In our March column we announced that we would write a more detailed feature of Swiss public takeover (PTO) regulation in one of our later columns – and here it is.
Disclosure requirements
If a bidder – directly, indirectly, or acting in concert with a third party – acquires or sells securities directly or indirectly held in a Swiss company listed on a Swiss exchange – or in a foreign company primarily listed on a Swiss exchange – and as a result reaches, exceeds or falls below the voting rights thresholds of 3%, 5%, 10%, 15%, 20%, 25%, 33.33%, 50% or 66.66%, these holdings must be disclosed and notified to the target company and the relevant stock exchange.
Irrespective of the settlement method, cash or physical, these disclosure obligations also apply to transactions in options (puts and calls) or conversion rights. In case of commitments to buy or sell, the disclosure obligation is already triggered by the commitment, i.e. irrespective of completion.
After publication of the PTO or its preliminary announcement, the bidder and anyone acting in concert with it, as well as anyone holding directly or indirectly – alone or in concert with others – at least 3% of the voting rights in the target, whether exercisable or not, must thereafter and throughout the offer’s acceptance period notify any transaction in target securities to the Swiss Takeover Board and the relevant stock exchange.
Funding commitments
Prior to the publication of the PTO, but not necessarily prior to the publication of its pre-announcement, the bidder must secure the relevant funding commitments as the offer prospectus must disclose the financing sources in detail, and the confirmation by the review body – usually an independent audit firm or investment bank mandated by the bidder – of the availability of the relevant funds.
Best price rule
Whenever, between the publication of the offer or its preliminary announcement and a period ending six months after the expiry of its acceptance period, the bidder or anyone acting in concert with it directly or indirectly acquires target shares at a price higher than offered, the offer price must be increased accordingly – i.e. the best price rule.
Mandatory PTO
A person holding, directly, indirectly or acting in concert with a third party, more than 33.33% of the voting rights in the target is required to submit a mandatory PTO for all equity securities of the target listed at a Swiss exchange within two months (extendable by the Swiss Takeover Board). Only limited exemptions apply. The target’s articles of incorporation may provide for an “opting out”, in which event no mandatory offer is required, or an “opting up”, effectively increasing the triggering threshold from 33.33% to up to 49% of the voting rights.
The price offered by such mandatory offers must at least equal the higher of: (i) the volume weighted average share price of the 60-day period preceding the publication of the PTO or its preliminary announcement; and (ii) the highest share price paid by the bidder within the 12-month period preceding the publication of the PTO or its preliminary an-nouncement – the minimum price rule. The minimum price rule also applies to voluntary PTOs which would, if successful, result in a stake of the bidder exceeding the 33.33% threshold.
Put up or shut up rule
If a potential bidder publicly announces that it is considering launching a PTO, the Swiss Takeover Board may require it to: (i) publish a PTO; or (ii) publicly declare that for six months it will neither make a PTO nor exceed the mandatory PTO threshold – the put up or shut up rule.
If 100% control is sought, Swiss law allows a squeeze-out of the remaining minority shareholders if the majority shareholder holds 98% of the target’s outstanding voting rights.
Conditions
In case of voluntary PTOs, the bidders may subject them to conditions, provided they cannot control their satisfaction or failure, and ruling out any due diligence provisos. Usually conditions of voluntary PTOs that are routinely accepted by the Swiss Takeover Board include, for example, minimum acceptance thresholds and the absence of a material adverse effect in excess of -10% of EBITDA, or net assets and -5% of sales.
Valid reasons
In case of mandatory PTOs, however, conditions are only allowed for valid reasons such as, for example, the cancellation of voting rights restrictions, the absence of substantial divestments, all requisite regulatory approvals or merger clearance, and the absence of judgments or governmental decrees prohibiting the consummation of the PTO, all of which are of course also allowed in case of voluntary PTOs.
Merger control
On top of the notifications that may have to be made under Chinese merger control laws, notification of the transaction must be made to the Swiss merger control authority prior to completion, if in the financial year preceding the transaction the companies involved re-ported: (i) combined worldwide sales of at least 2 billion Swiss francs (US$2.06 billion) or combined sales in Switzerland of at least 500 million francs; and (ii) individual sales in Switzerland of at least 100 million francs by any one of at least two of them.
Deadline for investigation
If the merger control authority does not notify the opening of a merger control investigation within one month from receipt of the merger control notification, the relevant transaction is deemed cleared and may be consummated. If an investigation is opened, the transaction must not be consummated until expressly cleared. The statutory deadline for the relevant investigation is four months from the notification of the investigation.
Felix Egli is a senior partner and Adrian Doerig is a partner at the Swiss law firm VISCHER in Zurich. Wu Fan, a counsel at the firm, co-authored this article
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