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Swiss conflict of
laws rules permit the parties to a private M&A transaction with an
international context to select the law applicable to the transaction
agreement. However, if the target company is located in Switzerland, it is
advisable to select Swiss law as the governing law. In this case, the
provisions of the Swiss Code of Obligations (CO), in particular, the
provisions on sale contracts will apply. Because the law permits to override
most of the provisions of the CO, the parties can agree in the transaction
agreement whatever they feel is appropriate. However, this freedom is limited
to the transaction agreement itself.
Many other aspects of a Swiss M&A transaction are governed by Swiss law: A public takeover of a
Swiss listed company is governed by the Swiss Stock Exchange and Securities
Trading Act (SESTA) and its implementing ordinances. A statutory merger of
two Swiss companies is governed by the Swiss Merger Statute. When completing
the acquisition of a Swiss company the applicable provision of Swiss company
law must be taken into consideration. When closing an asset transfer with
assets in Switzerland, the specific Swiss requirements for the transfer of
these assets and liabilities must be observed.
Except for the public offer, the M&A transaction process itself is not supervised by a regulator, however,
specific aspects of a M&A transaction, if applicable, are supervised by
specific regulators such as the antitrust authority or mergers in a specific
industry by the specific industry regulators (e.g. mergers of banks and
insurance companies).
Like M&A transactions in the
United States, a Swiss M&A transaction typically goes through the following
stages:
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Pre-contractual phase: In this phase the
parties agree to negotiate the principal terms of a M&A transaction and
subject the target business to a thorough review. They typically enter into a
letter of intent which contains the principal terms of the contemplated
transaction as well as the terms for the negotiations (exclusivity,
confidentiality, due diligence, termination). As a rule, the section of the
letter of intent setting forth the principal terms of the contemplated
transaction is not binding. Therefore, legally the parties can renegotiate
these terms when they negotiate the final transaction agreement. Under Swiss
law, a M&A transaction can be concluded by oral agreement or implied
agreement. Therefore, it is important that the parties make always clear when
negotiating the letter of intent that their proposals in relation to the
terms of the contemplated transaction shall not be binding. In most
transactions, the potential acquirer is entitled to do extensive due
diligence prior to the signing of the transaction agreement.
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Signing of transaction agreements: Most of the transaction agreements
follow today international standards, i.e. they include typical provisions
regarding representations and warranties, closing, closing conditions,
pre-closing and post-closing obligations of the parties. If the agreement is
governed by Swiss law, one must take into consideration the applicable Swiss
law on sale contracts. With parties outside of Switzerland which are not so
familiar with Swiss law, it is advisable to restrict the remedies for the
parties in the agreement to those described in the contract and exclude all
remedies available by the parties under the applicable Swiss law. Typically,
the closing of a Swiss transaction agreement is subject to certain conditions
precedent such as governmental approvals, consents of third parties, etc.
This means that there exists a certain time period between the signing and
the closing. As a rule, the transaction agreement sets forth certain
obligations of the parties during that period; for instance the obligation to
seek the required consent for the transaction, the obligation to seek the
necessary approvals, the obligation of the seller to grant access to the
target company's books and records, etc.
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Closing: The closing depends on the legal form of the transaction and
the legal form of the target business (see for details under the respective
transaction form below).
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Post closing phase: In a Swiss transaction agreement parties agree quite often on certain matters
which relate to the post closing. A purchaser often requires that the seller
enter into a non-compete agreement. If the seller has also been an employee
of the target company it is questionable whether he can enter into an
non-compete agreement with a duration of more than three years. Generally,
non-compete agreements should not exceed five years. Sometimes transaction
agreements also include obligations of the purchaser to continue to operate a
certain production facility or to keep a certain number of employees for a
certain time period.
1. Overview
In
Switzerland, the following transaction forms are typically used:
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Share deal
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Asset deal
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Statuatory merger
Of course, these transaction forms
can be combined. Also, Swiss law provides additional legal forms which can be
used in order to reorganize a group or prepare a business for a M&A transaction. These forms include de-mergers in the form of a split or spin
off and conversions whereby the legal form of an entity is changed, e.g. a
share corporation is transformed into a limited liability company.
2. Share Deal
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Company are transferred. In a Swiss M&A transaction, target companies are
usually share corporations or limited liability companies. Swiss share
corporations may issue registered shares and/or bearer shares. It is not a
requirement under Swiss law that the shares be issued in certificated form.
If they are not issued in certificated form, the shares have to be
transferred by assignment. If they have been issued in certificated form, a
seller may transfer them to the purchaser as follows: bearer shares by
delivery of the certificates; registered shares by endorsement in blank on
the back of the share certificates and delivery of the certificates. It is
possible that the transfer of registered shares is restricted by the articles
of incorporation. If this is the case, the transfer requires board approval.
The transfer of the share in a limited liability company (GmbH) requires the
assignment of the share in the form of a public deed and the approval of the
transfer by the shareholderses.
Taxes:: In a share acquisition, the legal entity holding the business to be
transferred does not change. The tax position of the target company does not
change as a consequence of the acquisition. Also no VAT is due on the
transfer of shares. However, if a securities dealer is involved in the
transaction either as a party or as an intermediary, federal transfer stamp
tax will be levied on the transfer of the shares. Also, the shareholders may
have to pay taxes on the capital gain made in the transaction: if the seller
owns the shares as his private assets, except in extraordinary cases, the
capital gain he makes on the sale is not subject to ordinary income tax. If
he holds the shares sold as business assets than the realized gain is taxable
as ordinary income. Also, the position of a private seller may change if the
acquirer after the acquisition uses the assets of the target company to
finance the acquisition. In this event, tax authorities deem these activities
as a liquidation of the company and will levy a withholding tax at the target
company level and income tax at the seller level.
For the specific aspects regarding the acquisition of a listed company see
the section on public M&A.
3. Asset Deal
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Forms of asset deals: In Switzerland, an asset deal can be effected in the
form of a statutory asset transfer or by simply agreeing to transfer certain
assets and liabilities. In the event that the parties avail themselves of the
statutory asset transfer, they must observe detailed rules regarding the
documentation of the asset transfer and the transfer must be registered with
the commercial register. If the parties elect to do their asset deal by way
of a simple asset transfer, they have much more latitude as regards the
content of the transaction agreement.
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Transfer of assets,
liabilities and contracts:
If the parties avail themselves of the statutory asset transfer, they need
not observe specific transfer forms because the assets and liabilities of the
target business are transferred by operation of law upon the registration of
the asset deal with the commercial register. It is believed that this is also
the case regarding the contracts of the target business. However this is
still not completely clear. If the parties do a simple asset transfer, they
need to observe the specific requirements applicable to the transfer of each
of the assets, liabilities and contracts. This means that real estate can
only be transferred based on a separate agreement in a public deed and the
transfer will only become effective upon registration of such transfer in the
land register, the transfer of a liability will need the consent of the
creditor to such liability, and the transfer of a contract will need the
consent of the contracting party.
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Taxes:
Of course, to the extent the transferring company realizes a taxable gain
such gain is taxable income except if it is only a transfer within the same
group and certain specific requirements are satisfied. The transfer is not
subject to VAT but the transfer needs to be notified to the VAT authorities.
4. Statutory Merger
Acquisitions may also be effected
by way of statutory merger whereby the assets, the liabilities and the
contracts of the target company are being transferred by operation of law to
the acquiring company and the shareholders of the company receive as
consideration shares in the acquiring company. This form is used to combine
two businesses to a joint venture company or in public M&A transactions. For
details see under Public M&A transactions.
There exist two ways to acquire a
Swiss listed company:
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Public offer: The most common way is that the acquirer launches a public
offer for the listed target company; such an offer may be structured as a
cash offer, an exchange offer for securities, or an offer for a combination
of shares and securities.
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Statutory merger: Less frequently, combinations
of listed companies are effected through a statutory merger.
1. Public offer
Regulations and regulators
The SESTA applies to all public
offers for companies domiciled in Switzerland and listed at an exchange in
Switzerland. A public offer pursuant to the SESTA is supervised by the Swiss
Takeover Board (TOB) and the Federal Banking Commission (FBC). The TOB
reviews the offering documentation and other activities of the parties
involved in the acquisition process and issues recommendations. Parties
affected by these recommendations may reject these recommendations and apply
for a decision to the FBC.
Timing
The acquirer must observe the
rules of the SESTA when it sets the timing of its offer. An acquirer may
either directly launch its offer or preannounce its offer prior to the launch.
The offer must be open for acceptances for at least 20 trading days and no
more than 40 trading days. After the offer period, the acquirer must publish
the results of the offer and whether the conditions of the offer have been
satisfied. If the conditions of the offer must be open for acceptances for
another 10 trading days. A typical offer timetable could look (not taking
into consideration governmental approvals or statutory waiting periods) as
set out in Timetable I.
Terms of the offer
A bidder has to observe the
provisions of the SESTA and its implementing ordinances when fixing the terms
of the offer. In particular he has to take into consideration the following:
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Pricing: Except if the target company has a so called opting-up or opting-out
provision in its articles of incorporation which exempts a holder of a
controlling interest from the rules regarding mandatory offers, a bidder for
a controlling interest in the target company (i.e. according to Swiss law a
stake in the company conferring 33 1/3 of the voting rights) must comply with
the following pricing restrictions: the price offered must at least be equal
to the average opening price on the Swiss Exchange for the 30 trading days
prior to the publication of the pre-announcement or the launch of the offer.
In addition, the offer price must be at least equal to 75% of the highest
price paid by the bidder during the one year period prior to the
pre-announcement or the launch of the offer.
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Form of consideration: The purchase price may
be paid in cash, securities or a combination of cash and securities.
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Conditions: An offer may be made subject to
certain conditions. A typical condition is the condition that a certain
percentage of all shareholders accept the offer. It is not permissible to
subject the offer to conditions the satisfaction of which is within the power
of the bidder.
Documentation of the offer
In connection with a public offer
the following principal documents are published:
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Pre-announcement: In the event that the offer is pre-announced the bidder
must publish a pre-announcement that sets forth the price offered, the timing
of the offer and the offer conditions.
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Offer prospectus:
At the time the offer is launched, the bidder must publish an offer document
containing information on the terms of the offer, on the bidder (including
parties acting in concert with the bidder), on the target company (including
a statement confirming that the bidder has not received from the target
company any material non-public information which could influence the
decision of the shareholders of the target company to accept the offer), and
information on the sources of financing.
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Report by the board of
directors: Within 15
trading days from the launch of the offer, the target company board must
publish a report advising the shareholders of the advantages and
disadvantages of the offer. The board of directors is not required to issue
an opinion as to whether the offer should be accepted or not.
2. Statutory merger
Rules and regulators
The Swiss Merger Statute governs
mergers of Swiss entities. Swiss law provides for two types of statutory
mergers: the merger by way of absorption whereby an entity (the transferring
entity) is merged into the other entity (the surviving entity) or the merger
by way of combination whereby all merging entities are merged into a newly
created entity. In Switzerland, the merger by absorption is by far the more
frequently used form. The merger process itself is not supervised by a
regulator. However, certain aspects of the merger (e.g. the exchange ratio of
the shares) are subject to the review by a special auditor.
Documentation of the merger
Swiss law sets out
detailed rules concerning the documentation of a merger. In particular, the
parties to a merger have to prepare the following documents:
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The merger agreement: the boards of the merging companies must agree on the
exchange ratio, the amount of cash consideration, and the special benefits
granted to affiliates (i.e., directors, officers, controlling shareholders,
or auditors). The merger agreement must be in written form.
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The interim
balance sheet of each merging company:
A interim balance sheet is only required if the balance sheet of the most
recent financial statements is more than six months old, or if material
changes have occurred since the balance sheet date.
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The merger
report: This report explains and comments on the purpose of the merger, the merger
agreement, the exchange ratio, the cash payments, particularities
regarding the valuation and the determination of the exchange ratio, the
scope of the share capital increase required by the surviving company, the
effect of the merger on employees and creditors, and the required
governmental authorizations. The boards of the merging companies may either
come up with a joint report or each of them with a separate report.
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The special
audit report:
A special auditor must review the merger agreement, the merger report, and
the balance sheets which form the basis for the merger and must confirm that
the shareholder rights have been observed, that the exchange ratio applied is
acceptable, that the valuation method applied is appropriate, etc.
The rights of the shareholders in
the merger process
Shareholders of the
merging entities have the following rights and remedies:
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Shareholders of the merging companies are entitled to review the merger
documentation (such as the merger agreement, the merger report, etc.).
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The approval of the merger agreement by the shareholders meeting is subject
to a supermajority requirement.
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A shareholder who can show that the exchange ratio of the merger is
inappropriate is entitled to bring an action against the surviving company
and request that an additional payment be made.
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A shareholder may challenge the merger resolution if he can show a breach of
the provisions of the Swiss merger statute.
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A shareholder
may seek damages from directors and others involved in the merger process for
breach of duties. This suit is similar to a directors' liability suit.
Protection of employees in the
merger process
Employees of the
merging companies are protected as follows:
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The merging companies must inform their employees of the reasons for the
merger and of the legal, economic and social consequences it shall have for
them. If, in connection with the merger, the merging companies intend to take
measures that affect the position of employees (e.g., expected redundancies,
salary reductions, etc.), employees need not only be informed about the
merger but need to be consulted prior to the shareholders' approval of the
merger agreement.
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An employee of a transferring business organisation is transferred by
operation of law to the surviving business organisation. Employees are
entitled to object to a permanent transfer.
The protection of creditors in the
merger process
Creditors affected by
a statutory merger are protected as follows:
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The merging companies must notify their creditors of the merger, unless a
special auditor confirms that creditor rights are not jeopardized by the
merger.
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The creditor
of a merging company may request that his claim be secured. The surviving
company need not secure the claim if it can show that the merger does not
jeopardise the satisfaction of the claim.
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A creditor may seek damages from directors and others involved in the merger
process for breach of duties. This suit is similar to a directors' liability
suit.
When timing the merger, the merging parties need to take the following
aspects into consideration:
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The due diligence and the negotiations of the merger documentation (see above)
will require some time.
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The merger documentation needs to be on display for 30 days prior to
the shareholders' resolution on the merger.
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Notice of the shareholders meeting approving the merger must be given at
least 20 days prior to the shareholders meeting.
A typical timetable for a merger of two Swiss listed companies (not taking
into consideration governmental approvals or statutory waiting periods) could
look as set out in Timetable II.
Timetable I: Timing of offer
Timetable II: Timing of merger
Swiss Takeover Board
SWX Swiss Stock
Exchange
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