Schindler: Opting-out with tailor-made mandatory public offer duty?

Swiss law on public tender offers provides for a mandatory offer duty if a shareholder crosses the threshold of 33 1/3% of the voting rights of a target company listed in Switzerland. This offer duty obliges the acquirer to make a public tender offer to all shareholders at a defined minimum price. The payment of a premium to individual shareholders (including controlling or other significant shareholders) is prohibited by law.

Opting-out and opting-up in a nutshell

Acting through their shareholders meeting, target companies listed in Switzerland may in their articles of incorporation either exempt acquirers of shares from the mandatory offer duty (opting-out) or increase the triggering threshold from 33 1/3% up to 49% (opting-up).

In addition, selective opting-out clauses are permissible, i.e. opting-out clauses for the benefit of a specific person in a particular transaction. Both opting-out and opting-up are unique features of Swiss law compared to international standards.

Sika: A disputed opting-out case and its impact

In a recent case involving an opting-out clause, the family shareholders of the Swiss construction chemicals producer Sika announced that they entered into an agreement to sell their controlling stake of about 53% of the voting rights (representing, however, only about 16% of the outstanding share capital) to the French industrial conglomerate Saint-Gobain, which in certain fields is a competitor of Sika.

The family shareholders, benefitting from the opting-out clause in Sika’s articles of incorporation, received a premium of about 80% for their controlling stake while the minority shareholders came away empty-handed. However, the board of Sika opposed the transaction, and certain minority shareholders took legal actions (still pending) alleging in essence that Saint-Gobain could not invoke the opting-out clause.

Schindler’s opting-in proposal

The Sika case showed that a similar situation could arise with respect to any other listed family-controlled Swiss company with an opting-out or opting-up clause in its articles of incorporation. As a consequence, the well-known Swiss elevator and escalator producer Schindler called an extraordinary shareholders meeting to propose to its shareholders a tailor-made “opting-in” clause in order to avoid a situation like in the Sika case in the future. However, the Swiss Takeover Board (TOB) banned Schindler’s proposal. What is it all about?

Schindler is controlled by a group of family shareholders holding about 70% of the company’s voting rights. The company suggested to its shareholders to keep the existing opting-out clause and to introduce in its articles of incorporation a tailor-made mandatory offer duty for the benefit of the minority shareholders.

The proposed new provision would have provided that an acquirer of at least 50% of the share capital could only be accepted as a shareholder with voting rights if he had previously submitted a public tender offer to all shareholders at a price that in essence was no more than 10% below the highest price paid by the acquirer in the preceding 12 months.

This opting-in clause was entirely based on the transfer restrictions set forth in Swiss corporate law. By means of this clause, Schindler would have ensured that a public tender offer for the minority shareholders would be launched in case of a change of control.

At the same time, the family shareholders would have been able to dispose of their stake at a control premium of up to 10%. By keeping the existing opting-out clause, Schindler intended to avoid having changes within the family shareholder group trigger the mandatory offer duty.

The takeover board’s logic

In its decision of 21 July, the TOB conceded that it would seem advantageous for the minority shareholders if a company with an opting-out clause, and, thus, with the option for the majority shareholder to receive an unlimited control premium, introduces a mandatory offer duty with a limited control premium of only 10%.

However, in the TOB’s opinion, the possibility of introducing an unlimited number of opting-out constellations would cause legal uncertainty for the minority shareholders as well as for potential acquirers of control which may have to deal with a transfer restriction provision giving room for interpretation.

While the TOB appreciated the intention of Schindler to protect the interests of its minority shareholders, it ruled that the current legal situation does not permit Schindler to introduce its own individual system governing public tender offers that deviates from the options provided by Swiss takeover law. Pursuant to the TOB, Swiss takeover law provides for a mandatory offer duty and the two exceptions of the opting-out and the opting-up, but nothing in between.

The takeover board’s ban

The TOB held that, following Schindler’s proposal, companies would be able to create their own tailor-made system of mandatory public tender offers. In doing so, companies could impose an offer duty that is not in line with the thresholds and price rules set forth in statutory law. In particular, the companies would be able to reintroduce the possibility of a control premium, which had been abolished by the Swiss legislator.

Finally, in the TOB’s view, majority shareholders would be able to modify the chosen solution at their discretion by amending the articles of incorporation. This would also impair legal certainty for the minority shareholders. The TOB therefore determined that Schindler’s proposal contravened the Swiss Stock Exchange Act.

In the meantime, the board of Schindler decided not to appeal the TOB’s decision to the Swiss Financial Market Supervisory Authority FINMA and cancelled the upcoming shareholders meeting to vote on the proposed provision. It would have been interesting to see whether FINMA would have shared the concern of the TOB during an appeal. Nevertheless, there is almost nowhere in Europe one can find a banking secrecy of the Swiss type, and the Swiss banking secrecy still works perfectly in non-tax-related matters, including in the case of prosecution on account of political opinions, race, religion or nationality.

Gian-Andrea Caprez is a managing associate of VISCHER, and Fiona Gao is an associate on VISCHER’s China Desk