the previous three years and, as the case may be, interim financial statements of all companies involved in the merger, have to be made available to the shareholders for inspection during a period of 30 days. The merger documentation needs to be filed with the commercial register. The merger becomes effective with the registration in the commercial register. Shareholders of small and medium-sized companies may unanimously opt for a simplified merger procedure. The shareholders of all companies involved in the merger have an appraisal right and can request a Swiss court to determine an adequate merger consideration within two months from the approval of the merger.
Triangular cross-border merger to acquire a foreign company
Given the 90 per cent approval for cash consideration or shares of a parent company, which is not the absorbing company, triangular mergers are hardly ever used to acquire Swiss target companies. However, if the law in the jurisdiction of the non-Swiss target allows triangular mergers with consideration in cash or in shares of the Swiss buying parent company, such foreign triangular mergers or schemes of arrangement may be used by Swiss buyers for cross-border acquisitions abroad. For example, many acquisitions in the US, including of US public companies, are effected by Swiss buyers by way of a US statutory triangular merger. In such case, the Swiss parent would establish a US acquisition subsidiary and have the US target company merge into such US subsidiary against consideration to the shareholders of the US target company in cash or in shares of the Swiss parent company.
A foreign company can merge directly into a Swiss company (merger by absorption) or be combined with a Swiss company into a new Swiss company (merger by combination) provided that the jurisdiction of the foreign company allows for such a merger and the merger complies with the respective conditions of the foreign jurisdiction. This is the case if the foreign law recognises a legal transaction under which the foreign company is dissolved without undergoing a liquidation procedure and all assets and liabilities of the foreign company transfer to the Swiss company uno actu by operation of law. While this has to be checked in specific cases, in our experience, for example, Austria, Belgium, France, Italy, Liechtenstein, Luxembourg, Portugal, Romania and Spain, the US states of Delaware and North Carolina, the British Virgin Islands, the Bahamas, Bermuda and Guernsey recognise such cross-border merger and transfer of assets and liabilities uno actu into Switzerland. If a direct transfer is not possible, sometimes a transfer through a country recognised for cross-border mergers both by the jurisdiction of the dissolving and the absorbing company may be a solution (eg, merger or redomiciliation into Liechtenstein and from there into a Swiss company).
The Swiss company needs to provide evidence that the submitted merger is permissible under the jurisdiction of the foreign company. Such evidence can be provided either by reference to the unambiguous foreign law or by a confirmation of a competent administrative authority or by a recognised legal institution or expert. Aspects directly relating to the foreign company such as approval requirements, the entitlement of the shareholders of the foreign company to a specific merger consideration, the conditions under which preferential rights of the shareholders of the foreign company can be withdrawn in the merger or provisions with respect to the protection of creditors of the foreign company are solely governed by the respective foreign law. On all other aspects of the merger, Swiss law applies.
Swiss law provides that the immigration merger becomes effective with its registration in the commercial register.
In the past, statutory immigration mergers have been mainly used for intragroup reorganisations.
Emigration merger – basics
A Swiss company can merge directly into a foreign company or be combined with a foreign company into a newly incorporated foreign company provided that the Swiss company can prove that:
- all assets and liabilities of the Swiss company will transfer without undergoing a liquidation procedure by operation of law to the foreign company with effect of the cancellation of the Swiss company (principle of universal succession); and
- the participation and membership rights of the shareholders of the Swiss company are respected.
Under the first requirement, the Swiss company has to provide evidence to the competent commercial register by reference to the unambiguous foreign law or by a confirmation of a competent administrative authority or by a recognised legal institution or expert that the foreign jurisdiction allows the transfer of all assets and liabilities by way of universal succession. Under the second requirement, the shareholders of the Swiss company must be offered the possibility to choose shares in the surviving or newly incorporated foreign company as merger consideration, unless the merger is approved by 90 per cent of all voting securities outstanding of the Swiss company. The merger consideration needs to be adequate. Preferential rights of the shareholders of the Swiss company that do not survive the merger have to be adequately considered in the calculation of the merger consideration. The board of directors of the Swiss company has to report on the adequacy of the merger consideration in the merger report. The merger report is reviewed by a certified auditor and the confirmation of the auditor forms part of the merger documentation.
The emigrating Swiss company has to comply with the requirements of Swiss merger law, including the requirement to publicly notify the creditors of the merger and granting them a two-month period to request collateral for their claims. On all other aspects of the merger, the foreign law applies (in addition to the Swiss law, as the case may be).
Emigration merger – taxes
If, as a consequence of an emigration merger, taxable assets are no longer taxable in Switzerland, the Swiss company is subject to income tax on the hidden reserves on its assets. Given that the foreign company is not subject to Swiss withholding tax (ie, not a dual-resident entity), withholding tax is levied on the amount of the fair market value of the assets (including any goodwill) minus the sum of nominal capital and capital contribution reserves.
Emigration merger-squeeze out
A statutory merger allows an acquirer to acquire full control over the target company with a majority of two-thirds of the votes represented and the absolute majority of the par value of the shares represented at the shareholders’ meeting of the Swiss company or, if minority shareholders should be squeezed out, with 90 per cent of all voting securities outstanding, while the threshold for a squeeze-out of the minority after a public takeover offer is at 98 per cent of all voting securities outstanding. The statutory merger provides for more deal security and is thus an attractive structuring alternative when consideration consists of shares of the acquirer.
Immigration quasi-merger (share-for-share deal)
A structure more commonly used than a statutory immigration merger and resulting in substantially the same result is the quasi-merger. Under a quasi-merger, the shareholders of the foreign company contribute their shares in the foreign company into the Swiss company and receive newly issued shares of the Swiss company in exchange. Other than in a statutory merger, the shares of the foreign company are not cancelled in the merger. Instead, the foreign company continues to exist as a subsidiary of the Swiss company. The quasi-merger requires approval by at least two-thirds of the votes represented and the absolute majority of the par value of the shares represented at the shareholders’ meeting of the Swiss company. The Swiss company can increase its equity by up to the amount of the fair market value of the contributed shares in the foreign company. This newly created equity usually qualifies as capital contribution reserves that can be distributed as dividends free of any withholding taxes. An external auditor needs to render a report on the value of the contributed shares. The quasi-merger is completed with registration of the issuance of the new shares in the commercial register.
For practical reasons, quasi-mergers are only used when the foreign company is privately held, is a group subsidiary or where under the foreign jurisdiction the consent and participation of each public shareholder can be replaced by a structure such as a scheme of arrangement or a reverse triangular merger (see 'Triangular cross-border merger to acquire a foreign company'). Although quasi-mergers also require the involvement of the commercial register, the procedure is significantly less formalised and provides more flexibility to the parties than a statutory immigration merger. A quasi-merger is often also attractive from a tax perspective since under a quasi-merger the surviving Swiss company may obtain tax benefits in the form of additional capital contribution reserves that can be distributed free of any withholding taxes. Compared with a statutory immigration merger, not only the nominal capital (plus, in certain cases, capital contribution reserves) of the foreign company, but its full fair market value may be booked as nominal capital and reserves from capital contributions at the level of the Swiss company (on condition that, for five years from the quasi-merger, the foreign company is not wound up or merged into the Swiss company).
Cross-border structures for the acquisition of Swiss public companies
Given the limitations of Swiss statutory merger law with respect to any consideration other than shares of the absorbing company (ie, as regards cash consideration or shares of a non-absorbing foreign parent company of the acquiring company), statutory mergers are (unlike the other way round, see 'Triangular cross-border merger to acquire a foreign company') rarely an option to acquire Swiss listed companies. Accordingly, almost all such transactions are effected by tender offers governed by Swiss takeover law. Tender offers are essentially direct offers by the acquiring company to the shareholders of the target company. While, in friendly transactions, a bidder would enter a transaction agreement with the board of the target company in order to obtain its support, that is not a requirement. Only where the articles of incorporation of the Swiss listed target company require approval for an acquisition of shares with voting rights, the board of the target has a direct say or may need to convene a shareholders' meeting and propose abolition of such a restriction. The consideration of such a tender offer may consist of cash (including, subject to certain limitations and requirements, foreign currencies) or tradable securities (including foreign shares or other securities).
Cross-border spin-off structures Statutory demergers – basics
Divestments or spin-off transactions may also be structured as a statutory demerger pursuant to the Swiss Merger Act. Statutory demergers are subject to a formal procedure and can involve two forms: either the spun-off business is absorbed by another company (demerger by absorption), or the business is spun-off as a newly incorporated company (demerger by incorporation). Further, under a demerger the transferring company can be dissolved and all its businesses are either absorbed by other companies or spun off as newly incorporated companies.
In a symmetric demerger, the shareholders of the transferring company receive shares in the absorbing company or in the newly incorporated company pro rata to their shareholding in the transferring company. In an asymmetric demerger, the former shareholders of the transferring company receive shares in any of the surviving companies involved in the demerger, but not in all of them.
A demerger requires approval by at least two-thirds of the votes represented and the absolute majority of the par value of the shares represented at the shareholders’ meeting of the companies involved in the demerger, an asymmetric demerger by 90 per cent of all voting securities outstanding of the transferring company. Before the shareholders’ meeting approving the demerger, the company has to:
- make the demerger agreement or plan, the demerger report of the board of directors, the report by the auditor as well as the financial statements of the previous three years and, as the case may be, interim financial statements available to the shareholders for inspection for two months; and
- publicly notify the creditors of the demerger and grant them a two-month period to request collateral for their claims.
In a cross-border demerger, the shareholders of all companies involved in the demerger have an appraisal right and can request a Swiss court to determine an adequate demerger consideration within two months from the approval of the demerger.
Demergers are predominantly used for intragroup restructurings. Since in banking transactions the acquirer often wants to isolate legal risks from the rest of the business, cross-border statutory demergers are rarely seen in practice as the Swiss Merger Acts provides for (unlimited) joint and several liability of the Swiss company together with the absorbing company for all liabilities that were spun off to the absorbing company.
Cross-border emigration demergers are possible under substantially the same conditions as emigration mergers. The Swiss company needs to prove that:
- all assets and liabilities of the Swiss company will transfer without undergoing a liquidation procedure by operation of law to the foreign company with effect from the cancellation of the Swiss company; and
- the participation and membership rights of the shareholders of the Swiss company are respected.
Cross-border immigration demergers are possible under substantially the same conditions as immigration mergers. A foreign company can be demerged into an existing Swiss company (demerger by absorption) or a newly incorporated Swiss company (demerger by incorporation) provided that the jurisdiction of the foreign company allows for such a demerger and the demerger complies with the respective conditions of the foreign jurisdiction. As for an immigration merger, the surviving or newly incorporated Swiss company may obtain tax benefits in the form of additional capital contribution reserves that can be distributed free of any withholding taxes in the amount of up to the net assets of the absorbed foreign business at book values.
Alternative spin-off structures
Given its formalised procedure and the joint and several liability for the transferring company in a statutory cross-border demerger, cross-border divestments or spin-off transactions are usually structured either as an asset deal (by singular or universal succession) to a Swiss subsidiary of the acquirer or as a two-step demerger (hive down) in which the business (including the assets and liabilities) to be spun off is first transferred to a (newly incorporated) subsidiary and the shares of such subsidiary are then distributed to the shareholders of the parent company (distribution in kind), which may sell the shares to an acquirer as a share deal.
Swiss reorganisation tax rules generally provide for tax-free structuring options rather than taking each of the legal steps into account separately.
Summary Preferred transaction structures
Swiss law offers a wide range of structuring alternatives for cross-border acquisitions, combinations and spin-offs. While statutory mergers, demergers and asset transfers, with their advantage of a facilitated transfer of all assets and liabilities uno actu under the principle of universal succession, are available for (mostly intragroup) transactions into or from many foreign countries (such availability to be assessed on a case-by-case basis), share deals, asset deals by way of singular succession to a Swiss subsidiary of the acquirer or two-step demergers are typically the preferred structure for cross-border transactions, also in the banking sector. This is mainly the case because of their flexible and less formalised procedure. While acquisitions of foreign public companies by Swiss companies can often be structured as triangular mergers or schemes of arrangement, acquisitions of Swiss public companies by foreign companies are almost exclusively effected by tender offers.
From a tax point of view, the immigration quasi-merger structure (ie, a share-for-share deal) is often the most attractive one, since this structure does not regularly trigger corporate income tax consequences in the foreign company and allows the creation of a substantial amount of capital contribution reserves in the Swiss company. In addition to this, the distribution of such capital contribution reserves created by an immigration quasi-merger is not subject to the limitations introduced by the Federal Act on Tax Reform and AHV Funding, in force since 1 January 2020. More challenging are cross-border mergers and demergers, since such transactions may trigger taxable realisation of hidden reserves on the respective assets as well as withholding taxes, or do not permit safeguarding tax assets. Any cross-border transaction requires a careful tax structuring.
With Switzerland being an attractive jurisdiction for foreign investments, there are not many challenges to cross-border M&A transactions. In particular, Switzerland has no statutory law that would allow for general control of foreign investments on the basis of national interest. Only the acquisition of real estate by a foreign person or entity, be it directly (ie, by a foreign person or entity as part of an asset deal) or indirectly (ie, by acquisition of a Swiss company holding real estate by a foreign person or entity as part of a share deal or the combination of such a Swiss company with a foreign company by way of an emigration merger or demerger), may be restricted under the Lex Koller, whereby these restrictions do not generally apply on properties used for commercial activities. Further, the acquisition of a business in certain regulated industries, such as banking or telecoms, may affect the licences granted to such a business or require additional filings, approvals or both.