GOING PUBLIC on SIX SWISS EXCHANGE 2Nd Edition 2015

GOING PUBLIC on SIX SWISS EXCHANGE 2nd Edition 2015

GOING PUBLIC on SIX SWISS EXCHANGE Index

Foreword Switzerland and its Financial Market ...... 7

The Principle of Being Better Than Average ...... 9

Welcome to SIX Swiss Exchange ...... 12

Why Consider an IPO ...... 16 Why Firms Go Public ...... 18

Preparation Decision to Go Public ...... 22 Prerequisites for a Successful IPO ...... 24 IPO Readiness Check ...... 26 Switzerland – Your Reliable Partner in Tax Matters ...... 28 Going Public Requires Professional Partners ...... 33

Preparing the IPO ...... 36 Preparing the Company to Go Public ...... 39 Process Timeline ...... 44 Pre-Deal Research ...... 47 Capital Structure ...... 48 Valuation ...... 49 Investment Case ...... 50 Structure of the IPO ...... 51 Managing Risk: Litigation and Indemnification ...... 54 Directors’ and Officers’ Liability (D&O) Insurance ...... 56 Board-level Risk Management: Delegation and Monitoring Processes ...... 60 Tax Due Diligence / Tax Structuring ...... 63 Legal Due Diligence ...... 65 The Underwriting Agreement ...... 68 Management Participation ...... 70 Prospectus Including Offering Restrictions ...... 72 Research and Publicity Guidelines ...... 75 Listing Requirements on SIX Swiss Exchange ...... 77 Cross-border Listings / Dual Listings ...... 81 Comfort Letters ...... 83 Financial Reporting ...... 86 Identifying Investor Relations ...... 87 Case Study: Sunrise Communications Group AG ...... 88 There Is no Second Chance to Make a First Impression ...... 91

4 Marketing Market the Investment Case ...... 96 Market the Investment Case – Overview ...... 99 Analyst Presentation ...... 100 Pilot Fishing and Anchor Investor Process ...... 101 Investor Education ...... 102 Price Range Setting ...... 103 Management Roadshow and Bookbuilding ...... 104 Pricing and Allocation ...... 106 Over-allotment Option and Aftermarket ...... 108 Case Study: SFS Group AG...... 110

Aftermarket Obligations of a Public Company ...... 114 Obligations Affecting Shareholder Management, Ad Hoc Publicity and Management Transactions ...... 116 Maintenance Costs ...... 120 Ownership Reporting by Shareholders ...... 122 Corporate Governance ...... 124 Financial Reporting Requirements – Overview ...... 127 Maintain the Listing ...... 130 Public Takeovers, Opting-out ...... 133 The Keys to Successful Stakeholder Communication ...... 139 Shareholder Activism ...... 145

Liquidity in the Market ...... 148 Liquidity in the Market ...... 150 What Investors Expect in a Listed Company ...... 151 Share Buy-Backs ...... 152 Secondary Sales ...... 154 Capital Raisings of Public Companies in Switzerland ...... 156

Imprint ...... 160

5 by Johann N. Schneider-Ammann, Federal Councillor, Head of the Federal Department of Economic Affairs, Education and Research (EAER)

6 Foreword

Switzerland and its Financial Market

by Johann N. Schneider-Ammann, his publication is somehow emblematic vestment opportunities. In capitalist economies Federal Councillor, T of Switzerland. A number of businesses such as Switzerland, capital markets are left to Head of the Federal Department of and organisations, all with different missions perform this function. However, the global finan- Economic Affairs, Education and and goals, have joined forces to produce an ex- cial crisis has also highlighted the need for Research (EAER) tensive study on the Swiss financial sector, with regulatory control to ensure optimal market func- a special emphasis on Initial Public Offerings tioning. Switzerland is in the process of optimi- (IPOs). Switzerland is a country with four national sing its regulatory framework, for example in the languages, where diverse cultures coexist. areas of tax and capital adequacy requirements As a result, the Swiss have a long tradition of for banks. A strong and effective capital market looking beyond borders, thinking outside the will help Switzerland retain its status as one of box, and seeking common ground. Unity in Europe’s most innovative countries. diversity – this is what Switzerland is all about. In summary, I am pleased to maintain that Given the scarcity of natural resources and Switzerland is an attractive place to do business. arable land, Switzerland has built its own suc- Switzerland’s appeal and strength as a financial cess model. Optimal conditions and innovation location are down to a combination of mutually in business were identified early on as the key reinforcing factors. Easy access to authorities to success. This focus on promoting optimal and the availability of a highly skilled workforce conditions has shaped Switzerland into a highly have a positive impact on the financial market- competitive economy. In several prominent stud- place, while the wider commercial environment ies, Switzerland leads the rankings as the most benefits from its global networks and a well- competitive economy in the world. This is a ma- functioning capital market. Switzerland is now jor achievement because this competitive edge especially attractive to businesses looking to permits greater independence and widens the finance their growth and ensure long-term field of operation. Competitive strength also gen- viability. The strengths and innovation of parti- erates prosperity and raises living standards. cipants in the Swiss financial markets, combined Economic prosperity depends on innova- with Switzerland’s security and highly developed tive enterprises, which can generate a competi- infrastructure, will help to ensure that Switzer- tive advantage by successfully marketing new land remains one of the most attractive locations products and developing new processes. Inno- for businesses as well as a leading international vation requires capital expenditure, which in turn financial centre. must be funded. Here the capital market is the hub, making resources available for the best in- Bern, 2015

7 8 The Principle of Being Better Than Average

by Robert E. Gubler, proportion of foreign students at Swiss universities is grow- Chairman of the Swiss Association ing constantly. The fact is, the potential pool of skilled em- for Location Management (SVSM) ployees and the ability to promote their talents rank among the most important factors in the global competition between different locations. witzerland repeatedly features at the very top of the S global league table when it comes to competitiveness, A country without raw materials will focus primarily quality, innovation, productivity, and security. Why is that on education, research, and services. That requires con- the case? What lies behind the better-than-average rating siderable financial resources. In Switzerland, the average of this alpine nation, which lies at the very heart of Europe? public-sector investment in universities and research is on Ranking lists tell us little about the secret of Switzerland’s a par with that of the country’s neighbours. However, busi- success. That’s because the answer lies in a framework nesses and institutions also make a massive contribution that has built up over many years and a financial policy – and that is what makes the difference. This helps to push shaped by Swiss citizens themselves through their system Switzerland towards the top of the international league of direct democracy. The Swiss population’s virtue of us- table in various disciplines such as nano-, bio-, medical- ing resources on a sustainable, economic basis is carried and clean-technology, as well as management. With its over into business and made a reality across the Swiss machine industry, precision engineering and watch indus- economy – just as it is in the public sector. try, for example, Switzerland also occupies a significant global position as technology centre. The latest developments on the international financial markets as well as the high levels of debt in countries in Proximity to the Swiss Federal Institute of Technology, Europe and the US have resulted in a shift in ratings and universities and universities of applied sciences helps exchange rates in favour of the Swiss franc – in some cas- boost R&D competencies and speeds up the rate of inno- es massively. Although this represents a vote of confidence vation. New areas of the “new economy” are following this in Switzerland by the markets, it also results in additional success trajectory and capturing additional business are- costs. Just as Switzerland has repeatedly understood the as for Switzerland as a venue for production and innova- need to adapt to changing circumstances in global com- tion. Here too, things are looking good for Switzerland. petition, this challenge is being tackled as follows: ration- The lack of natural resources requires a greater effort alisation, on the one hand, and innovation, on the other, in terms of service culture and the training of talented are compensating for the disadvantages of a highly valued individuals, whether in management or specialist skills. currency. The development of a strong Swiss financial sector is also attributable to this factor. The industrial and financial sec- Intellect and Finance as Location Factors tors are mutually beneficial. Switzerland is a small country, in which people speak four languages: German, French, Italian, and Romansch. The success achieved by the banking industry over English is spoken and understood in all parts of the country. the decades constitutes a unique advantage for Switzer- This attitude towards intercultural skills is another typical land as a centre for manufacturing and services: favoura- feature of Switzerland as a location. It involves being open ble financing, close links, and the deep commitment and to learning and using other international languages, and to expertise of the sectors – both nationally and internation- communicating on an inclusive basis with foreign profes- ally. These are important factors in retaining and attracting sionals and visitors to Switzerland. By way of example, the holding companies and other businesses.

9 “Combine the locational appeal of Switzerland, its competitive economy and the strong Swiss financial centre and you get the perfect place to anchor a company’s public listing – namely on SIX Swiss Exchange.”

Marco Estermann, Head Issuer Relations, SIX Swiss Exchange AG

The picture is rounded off by attractive tax rates for companies and private individuals, although this is hard- “SIX Swiss Exchange ly the number one factor. What really matters is a liberal attitude towards business and social welfare, lasting cor- is a highly regarded listing porate success, and the quality of life for the population. This helps engender stability, security and visibility. It is venue by both domestic upon these attributes that Switzerland’s above-average capacity to innovate and the location factors of intellect as well as international and finance have been based. investors, allowing issuers Security and Accessibility as Location Factors Swiss civil liberties and the legal framework ensure to attract a broadly diversi- legal security, security of ownership and reliability, thus providing an ideal platform for investors and companies. fied shareholder base and A major emphasis is placed on the personal responsibility of the Swiss population and visitors. Switzerland research coverage.” is far from being a “Big Brother” society. When the interests of the country’s citizens are set to be affected by plans and changes, the population comes together to ar- Mark Hammarskjold, rive at a democratic decision – whether nationally, region- Head Equity Capital Markets Switzerland, ally, or locally. This helps boost competition between dif- Credit Suisse AG ferent locations, which is the best guarantee of continuity and competitiveness in global terms and also ensures the country remains future-proof for businesses, organisations and individuals.

10 “The Swiss economy is one of the most liberal and competitive in the world. Sustained purchasing power stability, low inflation, low capital costs and a good investment climate ensure prosperity.”

Daniel Küng, CEO, Switzerland Global Enterprise

With its three major airports – in particular Zurich – Switzerland is a global hub. This ensures businesses have above-average access to markets and partner firms throughout the world. The advantage of centrality is further enhanced by outstanding links with the Swiss and Eu- ropean rail and highway systems, along with state-of-the- art infrastructure. This creates time savings and guarantees various travel and communication options. This easy accessibility is important not least when seeking to attract “A Swiss presence international professionals to Switzerland. enhances the corporate Finally, it is also the basis for steadily increasing visi- tor numbers in Switzerland, which enjoys a high level of profile in Western Europe prestige and positive PR around the world with distinct brands like St Moritz and Zermatt, Lugano, Lucerne, Ge- and significantly increas- neva, and Zurich – not just as a tourist destination, but also es investor demand and as a place to live and do business. Consequently, accessibility and proximity are impor- visibility and consequent- tant arguments for many international firms when opting for Switzerland as a location. This includes proximity to in- ly also trading volumes.” novative businesses and talent, but also to the research capabilities of Swiss universities across all parts of the country and linguistic regions. Switzerland is a country of close Thorsten Pauli, links – an attribute that is increasingly becoming a location Managing Director and Head Equity factor and constitutes a key USP in relation to other eco- Capital Markets Switzerland, nomic centres around the world. Here, as in all areas, it’s UBS AG about the Swiss principle of being better than average.

11 Welcome to SIX Swiss Exchange

by Marco Estermann, List a Company in the Most Competitive Global Head Issuer Relations, Economy Valeria Ceccarelli, Today, it is virtually common knowledge that Swit- Head Origination, zerland is a highly competitive and attractive location for & Andrea von Bartenwerffer companies. Each year, Switzerland takes top honours in Head Account Management, terms of global competitiveness rankings. Among the de- SIX Swiss Exchange AG cisive factors in this regard are the outstanding innovative power of the economy and Switzerland’s high-quality and reliable infrastructure. e are delighted to introduce our “Going Public W Guide” which illustrates the whole process of go- Benefit from a Globally Leading Financial Centre ing public, described by key financial players. Finding the The locational appeal of Switzerland and the Swiss fi- right exchange to list a company is very important. There nancial centre is the result of a virtuous cycle driven by are various criteria which may help you in choosing the many mutually supportive factors. Key attributes such as “right” place for a successful listing. Let us tell you from easy access to authorities and the availability of highly our experience that the internationally oriented, solid and skilled workers have driven the financial centre growth over strong Swiss financial centre with its vibrant securities the decades. Thanks to its solid reputation as an interna- exchange – SIX Swiss Exchange – is the best place for tional capital market with global networking power, the fi- companies to obtain long-term financing and ensure their nancial centre has in turn enhanced Switzerland’s appeal prosperity. In the past an important factor for choosing as a location. Combine this locational appeal with the eco- an exchange was the location of the company’s head- nomic strength of the most competitive economy in the quarters. But as we progress towards globalisation, ad- world and you get the perfect place to anchor your compa- ditional aspects – such as the location of the company’s ny’s public listing. For both domestic and foreign compa- business activities or facilities, as well as its medium to nies seeking capital, the Swiss financial centre is unique: it long-term strategic orientation – play an increasingly im- is compact, closely networked, internationally oriented, and portant role. Now, let us explain to you why we truly be- the local banks have strong financing and placing power. lieve that SIX Swiss Exchange is the perfect exchange for a company to go public. High Level of Visibility Amongst Investors, Analysts and the Media Generates Liquidity Why list on SIX Swiss Exchange? For Swiss and foreign companies, SIX Swiss Ex- SIX Swiss Exchange is currently the largest mu- change is the gateway to the international and domestic tual stock exchange group in Europe and amongst the capital markets. A public offering and listing of securities on largest by free float market capitalisation of its listed SIX Swiss Exchange gives a company access to a highly companies. Furthermore, SIX Swiss Exchange is an in- experienced and financially strong circle of international ternational stock exchange. But this is not the only rea- investors. Each firm listed on SIX Swiss Exchange ben- son why SIX Swiss Exchange is a compelling place to efits from a high degree of visibility and recognition list a company’s shares. amongst global investors, analysts and the media.

12 13 Moreover, the domestic Swiss investors have many Indices That Are Closely Followed Throughout the years of experience in cross-border, sector-specific in- World vestment strategies. Companies listed on SIX Swiss Ex- Owing to the worldwide significance of Swiss-listed change benefit from a deep liquidity pool, enhanced global leaders such as ABB, Credit Suisse Group, Nestlé, through various investment opportunities such as an Novartis, Richemont, Roche, UBS Group and Zurich Insur- active and fast growing Exchange Traded Funds (ETF) ance Group, the indices that include those stocks have a and Exchange Traded Products (ETP) segment. Further- high degree of recognition. SIX Swiss Exchange calcu- more, we would like to highlight SIX Swiss Exchange’s lates various indices and sub-indices that satisfy differing large bond trading platform which is one of the largest investor needs and, by their focus on select segments, in Europe, and SIX Structured Products – a highly attrac- assure companies of a particularly high degree of visibility tive market for structured products and warrants. Those amongst their target groups. who invest their capital in companies listed on SIX Swiss Exchange are usually active on an international Regulation: In Line with International Standards, scale. Some of the reasons for the great trust investors – Yet in Touch with the Market throughout the world – place in the Swiss financial cen- Another factor that facilitates the raising of capital in tre are its high degree of legal certainty, the country’s Switzerland is the close-to-the-market nature of SIX Swiss political stability and comparatively liberal labour law, its Exchange’s regulatory provisions. Under national securi- competitive tax levels and market-consistent regulatory ties exchange legislation, SIX Swiss Exchange is empow- standards, as well as an outstanding educational system ered with self-regulatory authority and therefore has opti- and longstanding, proven competence in private bank- mal flexibility to combine a high level of investor protection ing and asset management. with regulatory conditions that are highly attractive from

14 “SIX Swiss Exchange offers potential listing candidates an efficient admission process that takes no longer than four weeks to complete.”

Marco Estermann, Head Issuer Relations, SIX Swiss Exchange

an issuer’s point of view. Regulation and administration of The Key Advantages of a Listing at SIX Swiss Ex- securities listing and trading is entrusted to SIX Exchange change at a Glance Regulation by delegation of regulatory competencies. Switzerland’s leading position in cross-border private Characteristic of the self-regulated listing regime in Swit- banking, the strong placing power of Switzerland-based zerland is the efficient and smooth listing process. SIX banks, broad international investor base and particularly Swiss Exchange offers its new issuers an efficient admis- our equity-oriented institutional investor community help sion process that takes no longer than four weeks to com- companies to get access to capital for their future devel- plete. From the submission of the listing application straight opment and growth. Every IPO and every listed company through to the first trading day, all related decisions are tak- on SIX Swiss Exchange benefits from an outstanding vis- en by the competent internal governing bodies. As a result, ibility amongst the multilingual and multicultural investor candidates for listing on SIX Swiss Exchange benefit from base active in Switzerland, the numerous banks with es- the convenience of a listing out of one hand, which is char- tablished in-house research departments and the media. acterised by short decision-making paths, flexibility and The self-regulated listing regime ensures an attractive, bal- closeness to the market as well as to the customer. anced regulatory environment for both companies and Furthermore, market participants are well represented investors alike. We are convinced that with an IPO on SIX in various committees and regulatory commissions and Swiss Exchange a company will get the most out of its list- therefore have a direct impact on the continuous improve- ing and we are looking forward to welcoming you on SIX ment of our regulation. We often get the feedback from our Swiss Exchange in the near future. new issuers that they very much appreciated the direct, easy communication with us and the support we provided throughout the whole IPO process.

15 Why Consider an IPO?

16 Switzerland as a global financial centre Why Consider an IPO?

17 Why Consider an IPO

Why Firms Go Public

by Dr. Manuel Ammann, base, providing the company with an by the market. First, prices of publicly Professor of Finance and Director international and more diversified traded shares serve as an important of the Swiss Institute of Banking shareholder structure. source of information for the manage- and Finance ment as well as the owners. As the & Dustin Schütte, Research Assistant Stock Liquidity and Cost of Capital market continuously evaluates recent- at the Swiss Institute of Banking A public listing generally in- ly disclosed company information and and Finance, creases the liquidity of the stock. A factors them into the company’s share University of St.Gallen liquid market for the stock of the firm price, the price level serves the own- allows investors to increase and de- ers as a market-based performance crease their holdings more easily. As measure for the actions of the man- investors require a premium for illi- agement. This can be an efficient form ptimal financing of profitable quidity risk, increased liquidity due to of market discipline to prevent the O new investment opportunities the listing can reduce the cost of capi- management from acting against the is a key issue for all firms. Stock mar- tal for the firm. Furthermore, an IPO interests of the shareholders. Yet, it is kets are a very important source of can also pave the way for an admission important to note that the efficacy of equity funding. In the past decades, a to an established market index, such as the market monitoring can decrease large number of corporations chose the SMI, SMIM, SPI, DAX, FTSE etc. with the amount of free float, as share- to step into the market of publicly trad- For companies listed in Switzerland, holders may mutually rely on each ed stock. Against the backdrop of the admittance to the Swiss Market and other to monitor the company. Natu- profound long-term consequences of Swiss Performance Index (SMI/SPI) rally, large block-holders are likely to this decision, a firm has to analyse its family is not only fostering the name reduce this risk. Second, depending prospective costs and benefits as well recognition of the company in domes- on the fraction of stock capital float- as its potentially less obvious advan- tic and foreign markets but can also ed, an IPO can introduce the compa- tages when it considers going public. have a positive effect on liquidity and ny to the market for corporate control. cost of capital. When the share price reaches a level Funding and Investor Base that attracts other companies or large The predominant motivation for Alignment of Interests investors to buy the public firm, the a company to initiate a public offering The opportunity to trade the management runs into the danger of is the direct and continuous access to firm’s shares on a regulated market replacement. In that way, the public the public capital market. In case of allows previous investors and owners market ensures that the creation of the issuance of primary shares, capi- to diversify their funds and provides shareholder value is an important tal markets can supply the firm with them with more liquid assets. Simul- objective for the company. fresh funding resources enabling the taneously, owners can use stock company to realise its growth poten- to set-up incentivising compensation Costs tial. Moreover, further authorised plans for the company’s management The commercial and financial capital provides the management with and employees to increase motivation benefits of an IPO are numerous, but a high degree of flexibility in raising and align different interests. Further, it also involves substantial initial and additional funds after an IPO and can an IPO can enable the company own- ongoing costs. First, the process of strengthen the company’s economic ers to reduce their monitoring efforts, going public is complex and costly. The reactivity. The IPO also significantly as the management submits itself to advising investment bank will charge increases the company’s investor diverse disciplining effects exercised a fee for preparing and supervising

18 19 Development and evaluation

20 Why Consider an IPO

the pre- and post-IPO process. Sec- set-up of extensive lock-up periods for ond, listed companies are confront- secondary shareholders can convey ed with higher costs for increased the image of a sound corporation with investor relations maintenance, e.g. a high potential for further growth. for a continuous communication with their institutional investors and Market Developments other major stockholders. These ac- An IPO involves a number of tivities imply a direct expense for the complex and incisive decisions and is firm. Moreover, a public company linked not only to strong financial and faces more detailed publication re- corporate benefits but also to a num- quirements. Although a more exten- ber of direct and indirect costs. Empir- sive and frequent disclosure policy ically, an increasing number of firms can foster investor confidence and decide to go public, emphasising the support the perception of a sound and advantages of a public listing for many transparent corporation, the informa- firms. In the years 2012 and 2013 more tion is also available to other firms, pos- than 2100 companies stepped into sibly giving way to a higher degree of public markets.1 competition. Each firm has to consider those costs against the benefits of going public based on its specific situation. Given the fixed nature of most of the costs, the attractiveness of a public listing tends to increase with the size of a company.

Timing, Size, and Signals A crucial aspect of going public 1 World Federation of Exchanges, 2014. is deciding on its timing. Turbulent markets can make an IPO more difficult. They can lead to an initial underpricing, reducing the amount of funds raised by the firm, or to a downward correction of the stock price shortly after its trading debut. In contrast, a “hot” market may enable the firm to “The prospect of a diversified sell its shares at very favourable terms, but could result in longer-term and international investor base, stock return underperformance and investor disappointment. Apart from enhanced funding flexibility and the timing, a firm must decide on the size of the IPO. The size impacts a the option to set clear market number of important characteristics aside from the amount of capital col- signals make an IPO one of the lected, such as the trading liquidity of the shares, control of the firm, po- most attractive forms of financing.” tential effects of underpricing, the amount of IPO costs per share issued, etc. Finally, the composition of the offer is highly relevant to the success of the IPO, as it can be an important signal to the market. An IPO that is solely composed of secondary shares does not generate additional funds for the company and might therefore be a negative signal. On the contrary, the issuance of primary shares and the

21 Decision to Go Public

22 23 Preparation

Prerequisites for a Successful IPO

by Dr. Martin Frey, shareholders. This is particularly legal structures, good corporate Partner, Head Corporate Finance, beneficial once a company reach- governance and the willingness PricewaterhouseCoopers AG es a size where risk and responsi- to “open up”. An independent IPO bility should be separated. advisor should have a critical look – Succession Planning: at these issues during the evalua- he prerequisites for a successful An IPO is suitable for succession tion phase, identifying necessary T IPO include various issues and planning, when shareholders wish measures in the areas of account- requirements. First of all, the question to withdraw from the company ing, corporate governance or tax- of whether an IPO makes sense for a or reduce their holdings. The in- es that will need to be considered certain company in its specific context creased liquidity and marketabili- in the preparatory phase. must be addressed – hence the ration- ty of shares is also beneficial to – Preparation: ale for the IPO is the focal point of at- all remaining shareholders. In this phase, the measures tention. If, and only if, this assessment – Participation Schemes: previously identified will be imple- concludes positively, the readiness of An IPO allows for attractive mented. The IPO advisor will con- an IPO candidate should be assessed employee participation schemes, duct “beauty contests” for the se- and the firm prepared for the IPO. improving employee motivation lection of further parties required, and retention. Effective schemes such as a book runner (the bank Why an IPO? also enhance the attractiveness responsible for placing the shares) of the company on the employ- or a communications consultant. Reasons for an IPO are as varied ment market, easing the search An indicative stock market valua- as individual companies themselves, for staff. tion is carried out and the plan- but the most common drivers behind ning and structuring of the trans- the decision to go public are the fol- The motivations presented do action is brought forward. lowing: not define a conclusive list of valid rea- – Execution: sons for an IPO, but they reflect the During execution, a due diligence – Access to Capital: most common and, in the light of (i.e. operational, financial, tax and The most common reason for experience, the most meaningful ra- legal) is carried out and the listing an IPO is to address the capital tionales. Given the positive assess- prospectus is drafted. In addition requirements for internal and ex- ment of a company’s motivation to to the prospectus, the transaction ternal growth. The cost of capital access the capital market, the prepar- and the company are presented for firms with direct access to atory work can begin for the IPO to to potential investors in a road the capital market is typically be undertaken. show. Investors can then register lower than for those without. their interest (bookbuilding – Increased Visibility: Prerequisites for Successful process), and accompanying An IPO provides an opportunity Execution communication activities begin to enhance the profile of a before the pricing of the shares company among investors, – Evaluation: takes place and trading begins. employees, suppliers and clients. A successful IPO depends on a – Post-IPO: Greater visibility helps to improve convincing strategy and position- Stock exchange regulations conditions on the procurement, ing of the company (investment must be complied with at all sales, and labour markets. case / story), a qualified manage- times, relationships with share- – Broader Investor Base: ment and reliance on transparent holders are to be maintained An IPO enables a broadening of accounting and reporting proce- (investor relations) and funds the investor base and a reduction dures. Additional prerequisites received must be used for their of dependence on individual are efficient organisational and proper purpose.

24 Decision to Go Public 25 Preparation

IPO Readiness Check

by Dr. Martin Frey, advantages, illustrate market growth However, only the support of a well- Partner, Head Corporate Finance, potentials and elaborate on all other key structured management team pre- PricewaterhouseCoopers AG factors underlying the investment sto- pared to face the significant additional ry. An attractive competitive position- demands of preparing for an IPO will nitial Public Offerings (IPOs) are ing in growing markets, the develop- ensure a successful process. I complex to implement in practice ment of new promising products or and require thorough preparation to services and / or an expanding geo- Management experience in tak- ensure a company’s ability to effec- graphical presence are common ingre- ing a company public is a clear asset. tively and efficiently access the cap- dients of a compelling investment case. Investors look for executives who ital markets. While public ownership have a track record in building compa- offers significant advantages, like im- Every business plan communi- nies, who meet goals and who have proved access to equity and debt cap- cating an investment story has to be demonstrated the ability to deliver ital markets and associated lower cost inherently consistent and in line with value. Management will need to be a of capital, it also leads to heightened the competitive landscape to with- cohesive unit sharing a long-term market scrutiny and greater manage- stand the scrutiny of potential inves- vision and demonstrating to prospec- ment demands. Such aspects repre- tors. Considering the business plan is tive investors its depth wof experi- sent key factors that need to be as- also a central part of the prospectus, ence, expertise, commitment and in- sessed in order to be ready for an IPO. it is also a critical tool used in market- tegrity. ing road shows. Proof of concepts, a An IPO readiness check carried resilient business model and the abil- Board of Directors out by an experienced and independ- ity to generate sustainable profits in Ideally, an independent board ent IPO advisor therefore looks at a various scenarios of future develop- with a broad range of expertise is range of factors which play a decisive ment are crucial. In a nutshell: the en- assembled, as the composition of the role in an IPO. Besides the condition- tire business rationale and plan for ex- board and its members’ credentials al requirement of having an attractive ecution needs to be well articulated to should speak volumes about the com- investment story, IPO readiness is attract investors’ appetites. pany. However, due to the legal and crucially influenced by the company’s regulatory exposure of board mem- management structure, its finance Management and Board bers, it can be difficult to attract qual- and accounting standards, corporate Already before going public, a ified directors for an IPO process. In- structure, corporate governance and company needs to start acting and surance can be obtained to protect the firm’s willingness to open up to looking like a public company. Public directors against potential legal liabil- the public. firms have a management structure ities, but such insurance is costly and with clear lines of authority as well as cannot cover all eventualities and Investment Case strong and independent boards that risks. Therefore, a high-quality busi- The first step towards a success- comply with appropriate corporate ness plan and investment case are ful IPO is to develop a compelling stra- governance regulations. Formal pro- considered the most effective instru- tegic plan defining what the funds cesses defining the operational set-up ments to attract the right people for raised are going to be used for. A as well as financial reporting and con- the boardroom, willing and comforta- business plan should provide a clear trolling enable and secure business ble to take the associated risks. road map for the company’s future, continuity. defining how the realisation of the Accounting and Finance firm’s growth potential is going to Management The reporting and accounting secure growing cash flows and there- The CEO is pivotal for the entire infrastructure of a publicly traded fore dividend earnings. offering process. He or she ultimately company can deviate significantly evaluates the company’s readiness, from the systems installed within a The company must define its monitors the process and makes key private company. Before listing, an unique selling propositions, highlight decisions; the CEO’s leadership sets organisation’s financials and account- core competencies and strategic the tone for the entire exercise. ing policies must be trimmed to fully

26 Decision to Go Public Preparation

comply with the rigorous regulations Legal Structure The corporate governance framework applying to a public company. Apart It is a significant advantage if the analysis executed in the context of an from regulatory demands, investors corporate structure and the associated IPO readiness check can be a critical also require accurate financial and legal set-up facilitate an IPO process first step in establishing sound policies non-financial information to be pro- and later public trading. The legal in- and procedures for the IPO process duced efficiently and on a timely ba- frastructure must be suitable for and subsequent “public life”. How- sis, including the analysis of sensitivi- managing day-to-day operations ever, good governance mechanisms ties of projected figures. within the context of the public do- alone might not suffice – developing main and all its regulations. Most of- a public profile is a process requiring It is a considerable endeavour ten, such a group structure, driven by careful “hands-on” management, of- for a company to meet such demands operative, tax and risk considerations, ten demanding the full attention of an and potentially change from local takes on the legal form of a limited experienced investor relations manag- accounting standards to international company organised under the um- er handling the financial press and the standards, for example IFRS or US brella of a holding company. larger investment community alike. GAAP. Accordingly, the infrastructure enabling the production of half-yearly When designing the legal struc- Willingness to Open Up and annual reports in compliance with ture, the fact that a (too) complex While effective planning is criti- regulations has to be put in place be- legal structure is potentially difficult cal for a company to successfully seize forehand. Pre-listed companies often to understand for investors has to be an IPO opportunity and navigate the need to improve budgeting and fore- taken into account. Simplicity reduc- associated risks, the effective com- casting capabilities, require upgrades es hidden risks and is often the bet- munication of the IPO plan is equally of accounting and controlling systems, ter option. important. Both, the process of plan- and need to introduce mechanisms ca- ning an IPO and the act of communi- pable of recording insider transactions Corporate Governance cating the intention of going public and treasury operations etc. Requirements for a public com- require the current owners and man- pany in relation to corporate govern- agement of an IPO candidate to dem- Corporate Structures ance and internal controls are much onstrate their distinct willingness to Tax structure higher than for private companies. open up. Potential investors must be Like other transaction process- Clear separation of ownership and convinced of the genuine intentions of es, going public has tax implications. control translates into a more pro- the IPO candidate to transparently dis- Planning for an IPO’s tax consequenc- nounced separation of strategic and close all relevant information neces- es should begin long before the event operational management. Further- sary to assess the investment oppor- itself. A comparison and assessment more, planning and monitoring en- tunity. of possible reorganisation scenarios is sures well-functioning checks and highly recommended, as a tax strate- balances Up-to-date competence reg- As building a profile that com- gy should be implemented that de- ulations are required that strive for ef- municates those intentions takes time, fines a target group tax rate. ficiency, transparency and the ability early interaction with the media is of decision-making at highest levels of necessary to foster relations and gain Further, a private company may compliance. credibility. The firm’s willingness to have paid bonuses to key employees / open up, the investment story as such shareholders to reward performance Preparing a company to meet the as well as name recognition depend and optimise corporate tax burdens, governance expectations of investors, on effective communication, provid- while dividends may have been paid analysts, regulators and the financial ing the necessary momentum when to distribute retained earnings. As a press is of crucial importance. Strong entering into the offering process. public company, the approach to prof- corporate governance mechanisms The company needs to communicate it distribution will completely change strengthen investor confidence, help regularly, transparently and honestly and requires early planning and struc- to facilitate the IPO process and are – an attitude and willingness to open turing to conform to tax frameworks. likely to achieve a better priced listing. up is indispensable.

Decision to Go Public 27 Preparation

Switzerland – Your Reliable Partner in Tax Matters

by Robin Errico, educated foreign professionals. Al- duce possible exposure with respect Partner, Audit though Switzerland is not a member to the new global OECD and G20 & Dr. Georg Lutz, of the European Union, it shares standards of BEPS (base erosion and Partner, Head Transaction Tax, closed economic ties with its Europe- profit shifting). Substantially lower ef- Ernst &Young Ltd an neighbours. A solid foundation of fective tax rates (ETR) can be achieved bilateral agreements enables the free by adequate planning (e.g. base ero- movement of people, capital, goods sion or international allocation meas- witzerland is one of the most at- and services across the borders (with ures). Qualified dividends and quali- S tractive business locations in the certain limitations), which provides fied capital gains are tax exempt if world and offers numerous strategic Swiss companies with access to a rules are properly applied. Corpora- advantages. A key factor for the suc- market of almost 500 million employ- tions whose business activities are pri- cess of the Swiss economy is its ees and consumers within Europe. marily related to business abroad can stable political, legal and regulatory Moreover, with the existence of 120 bi- benefit from the domiciliary or mixed environment, which is based on Swit- lateral investment protection agree- company status subject to an ETR zerland’s political system of direct de- ments, Switzerland owns the third from 7.83 % to 10 %, whereas a prin- mocracy and federalism. The attrac- largest network in the world which cipal company is normally taxed be- tive environment is also characterised provides modern protection standards tween 4 % and 8 %. These tax privi- by Switzerland’s efficient and busi- to Swiss investors investing abroad. leged regimes shall be replaced ness-friendly authorities. A compre- within the next 5 to 7 years by other hensive system of patent, trademark, Geographically, Switzerland is beneficial regimes based on the Swiss design and copyright protection pro- located in the heart of Europe, sur- tax reform III. Moreover, full or partial vides for one of the world’s most rounded by three of the four biggest tax holidays for up to ten years may be advanced protections of intellectual European economies. It is closely em- granted for new businesses estab- property rights and guarantees that bedded into the European transport lished in Switzerland. Needless to say, the results of innovation and creativi- infrastructure and owns one of the it is common practice in Switzerland ty are protected at both national and most advanced motorway and railway to enter into tax rulings with the Swiss international levels. networks. Moreover, three interna- tax authorities to have legal certainty tional airports offer direct flights to on a variety of aspects (such as privi- Due to its lack of natural resourc- more than 130 destinations in Europe leged tax status or tax neutrality of a es, Switzerland is forced to invest and 70 overseas. As such, multina- restructuring). Tax rulings can be ob- heavily in its exceptional education tional companies can enjoy close tained in a short time and are general- system. In fact, Switzerland invests proximity to their worldwide custom- ly granted for an unlimited period. more in education per student than er base and benefit from residing in Switzerland has an excellent treaty any other country in the world. Public the central European time zone. network with currently more than 80 schools, universities, postgraduate tax treaties in force and numerous studies and international private Switzerland also has a highly at- new treaties are expected to be enact- schools are known worldwide for their tractive tax system. The total tax bur- ed in the near future. Swiss compa- outstanding quality. Furthermore, hir- den is – compared with other devel- nies can also benefit from the Swit- ing a workforce from outside Switzer- oped countries – quite moderate. A zerland-EU Agreement on Savings land or transferring executives to Swiss corporate taxpayer is normally Taxation, which provides similar tax Switzerland is attractive. The labour taxed at a combined ordinary rate be- relief as the EU Parent-Subsidiary Di- market is characterised by liberal leg- tween 12 % and 25 %, depending on rective and the EU Interest and Royal- islation and employer-friendly regula- the place of domicile. Seven cantons ties Directive. Last but not least, Swit- tions. The outstanding quality of life, have a combined ordinary corporate zerland has no Controlled Foreign the sound environment, a first-class rate (including federal tax) below Corporations (CFC) rules and does not healthcare system and a wide range 15 %. A low ordinary tax rate is cer- intend to introduce any in the foresee- of international schools attract highly tainly a very efficient scheme to re- able future.

28 Decision to Go Public 29 30 Preparation

If You Are Not Here, How to Get tax costs in Switzerland. The tax liabil- changed the place of incorporation of Here ity begins with the incorporation of the parent holding company from the Common ways to relocate to the new Swiss company or the trans- Cayman Islands to Switzerland. Switzerland are: fer of the seat and /or the manage- – Change of legal seat (migration) ment to Switzerland. Transocean’s legal seat is in Zug – Cross-border merger and its principal executives offices are – Merger-like transaction Accounting Standard Applica- in Geneva where many of its key exec- (redomestication) tion Flexibility utive positions reside. Transocean cur- SIX Swiss Exchange offers rently also has several subsidiaries lo- Swiss law allows the migration unique flexibility with respect to rec- cated and managed out of its Zug of a foreign company to Switzerland ognised accounting standard applica- offices. by the mere change of legal seat if the tion. International Financial Reporting law of the origin country allows the Standards (IFRS) the standards and in- In April 2010, Transocean shares migration out of the country. The pro- terpretations issued by the IASB became listed on SIX Swiss Exchange cedure is rather straightforward under (International Accounting Standards and in June 2010, Transocean was Swiss law. Besides the decision to Board) as well as United States gener- granted an “extraordinary inclusion” change the legal seat of the company, ally accepted accounting principles (early admission) in the Swiss Market the company has to adapt its legal (US GAAP) are permitted for the Inter- Index (SMI). form to the requirements of Swiss law, national Reporting Standard. And final- which may include measures such as ly, Swiss GAAP FER may be applied The accounting standard appli- the amendment of the articles of infor the Swiss Reporting Standard. cation flexibility was extremely impor- corporation, change of capital, change In fact more and more small and tant for Transocean, as it was already of name, the election of new board medium-sized Swiss listed (national) listed on the New York Stock members, and election of the auditor. companies are taking advantage of Exchange (NYSE) and applying US The migration becomes effective applying Swiss GAAP FER whose GAAP. As such, no changes were upon the registration with the Com- accounting framework gives a true required to its accounting standards mercial Register in the legal form of a and fair view of the net assets, finan- in order to list on SIX Swiss Exchange. Swiss company. One may also consid- cial position and operational results. er transferring the place of manage- For example prominent Swiss compa- At the 2014 Transocean Annual ment to Switzerland only and leave the nies like the Swatch Group and Georg shareholders’ meeting, the sharehold- legal seat abroad. Fischer have recently taken advantage ers approved a distribution to be paid of applying Swiss GAAP FER. out of qualified paid-in capital re- Apart from the migration, Swiss serves. As such, in accordance with law also allows a cross-border merger Case Study the capital contribution principle, if the origin country allows the same. One well-known example of a Transocean is able to make these dis- In a cross-border merger, a foreign en- company redomesticating to Switzer- tributions free of withholding taxes. tity will be merged directly into an ex- land is that of Transocean Ltd. (Trans- This was the fourth year in a row that isting Swiss company. Upon registra- ocean). Transocean is a leading inter- Transocean was able to make such tion of the merger with the Commercial national provider of offshore contract distributions. Register in Switzerland, all assets and drilling services for oil and gas wells liabilities of the foreign company will for energy companies, owning and be transferred into the balance sheet operating among the world’s most of the surviving Swiss entity. Another versatile fleets with a particular focus common approach to relocating to on deepwater and harsh-environment Switzerland is a share for share ex- drilling. change transaction, where the foreign company shares are contributed in In December 2008, Transocean kind to a newly formed Swiss holding completed its redomestication trans- company in exchange for shares of the action pursuant to an agreement and Conclusion: Swiss company. Such a merger-like plan of merger among Transocean Companies relocate to Switzerland for a transaction, also known as redomesti- Ltd. (newly formed Swiss holding variety of reasons. In addition to all that cation, may be advantageous due to company), Transocean Inc. (former Switzerland has to offer as a country, the benefit of the capital contribution parent holding company), and Trans- the favourable tax environment offers principle, which provides for the dis- ocean Cayman Ltd. (wholly-owned companies a variety of opportunities tribution of qualified paid-in capital subsidiary of Transocean Ltd.). In their and benefits. Determination to relocate reserves free of withholding tax. redomestication, Transocean Ltd. should be made on an individual case- issued one of its shares in exchange by-case basis and should be carefully as- Each alternative can be imple- for each ordinary share of Trans- sessed for each circumstance. mented without entailing particular ocean Inc. The transaction effectively

Decision to Go Public 31 32 Preparation

Going Public Requires Professional Partners

by Andrea von Bartenwerffer, The tasks of the lead manager etc.). Legal risks should be established, Head Account Management, and the bank consortium involve the documented in the issue and listing Issuer Relations validation of the business plan and prospectus and tested vis-à-vis the Marco Estermann, evaluation of the company. They con- lead manager using so-called (techni- Head Issuer Relations, duct a business due diligence and cal and disclosure) legal opinions. & Valeria Ceccarelli, work out the specific investment case Head Origination, for the investors. Furthermore, they b) Prospectus Issuer Relations structure the issue, perform the pro- Usually, lawyers prepare, in coopera- SIX Swiss Exchange AG fessional research and market the tion with the other consultants, the investment case to the investors. Last prospectus that is used in connection inding the right partners for the but not least, the lead manager and with the IPO. In view of prospectus F going public process is key, as the consortium place the shares with liability, the entire communication of a company needs professional part- interested investors, usually by way the company and other parties in- ners who can make a significant con- of a bookbuilding procedure. volved in the transaction must be sub- tribution to a successful IPO. Partners jected to a preliminary legal analysis. involved are the lead manager, the bank There are various criteria for syndicate, auditors, lawyers, investor selecting a lead manager: The following criteria should be relations agencies and the stock ex- – Experience in IPO transactions considered when selecting a lawyer: change. – Knowledge of the financial – Expertise /reputation Right from the start, all relevant industry – Transaction experience negotiations should be conducted by – Issuance strategy – Service range and costs in an experienced project team, and all (national /international) connection with going public responsibilities should be clearly de- – Investor contacts /placing power – Support and advice in connection fined. When putting together the – Quality of equity research with being public team of advisors, care must be taken – Voluntary market-making – Existing ties to lawyers that at least one party is recognised subsequent to the IPO as a knowledgeable representative of – Support and advice once Auditors the issuer pursuant to Art. 43 Listing the company is public As a general rule, going public Rules. – Issuance performance and costs requires audited financial statements – Pre-existing relationships with for the past three years of the compa- The Lead Manager and the Bank an investment bank ny’s existence, as well as preparation Syndicate of unaudited interim periods. In addi- Usually, the candidate for an IPO Lawyers tion to the audited financial informa- mandates the lead manager that will During the IPO process, lawyers tion, the accounting firm will assist the be the key contact in connection with are indispensable partners for the company in determining if any interim the share placement. The lead manag- company as transaction lawyers or financial information is required. The er in charge suggests the other legal advisors and are as well needed bank syndicate requires a comfort members of the syndicate and ap- as strong partners for the lead man- letter from the accountants as part points them in agreement with the ager. Lawyers have two main tasks of their due diligence. The letter is typ- company. The lead manager heads in connection with an IPO: ically updated in the form of a bring- the consortium and coordinates the down letter at the time the IPO funds whole process. In the end, the lead a) Legal due diligence are transferred from the underwriter manager allocates the shares to the Legal due diligence means legal as- to the company. other members of the syndicate and sessment of the company (contracts, When appointing or retaining to the investors. capital increases, intangible rights, auditors, the issuer must fulfil the

Decision to Go Public 33 Preparation requirements of the Federal Act on SIX Swiss Exchange – A Reliable regarding distribution under the Admission and Oversight of Au- Partner Art. 19 Listing Rules (free float) ditors, according to which only audit SIX Swiss Exchange supports a – Declaration of the issuer in accord- firms licensed and under state over- company throughout the whole going ance with Art. 45 Listing Rules sight by the Federal Audit Oversight public process. If desired, a company The listing application is then ex- Authority (FAOA) are permitted to pro- has the opportunity to meet the amined by SIX Exchange Regulation, vide services for the purposes of the Issuer Relations team of SIX Swiss Ex- which writes a proposal to the Issuer Listing Rules. Auditors of foreign is- change for an informal meeting during Committee. The Issuer Committee is suers are exempted from licensing which the company gets familiar with part of the Regulatory Board which and the oversight by the FAOA, if the stock exchange landscape and is is the Group’s legislative body, i.e. re- they are subject to oversight by a for- provided with first impressions on sponsible for issuing the regulations eign audit oversight authority recog- what is expected of a company during that apply to issuers (rules, directives) nised by the Federal Council. If this an IPO process. During the whole and participants (Rule Book and is not the case, auditors of foreign is- going public process, SIX Swiss Ex- participant directives). suers must be licensed and subject change is a reliable partner and sup- to oversight by the FAOA in Switzer- ports the company on any questions Besides the support during the land. regarding the listing on the Exchange. whole IPO preparation process, SIX Swiss Exchange offers its new client a IPO Advisors Once the definitive IPO team is set wide range of additional services. The Independent IPO advisors can – meaning all the consultants and advi- company has the option to use the Ex- support companies in preparing their sors are on board – the initial kick-off change’s highly frequented website for going public early on. Furthermore, meeting at the stock exchange is held. marketing purposes, informing a broad they can give independent advice on This official meeting with SIX Exchange audience about the upcoming IPO. choosing advisors, valuing the com- Regulation is often used by the IPO Moreover, SIX Swiss Exchange sends a pany and reviewing corporate govern- team and the company to discuss the press release on the day of the IPO ance structures. intended transaction, the financial data about the opening price of the shares. and other points which might be of any The exchange will also organise – if re- IR /PR Agencies interest (e.g. timetable, exceptions from quired by the company – a press con- Before and after the process of the Listing Rules, etc.). Before submit- ference for the company which can be going public, and also as a listed com- ting the listing application, SIX Ex- held directly after the launch event on pany, it is useful to be able to consult change Regulation offers the chance to its premises. In order to celebrate the an experienced financial marketing hand in the prospectus for a preliminary closing of the transaction, SIX Swiss Ex- expert who supports the whole com- evaluation. The listing application must change offers its new issuer a launch munication process. The agency is then be submitted in writing by a repre- event in the building of the Exchange. responsible for the preparation in sentative recognised by SIX Exchange At market opening, the management of connection with the requirements Regulation. It may be written in English, the new issuer has the option to ring the pertaining to capital market commu- German, French or Italian. The applica- bell on the first day of trading. During nication. They help increasing the tion must be submitted to SIX Ex- the brunch which follows the whole IPO visibility of the company in the market. change Regulation at the latest 20 ex- project team has the opportunity to pop Furthermore, the agency helps in or- change days prior to the intended listing the corks. ganising analyst and media confer- date. It must include a brief description ences and with communication with of the security and a request regarding But the services don’t stop with investors, shareholders, analysts and the scheduled first trading day. the company’s listing. The Issuer Rela- the financial media. tions’ account management team takes The selection criteria for choosing To be submitted along with the care of the issuer and offers support in an IR/PR agency are: application are, among other things, the daily life of a listed company. More- the following documents: over SIX Swiss Exchange offers its issu- – Experience in the capital market/ ers workshops and trainings in the area references – Listing prospectus of regulatory requirements of being a – Experience with IPOs – Listing notice public company. In addition, every year – Comprehensive range of services – Declaration that the printing it organises the Issuer Relations Confer- offered regulations of SIX SIS Ltd have ence in order to bring together the – Good contacts within the financial been maintained (if applicable) Swiss investor relations community to community (analysts, investors or a photocopy of the global discuss current trends in the market. and the financial media) certificate Furthermore, the issuers have the – Representative offices /presence – Extract from the Commercial chance to join one of the many confer- in international financial centres Register ences or evening events co-organised – Support for publicly listed – Articles of association by the Exchange where it is possible to companies – Declaration of the lead manager network in a relaxed atmosphere.

34 Decision to Go Public Preparation

I Lead Managers and Bank Syndicate II Lawyers III Auditors

The listed banks and financial institutions The law firms listed have a full or partial The auditing firms listed have a full or par- have been involved as lead manager in recognition under Art. 43 Listing Rules, tial recognition under Art. 43 Listing Rules, IPOs on SIX Swiss Exchange and have a i.e. they are authorised to submit listing i.e. they are authorised to submit listing full or partial recognition under Art. 43 applications for equity and debt securities. applications for equity and debt securities. Listing Rules, i.e. they are authorised to submit listing applications for equity and Recognised Representatives debt securities. Recognised Representatives Deloitte AG Lead Managers Altenburger Ltd legal + tax Ernst & Young AG Bader Gnehm & Partner, Rechtsanwälte KPMG AG Bank am Bellevue Baker & McKenzie PricewaterhouseCoopers AG Bank Vontobel AG Bär & Karrer AG Credit Suisse AG Bill + Isenegger AG Deutsche Bank AG Blum & Grob Rechtsanwälte AG Morgan Stanley & Co Böckli Bühler Partner Neue Helvetische Bank AG Bratschi Wiederkehr & Buob UBS AG CMS von Erlach Poncet AG Zürcher Kantonalbank Evelyne Noth Anwaltskanzlei Eversheds AG Other Recognised Representatives Freshfields Bruckhaus Deringer Froriep IV Advisors and Consultants Bank Coop AG GHR Rechtsanwälte AG Bank J. Safra Sarasin AG Gloor & Sieger The following list provides an overview of the Bank Julius Bär & Co. AG Holenstein Rechtsanwälte current recognised representatives who can Banque Cantonale de Genève Homburger AG assist you with your listing plans. The com- Banque Cantonale Vaudoise HSW Legal AG panies listed have a full or partial recogni- Banque Cramer & Cie SA Kellerhals Anwälte tion under Art. 43 Listing Rules, i.e. they are Basellandschaftliche Kantonalbank Lenz & Staehelin authorised to submit listing applications for Basler Kantonalbank Lustenberger Glaus & Partner equity and debt securities to SIX Swiss Ex- BEKB | BCBE Meyerlustenberger Lachenal AG change. BZ Bank Naegeli & Partner Rechtsanwälte GAM Investment Management Niederer Kraft & Frey AG Recognised Representatives (Switzerland) AG Nützi & Partner AG Graubündner Kantonalbank Pestalozzi Rechtsanwälte AG 2thePoint AG Landesbank Baden-Württemberg Prager Dreifuss AG Acxit Capital Management AG Leonteq Securities AG Roesle Frick & Partner Kepler Corporate Finance SA Luzerner Kantonalbank AG Schellenberg Wittmer AG Kurmann Partners AG Société Générale Paris Schmid Rechtsanwälte LPA & Associates AG The Royal Bank of Scotland plc Schoch, Auer & Partner Swiss Re AG Thurgauer Kantonalbank Stach Rechtsanwälte AG Valiant Holding AG Staiger, Schwald & Partner Zuger Kantonalbank AG Vischer AG Von der Crone Rechtsanwälte AG Walder Wyss AG Wenger & Vieli AG Wenger Plattner

Decision to Go Public 35 36 Switzerland as a global financial centre

Preparing the IPO

37 38 Preparation

Preparing the Company to Go Public

by Dr. Thomas U. Reutter, incorporated in Switzerland are cur- denominations forming the total value Attorney-at-law, LL.M., Partner rently accepted accounting standards of a security must enable an exchange & Michael Trippel, for a listing in accordance with the In- transaction in the amount of one Attorney-at-law, LL.M., Partner, ternational Reporting Standard of SIX round lot. Furthermore, the company Bär & Karrer AG Swiss Exchange 3. A wider range of ac- must ensure proper clearing and set- counting principles are accepted un- tlement and should ascertain that ser- der the Swiss Standard (Swiss GAAP vices pertaining to dividend payments he following sets out certain FER). and all other corporate actions are in T listing, corporate and corporate place.5 governance requirements to be ob- Furthermore, the company must served by an issuer aiming to go pub- have an audit firm that fulfils the re- Corporate Governance Require- lic and to list its shares on SIX Swiss quirements of the Swiss Federal Act ments Related to Listing Exchange.1 on Audit Supervision and an audit firm which is accepted by the Audit Super- Sources Listing Requirements of SIX Swiss vision must have audited its financial In connection with the IPO, the Exchange statements for the last three financial company must pay attention to the The Listing Rules of SIX Swiss years, subject to certain exceptions. three following sources of rules on Exchange set out various require- The establishment, the articles of as- corporate governance: ments with respect to a company that sociation or the deed of partnership of wants to go public and with respect to the company must comply with the – The Swiss Ordinance against Ex- the securities to be listed by such national law to which the company is cessive Compensation in Listed company. subject. In addition, the Regulatory Companies (“OAEC”) has the Board of SIX Swiss Exchange may de- main objective to empower share- A company which aims to list its termine further requirements where holders as principals vis-à-vis the shares on SIX Swiss Exchange must justified by the nature of the business executive management as their have an equity capital of at least CHF of the company or by the securities to agents in corporate governance 2.5 million on a consolidated basis at be listed. questions and in particular in say the first day of trading. Subject to cer- on pay. The OAEC is of temporary tain exceptions,2 it must have a corpo- Securities to be listed on SIX nature and will be replaced by a rate history of at least three years pri- Swiss Exchange must have been formal bill to be enacted by the or to IPO and must have published its issued in accordance with the law to Federal Parliament. Inter alia the annual financial statements in one of which the company is subject, the list- OAEC requires, (i) that members the accounting principles regimes ac- ing must comprise all of the issued se- of the board of directors and the cepted by SIX Swiss Exchange for curities in the same category, the chairman of the board of directors three full financial years preceding the securities must have an adequate free are elected annually by the gener- listing application. IFRS and US GAAP float at the time of listing4 , the proper al meeting of shareholders, (ii) and other internationally accepted ac- trading of the securities on SIX Swiss that the aggregate compensation counting standards for companies not Exchange must be ensured and the of the members of the board of

Preparing the IPO 39 Preparation

directors as well as the aggregate is adopted by economiesuisse, meeting. The SCBP sets higher stand- compensation of the members of the Swiss Business Federation. ards and requires that members of the the senior management are ap- It contains mainly recommenda- compensation committee meet spe- proved by the general meeting of tions with respect to functions cific qualifications whereas the OAEC shareholders, and (iii) that articles and organisation of the board of only provides that the articles of asso- of association include rules for directors. ciation determine the principles re- members of the board of direc- garding the duties and responsibilities tors, advisory board and senior The section “Aftermarket / Cor- of the compensation committee. The management on loans, retirement porate Governance” offers a more de- SCBP recommend that the compen- benefits, incentive and participa- tailed overview of the corporate gov- sation committee defines the princi- tions plans and the number of ernance requirements of the OAEC ples for remuneration of the directors board and senior management po- and the DCG. Certain aspects of the and the members of the top manage- sitions. In addition, various com- SCBP and OAEC, however, are ad- ment and submits its proposals for ap- pensations for the members of the dressed below as they require atten- proval to the board of directors. board of directors, the advisory tion prior to the IPO. board and the senior management In addition the SCBP recom- such as severance payments, Swiss Code of Best Practice for mends the formation of the following golden parachutes, compensation Corporate Governance committees that are responsible for paid in advance, commissions for Contrary to the OAEC, the pro- specific tasks within the board of the acquisition or transfer of enter- visions of the SCBP constitute best directors: prises or parts there of are imper- practice recommendations for Swiss missible. Further, the OAEC pro- listed companies and no binding – An audit committee that forms an vides for compensation disclosure obligations. Non-compliance is not independent judgement on the obligations which replace the dis- sanctioned by any public authority. quality of the external auditors, the closure obligation according to the Nevertheless, non-compliance with internal control system and the Swiss Code of Obligations. the SCBP recommendations may not annual financial statements; and be well perceived by investors. – The SIX Directive on Information – A nomination committee that relating to Corporate Governance The SCBP envisages a balance lays down the principles for the (“DCG”)6 provides for disclosure between direction and control on one selection and assessment of new obligations in a separate section hand and transparency at the top board members and members of of the company’s annual report in management level on the other hand the executive management and is line with and beyond the OAEC in order to further shareholders’ inter- involved in the actual selection of requirements (and, in relation to ests. This goal is aimed to be achieved candidates for the board of direc- foreign companies to which the mainly by setting, inter alia, the follow- tors and management. OAEC does not apply, obligations ing guidelines and recommendations which mirror the information to at the level of the board of directors: The compensation committee be provided in the compensation and the nomination committee are report according to OAEC). In its Composition and Procedures of quite often combined in one nomina- annex, it enumerates, inter alia, the Board of Directors tion and compensation committee. disclosing obligations on the The board of directors of the group structure and shareholders, company must be well-balanced with The SCB provides for the follow- the capital structure, the board of respect to experience and knowledge ing recommendations in relation to directors and the executive com- of its members and shall be com- the independence of members of the mittee (incl. performance related prised of male and female members. committees: The audit committee compensation and participation Also, the board of directors should should consist of non-executive and plans), shareholders’ participa- determine its procedures and work- independent members. The nomination, change of control provisions ing methods such that proper perfor- tion committee should consist pre- and the auditing body. The DCG mance of its functions is ensured. dominantly of non-executive and in- follows a comply or explain ap- dependent members. For the proach enabling a company to de- A majority of the members of the compensation committee the board viate from the disclosure obliga- board of directors should be non- of directors should put forward non- tions set out in its annex to the executive. executive and independent members extent the annual report contains for election by the shareholders meet- an individual, substantiated justifi- Formation of Committees ing. cation for such non-disclosure. The OAEC presupposes that each listed company has a compen- Non-executive members of the – Swiss Code of Best Practice for sation committee the members of board of directors who have never Corporate Governance (“SCBP”) 7: which are elected by the general been or were more than three years

40 Preparing the IPO Preparation ago a member of the executive management and who have no or comparatively minor business relations with the company are deemed to be independent for the purpose of the SCBP. It may be noted though that, other than it is the predominant view in An- glo-Saxon jurisdictions, a major shareholder may still qualify as being independent for the purpose of the SCBP as long as such shareholder meets the independence criteria set out above.

Compensation Say on pay was and is also in Switzerland a controversial and highly debated topic and the OAEC now requires a binding prospective or retro- spective vote of the shareholders on the compensation of members of the board of directors, advisory boards and senior management. “The board of directors The SCBP provides for specific recommendations concerning the of the company must be well- compensation of the board of directors. It focuses on the composition of balanced with respect to experience the compensation committee, on the compensation system itself and on the and knowledge of its members. transparency of the compensation. Also, the board of directors should 5 Corporate Law Aspects determine its procedures and Capital Increase An IPO typically involves a prima- working methods such that proper ry offering of newly issued shares (as opposed to a mere secondary offering performance of its functions by way of the sale and placement of existing shares by selling sharehold- is ensured.” ers). Therefore, the company usually must increase its share capital prior to the IPO either by way of an ordinary capital increase or out of authorised share capital. In addition, since the shares are intended to be offered to the public, the preemptive rights of existing shareholders must be excluded or at least waived.

Amendments of the Articles of Association The company must adopt amendments to its articles of association prior to the IPO in order to make it fit for IPO such as:

– Rules required by the OAEC such as (i) the particulars on the vote of the general meeting of share-

Preparing the IPO 41 holders on compensation of the companies typically contain re- 1 SIX Swiss Exchange knows different sub-standards members of the board of direc- strictions on the transfer of shares. for equity securities classified according to the fi- tors, advisory board and senior Apart from exceptions, the provi- nancial reporting standard of a company. The most management, (ii) maximum term sion of such transfer restrictions common standard is the International Reporting and notice period of agreements are not permissible for a public Standard. relevant for the compensation of company and must be abolished. The standards are explained on the SIX Swiss members of the board of direc- Exchange website. tors, advisory board and senior – Further particular clauses in the management, (iii) main principles articles of association which do 2 Exemptions are granted e.g. for young companies. regarding the duties and respon- not comply with corporate gov- In such a case, SIX Exchange Regulation sibilities of the compensation ernance standards or are not may require that the company publishes additional committee, (iv) number of per- practical in a public company information in the offering memorandum. missible activities of the members (e.g. unusually high quorum for The Directive on Exemptions regarding Duration of the board of directors, advisory important shareholder resolu- of Existence of the Issuer (Track Record) sets the board and senior management tions) should be amended or conditions for such exemption (available under: in the supreme governing body entirely abolished, respectively. http://www.six-exchange-regulation com/admis- of other legal entitles that are sion_manual/06_02-DTR_en.pdf). required to be registered in the Adoption of Internal Regulations commercial register and (v) rules Prior to the IPO, publicity guide- 3 The following accounting standards are also for members of the board of lines must be in place in order to con- recognised for companies which are not incorpo- directors, advisory board and sen- trol the dissemination of offering-re- rated in Switzerland: EU-IFRS and Japanese ior management on loans, retire- lated information. GAAP (Annex 1 to the SIX Swiss Exchange ment benefits, incentive and par- Directive on Financial Reporting available under ticipations plans and the In order to prepare the members https://www.six-exchange-regulation.com/dam/ delegation of management. of the board of directors and of the ex- downloads/regulation/admission-manual/ ecutive committee of the company as directives/06_14-DFR_en.pdf). – Opting-up / Opting-out: As a well as possible for their post-IPO ob- Swiss particularity, the threshold ligations, it is advisable to adopt inter- 4 The free float is regarded as adequate if at least of the mandatory bid rule stated nal regulations in advance, particular- 20% of the issued securities in the same category by the Federal Act on Stock Ex- ly with respect to the organisation of are in public ownership and the capitalisation changes and Securities Trading the board of directors and other sub- of those securities amounts to at least (“SESTA”) – providing that every ject matters such as management CHF 25 million. person or group acquiring more transactions, insider trading and ad than 33⅓ % of the voting rights is hoc publicity. The holding of a board 5 A company not having its registered office in required to submit an offer for all and management sit-in shortly prior to Switzerland is subject to further rules as provided listed securities of that company – the IPO is recommended in order to in the Directive on Foreign Companies (available may be raised up to 49 % (opting- inform and educate the directors and under https://www.six-exchange-regulation.com/ up) or can even be entirely opted managers on their duties post-IPO. dam/downloads/regulation/admission-manual/ out (opting-out). If the company directives/06_05-DFC_en.pdf). wants to implement the opting-up Employment Agreements or -out, a specific clause must be Employment agreements as well 6 Available under: http://www.six-exchange- added to the articles of associa- as other agreements relevant for the regulation.com/admission_manual/06_ tions. compensation of members of the 16-DCG_en.pdf. board of directors, advisory board and – Form of securities: As the securi- senior management need to be made 7 Available under: http://www.economiesuisse.ch/ ties of the company must be OAEC-compliant. In particular, the de/PDF%20Download%20Files/swisscode_d_ issued in a form corresponding duration of such agreements as well as 20140926.pdf. to the Federal Intermediated the termination notice period in case of Securities Act (“FISA”) – usually agreements entered into for an indefi- 8 Applicable to Swiss companies only. as registered shares in uncertified nite period of time may need to be reform, thereafter constituting in- duced to one year and impermissible 9 Art. 22 para. 2 and 32 para. 1 SESTA, available termediated securities to ensure severance payments need to be can- under: http://www.six-exchange-regulation.com/ proper securities trading – , the celled by mutual agreement or by download/admission/regulation/federal_acts/stock respective clause of the articles of dismissal with the option for altered _exchange_act_sesta_unofficial_translation.pdf. association should reflect such employment conditions. form requirement correctly.

– Transfer restrictions: The articles of association of privately held

42 43 Preparation

Process Timeline

by Thorsten Pauli, the offering prospectus as a basis for The analyst presentation is the Managing Director and Head Equity investors’ investment decisions. Par- most important occasion for the com- Capital Markets Switzerland, ticipants are company management, pany to present its investment case to UBS AG syndicate banks, and legal counsels; research analysts of the syndicate additionally, auditors, major share- banks and leads into the preparation enerally, an IPO can be under- holders, customers, suppliers and reg- of the marketing phase of the IPO. The G stood as a company’s transi- ulators may be involved. The scope of presentation must be fully aligned tion from private to public status. due diligence work covers three are- with all information in the offering pro- Overall, the process timeline of the as: business, financial and legal due spectus. Following the presentation, IPO execution process can be divided diligence and will continue through- the research analysts will begin to into three phases: out the prospectus drafting process – develop their valuation models and with a short bring-down due diligence draft their research reports. Pre-deal – Preparation of fundamentals before significant events (e.g. signing research reports are published after – Regulatory review and investor of underwriting agreement, pricing the company announces its intention education and closing). to float (usually same day). Subse- – Marketing and trading quently the research analyst starts The due diligence results are representing its findings in investor ed- Before launching the effective flected in the preparation of the offer- ucation sessions. Once the research IPO execution process, a number of ing prospectus. Prospectus require- report has been published, a black- preparatory topics need to be ad- ments are driven by SIX Swiss out period 40 days after the closing of dressed in the pre-execution phase to Exchange’s listing requirements, the the IPO begins during which the ana- allow full focus on marketing during Code of Obligation (Obligationenrecht) lyst is restricted from publishing any the actual IPO process. Such topics and international market practice, oth- further research report. include early preparation of the invest- er Swiss regulatory requirements and ment case, corporate governance the targeted investor base. The due On occasion, the syndicate banks topics as well as financial/accounting diligence discussions will form part of will arrange for the company to meet particularities which are a mandatory the offering prospectus drafting ses- with a selected group of key investors prerequisite for a successful IPO sions as the document must reflect on a confidential basis prior to an- execution. the respective findings. nouncement of intention to float (i.e. prior to the marketing phase). This Preparation Phase Regulatory Review and Investor early marketing is referred to as “pilot The kick-off meeting marks the Education fishing”. Pilot fishing is useful in test- start of the execution process when The goal of SIX Exchange Regu- ing investor interest early in the pro- the company and all advising parties lation’s review process is to obtain cess. It is more common in a difficult (incl. legal counsels, accountants, approval on the prospectus prior to market environment and in cases banks, etc.) meet for the first time listing the stock; the review by SIX Ex- where the company’s business is altogether. It should end with an un- change Regulation assesses the pro- complex, difficult to value or operates derstanding of the envisaged timeta- spectus on formal compliance with the in a specialised sector. ble, roles and responsibilities to be Listing Rules and prospectus schemes. performed by each party, details of In order to sell securities in the US, ad- Marketing Phase (Assuming a the offering, key issues identified as ditional registration considerations need Bookbuilding Process) well as next steps. to be undertaken (e.g. Rule 144 A). The main part of the marketing phase is the roadshow which is the The kick-off meeting is followed To comply with regulatory rules opportunity for the company to pre- by the due diligence process. It is while educating investors, the syndi- sent the investment case to insti- a comprehensive procedure that is cate banks’ legal counsel produces tutional investors and address poten- designed to protect the company, its research guidelines that provide a tial questions. Given the often geo- board of directors and the syndicate framework around the production of graphically dispersed nature of in- banks. The objective is to ensure that pre-deal equity research that governs vestors, the roadshow involves visits all material information about the any interaction with research analysts to major financial centres such as company is appropriately disclosed in during the execution process. London, Frankfurt and Zurich.

44 Preparing the IPO 45 Preparation

Investor meetings typically take describe investors submitting their history of long-term holding, compa- place in three different settings: (a) orders for the shares to be issued. rable companies, timing and size of one-on-one presentations where the The syndicate banks collect these order as well as anticipated aftermar- syndicate banks will arrange face-to- indications of the orderbook. The ket demand; the allocation process is face meetings with large key institu- bookbuilding process ends with the governed by the guidelines set by the tional investors that are expected to closing of orderbook and subsequent Swiss Bankers Association and inter- generate the majority of quality insti- pricing. Once the pricing date is set, national best practice guidelines. tutional demand. (b) group presenta- investors are informed of when the Once the offering price is set (pricing), tions that allow the company to deliv- orderbook will close (i.e. the deadline the underwriting and the syndicate er its investment case to a broader for submitting orders). The syndicate agreements are signed. After the audience of institutional investors. (c) banks will review the book together transaction has been priced and finally, group or one-on-one confer- with the company and recommend an allotted, the shares are delivered to ence calls to ensure broadest cover- offering price that maximises the investors and the company receives age of accounts. offering proceeds consistent with a fa- the proceeds (settlement). vourable aftermarket performance In parallel to the roadshow, the and shareholder structure. Generally, syndicate banks start the bookbuild- allocation to investors is based on cri- ing process which is the term to teria including: quality of institution,

IPO Process and Key Objectives

Pre-execution Fundamentals Regulatory review & investor education Marketing & trading

PRE-IPO PREPARATION PRE- AITF* PRE- LAUNCH LAUNCH ROADSHOW AFTERMARKET

– Prepare investment – Appointment of – Form – Announcement of – Print & distribute – Roadshow – Aftermarket case («equity sponsor(s) / underwriter‘s intention to float preliminary presentation by stabilisation story») advisor(s) syndicate («AITF») prospectus senior management – Exercise Greenshoe – Address financial / – Kick-off meeting – Specify investment – Publish research – Management – One-on-one (if applicable) accounting case presentation meetings with particularities – Develop timetable – Investor education to sales force investors – Continuing – Draft analysis investor relations – Decide on capital – Due Diligence presentation – Continuous – Prepare roadshow – Continuous structure feedback loop and interaction – Develop – Introduction with market monitoring – Interaction with between research, – Review corporate prospectus and existing key investors sales and governance and interact with shareholders – Finalise valuation investors corporate struc- SIX Exchange ture Regulation – Complete due – Agree price range – Develop «book» diligence of demand – Research and – Stock exchange («bookbuilding») publicity – Initial valuation sign off guidelines – Determine – Analyst – Finalise offering presentation prospectus, legal price («pricing») documents and – Pilot fishing comfort letters – Allocation and (optional) closing

– Collect feedback

Pre-IPO / execution Active IPO execution process Private Status Public Status * Announcement of intention to float

46 Preparing the IPO Preparation

Pre-Deal Research

by Thorsten Pauli, Investors rely on the expert In terms of the formal IPO pro- Managing Director and Head Equity knowledge as well as the market and cess, research analysts of the syndi- Capital Markets Switzerland, industry insights that research ana- cate banks attend the analyst presen- UBS AG lysts provide given their access to in- tation held by management (c.f. vestors, industry representatives and “Process Timeline”) which serves as specialists for the broader sector peer the basis for their research reports. In re-deal equity research is consid- group accompanied by experience in many cases, the analyst presentation P ered as one of the most impor- similar transactions. will be the only opportunity for the tant and integral parts for all IPO company to present the merits of the stakeholders, i.e. the company, its Research analysts distribute investment case to research analysts. shareholders, institutional investors their pre-deal research reports to The presentation material will form the (such as larger family offices, pension various institutional investors (up to basis for the analysts’ valuation mod- funds or mutual funds) and the accom- 2,000- 3,000 investors) before visiting el and should give sufficient statistics panying syndicate banks, during the a selection of them in so-called one- intended to be included in all research IPO process: on-ones and group meetings and talk reports. After the analyst presenta- about the reports. Investors can ask tion, the research analysts will take all Pre-deal equity research is pro- questions to the research analysts the materials and begin to build their duced and issued by the investment about the company that usually lead financial models. In addition, research research department of the syndicate to a discussion allowing them to draw analysts may have further questions banks to complement the marketing up their own financial models and for the company, requesting addition- of an IPO. Research analysts writing conclusions before meeting the man- al information or clarification of cer- the investment research report are agement team during the roadshow tain open issues. Answers to these acting completely independent of the (c.f. “Process Timeline”). questions will be open to all research bankers executing the IPO on behalf analysts of the syndicate banks to of the issuer. In terms of timing, whilst equity ensure analysts have received the research is an ongoing element, it same level of information. Research analysts effectively starts before a company formally de- analyse the company independently cides to go public. In a first face -to- Pre-deal research reports are vis-à-vis investors and educate inves- face meeting well ahead of the IPO issued as hard-copy to institutional tors about the investment case, the process, the company explains to investors only. company’s respective industry and the research analysts the company’s value drivers, comparable peer group strategy and business case. Given the and potential valuation. Although, independence of equity research for pre-deal research for investor educa- all major investment banks, the re- tion will include an indicative valuation spective research department then de- range, it does not contain any price cides whether they want to pursue re- targets or recommendations. search on a given company or not.

Preparing the IPO 47 Preparation

Capital Structure

by Daniel Wüest, Doing an IPO is also an opportu- ing only one single share class follow Managing Director, nity not only to decrease the leverage the concept of “one share one vote” Head Mid-Market Advisory Switzerland, by raising equity to pay-down debt but by representing best corporate gov- UBS Switzerland AG also to amend the debt structure of ernance, typically using registered & Dr. Dieter Gericke, the company. Beside repaying or con- shares in Switzerland. The advantage Attorney-at-law, LL.M., Partner, verting shareholder loans, financial of registered shares in relation to bear- Homburger AG debt could be optimised by tapping er shares is the possibility to identify the bank loan or capital market. In this and therefore directly communicate respect it is also important to adjust with shareholders. the capital structure in a way that the credit ratings are sustainable post IPO. In order to increase strategic and suallly, the capital structure of a While in the course of the IPO process financial flexibility, companies con- U private company and a public the focus is naturally skewed towards ducting an IPO should consider cre- company differ. Therefore, an impor- equity investors, the company is well ating authorised and / or conditional tant prerequisite of a successful IPO advised to also taking interests of capital before being public. As well is to set up an efficient capital struc- creditors into consideration given the authorised as conditional capital could ture suitable for a public company and interdependency of debt and equity. be used to directly finance or indi- addressing the needs of the compa- rectly refinance future acquisitions; ny’s stakeholders at the time of being Share Capital Structure additionally the conditional capital public. There are mainly two main By determining the right share could also be used to back share or areas to focus on: leverage and share capital structure several aspects need option based management incentive capital structure. to be considered. Based on an indi- schemes. While the authorised and cative post-IPO valuation, the issuer conditional capital provides the board Leverage needs to define the envisaged number and management with a high degree To ensure an adequate risk profile of shares issued after raising any new of flexibility, investors do prefer and for equity and debt investors and to equity in the IPO and the subsequent proxy advisors do recommend if the have access to debt capital markets and implicit share price range. Guidance delegation to issue such capital does bank lending, the leverage ratio, defined for the share price is the absolute share not exceed certain levels (20% com- as net debt in relation to Ebitda, should price level of the relevant peer group bined). According to corporate law up be sustainable by considering the com- while as a rule of thumb a too low but to 50% authorised and conditional pany’s cash flow profile, underlying also a too high share price should not capital of existing share capital could cyclicality of the business model, the be targeted given investors’ percep- be put in place. ability to pay dividends in the future, tion of either being a “penny stock” or prevailing financial ratios of the defined an “expensive” one. It goes without There is no magic formula for the peer group and public and / or bank saying that the absolute share price right capital structure since it needs to debt ratings. Such ratios typically level is not a proxy for the market val- be assessed on a case by case basis and are, amongst others, the equity ratio, ue of the company. it is always an interaction of the needs leverage ratio and the dividend yield. of the company, the interest of share- Under Swiss corporate law the holders and creditors as well as other If the ratios are not sustainable to share capital could be structured by stakeholders such as regulators, rating safely execute the business plan of the issuing either bearer shares (“Inhab- agencies, equity and credit research company or substantially deviate from eraktien”), registered shares (“Na- analysts, proxy advisors and others. its peer group benchmark values, the mensaktien”), participation rights Generally, equity investors prefer a company could use the IPO to partial- (“Partizipationsscheine”) or bonus single share structure with a well- ly raise new equity to strengthen the shares (“Genussscheine”) or a combi- balanced debt / equity mix reflecting the balance sheet or to undertake a refi- nation of them. It has become market individual characteristics and prospects nancing before going public. standard that corporate issuers hav- of the company once being public.

48 Preparing the IPO Preparation

Valuation

by Daniel Wüest proach market values of a company’s in the offering prospectus. The same Head Mid-Market Advisory Switzerland listed peers are expressed as multiples applies for value-relevant issues that UBS Switzerland AG of their expected future earnings in are identified by the company and the the current or the two following years. advising bank(s) during legal and fi- These multiples in turn are applied nancial due diligence, such as poten- to the IPO candidate’s expected earn- tial lawsuits or potential write-offs on ings to estimate an appropriate mar- the company’s assets. As a conse- ket value. Peers are chosen based quence, valuation is not a static, one- n the occasion of the IPO, a on similar business models and geo- off exercise but a dynamic process in- O market value determined by in- graphic spreads as well as comparable volving regular updates based on due vestors in a bookbuilding procedure growth and margin profiles. Where no diligence findings and changes in is assigned to a company for the first comparable listed peers exist or an market conditions that affect valuation time. In order to establish such mar- IPO candidate is characterised by parameters. Furthermore, as the IPO ket value, all parties involved have to high growth and / or negative earn- process advances, the internal valua- form their own views on the fair value ings, such multiple-based valuation tion become object to a reality check of the company: firstly, the company may not be meaningful and appropri- by obtaining investor views on valua- and its existing shareholders – with ate. Thus, a discounted cash flow tion during the pilot fishing and inves- the support of the investment bank (DCF) valuation as a fundamental val- tor education phases. advising them on the IPO – establish uation approach is typically used to an estimated equity value of the com- complement and cross-check the re- Ultimately, the IPO valuation is pany based on the company’s busi- sult of the multiple-based valuation. In determined by the price investors are ness plan and other proprietary in- a DCF valuation, a company’s value is willing to pay for a company’s shares. formation they possess. In contrast determined by estimating its expected In many cases, the eventual IPO valu- to this internal valuation, potential in- future cash flows available to the firm ation will be lower than the theoretical vestors have to base their valuation over a longer-term horizon and dis- value implied by the valuation meth- on publicly available information dis- counting them at the company’s cost odologies referred to above. This phe- closed in the offering prospectus and of capital to derive the present value. nomenon, referred to as the IPO dis- on the research reports published by While a DCF valuation may be the count, is caused by the information the equity research analysts of the most well-founded approach from a asymmetry between the company syndicate banks involved in the IPO. theoretical perspective, it requires a and its existing shareholders as insid- While research analysts only have ac- significant number of assumptions ers and the investors in the IPO, who cess to publicly available information and, therefore, is more subjective than do not have access to inside informa- disclosed in the offering prospectus, the relatively simple multiple valuation. tion. In order to mitigate such an infor- they support the investors’ decision mation gap, investors may take more making process by providing their Since both approaches, multi- conservative assumptions regarding own, independently developed view ples and DCF, require estimates of a the company’s future performance of the company’s prospects, includ- company’s future earnings as an in- and therefore arrive at a lower theoret- ing financial forecasts. put, the development of a robust and ical value than the company itself. In credible business plan is a key ele- general, the magnitude of the implied Both internal and external valua- ment of a company’s internal IPO IPO discount will be a function of the tions are typically derived using a preparation and due diligence. Al- complexity of the company’s business number of different valuation tech- though the business plan itself is not model and investment case, the track niques. As investors tend to bench- disclosed to investors, any market record that management can demon- mark an IPO candidate and its invest- trends or company-specific character- strate, and the transparency of the ment case against peers, the main istics potentially affecting future per- company’s disclosure. focus is typically on so-called relative formance of the company in a materi- valuation methodologies. In this ap- al manner would have to be described

Preparing the IPO 49 Preparation

Investment Case

lthough the investment case However, to support this posi- by Daniel Wüest, A seems to be coherent and natu- tioning, a strong justification will have Managing Director, rally given after being defined and to be provided — this is the purpose Head Mid-Market Advisory Switzerland, repeatedly back tested, the right invest- of the investment case which high- UBS Switzerland AG ment case is central to the success of lights the company’s unique strengths, an IPO. Before investing in a company, its competitive advantages over the investors want to become confident peers, the favourable addressable about its future prospects which is why markets the company operates in or developing a strong investment case, targets and management’s plan how also referred to as the equity story, to take advantage of going forward. validated by an experienced and cred- Management experience and track re- ible management team, is essential. cord will be instrumental in demonstrating and validating the credibility Management and its lead bank(s) and ability of the company to deliver will work together to identify the key on its strategy and the underlying characteristics that will attract inves- business plan in order to deliver on the tors’ interest in the company and defined and presented Investment define the building blocks of its invest- Case. ment case. This exercise requires careful consideration as the right position- Finally, the Investment Case being, tailored to the investor base the comes the central marketing piece to company wishes to target (growth vs. promote the company during the en- value), paves the way for a premium tire IPO process and should therefore valuation. convey clear, positive, true and impact- ful messages to potential investors. Indeed, investors will, to some This messaging has to be consistent extent, evaluate the company based on throughout the entire marketing phase its performance relative to its most of the IPO process and cannot be mod- comparable public competitors, the so ified en route. Therefore, it is important called peer group. Thus, it is important to anticipate potential investor con- that the adviser uses its sector knowl- cerns, such as weaknesses of and edge to select the appropriate names threats to the company, so they can be and position the company relative to its mitigated in advance with well thought peers in order to maximise valuation. out and convincing arguments.

Selected Topics that Can Be Considered in the Investment Case

Industry Market Peers – Trends – Barriers to entry / competition – Financial – Defensive vs. volatile – Total vs. addressable market – Operational – Dynamics – Growth – Geographic footprint

KEY INVESTMENT HIGHLIGHTS

Management Strategy Competitive advantages – Key achievements to date – Growth vs. value – Technology – Experience – Niche vs. scale – Product – Incentivication and succession – Innovation vs. follower – Process

50 Preparing the IPO Preparation

Structure of the IPO

he structure of an IPO is influ- which will entail discussions with the by Dr. Sebastian Harsch, T enced by a number of factors local regulator accordingly as well as Executive Director and Head such as the purpose of the offering, possible additional disclosure and / or Transactions Legal Switzerland, the listing location, the targeted inves- another prospectus. Thorsten Pauli, tor base and the type of securities to Managing Director and Head Equity be listed. Free Float and Index Inclusion Capital Markets Switzerland, The structure of the IPO should UBS AG Structure of Offering take the various requirements of the & Dr. Dieter Gericke, The initial consideration with re- Stock Exchange concerning free float Attorney-at-law, LL.M., Partner, spect to an IPO is the underlying pur- (as a rule, 25 %) and capitalization (typ- Homburger AG pose of the offering. Potential ration- ically, at least CHF 25 m equity and a ales vary from internally determined market cap of at least CHF 25 m) into triggers such as the financing of account and aim at meeting the rele- growth, diversification of the share- vant free float and other criteria for in- holder base, reasons related to suc- clusion in the key indices. cession, deleveraging or the desire of investors to liquidate their investment, It is important to note that a com- to externally influenced triggers such pany not incorporated in the juris- as acquisition financing or spin-offs. diction of the country of listing may Depending on the purpose of the not be eligible for inclusion in the offering, the implicit aim of the trans- local index. In contrast, inclusion in action is either to raise new capital SIX Swiss Exchange’s indices typical- (primary shares) or to achieve a sell- ly does not require the issuer to be in- down (secondary shares) of previous- corporated in Switzerland. ly privately held shares (e.g. in the case of a private equity firm that seeks A third factor which has to be a capital market offering to exit its in- considered is the definition of the tar- vestment). The offering structure may geted investor base. The structure of allow for flexibility in that regard and the IPO and the interaction with po- can comprise both, primary and sec- tential investors differs in regard to ondary shares. Furthermore, depend- the individual specifications of the ing on the rationale of the IPO, certain investor as well as its geographical constraints may be desirable, such as footprint. Referring to the first criteri- lock up periods for management and on, there are different implications major shareholders, i.e. specified min- resulting from a retail offering com- imum holding periods following the pared to a transaction that predomi- IPO during which they are not allowed nantly focuses on ultra high net worth to sell their shares. individuals (UHNWI) or institutional investors. Moreover, internal parties Place of Listing (e.g. company employees) can form Another parameter that influences the part of the targeted investor base – structure of the offering is the choice examples are employee participation of the listing location. In most cases, or friends and family programmes. this will be the issuer’s home market. Geographical considerations also However, SIX Swiss Exchange has also play a vital role: If there is a desire attracted various non-Swiss compa- to target US investors, typically, an nies that chose Switzerland as their list- offering to qualified institutional buying location. In addition, a secondary ers (QIB’s) in the United States of listing location can be considered, America is made. Depending on the

Preparing the IPO 51 Preparation

targeted investor base, the documen- sizing of an offering is the matter of closed, the syndicate banks will re- tation and also the structure of the of- whether 100% of the issuer’s shares view the book of demand in order to fering is adjusted accordingly where- or only a fraction of them should be assess the following criteria: by legal considerations do play a floated. SIX Swiss Exchange requires relevant role as the applicable legal all shares of the same category to be – Strength of demand requirements of the various jurisdic- listed, while other categories may re- – Price sensitivity tions involved need to be observed. main unlisted. Furthermore, SIX Swiss – Investors’ allocation expectations Exchange posts certain thresholds – Likelihood of aftermarket Finally, the type of securities list- regarding (among others) free float buying/selling ed determines the IPO structure (c.f. and market capitalisation for the list- – Equity market trends and “Capital Structure”). ing, and also, in order to be included information flows in the equity indices. This is favoura- Green Shoe ble as the membership in leading On the basis of this assessment, To keep certain flexibility in the indices creates higher investor atten- the syndicate banks will once again re- execution process beyond the first tion and thus more liquidity in the view the orderbook – this time togeth- trading date, one instrument in par- stock. This will be advantageous es- er with the company – and recommend ticular has proved to be very helpful – pecially when the company needs to an offering price which, in its judge- it is known as over-allotment option or access markets in order to raise fur- ment, will maximise the offering pro- “green shoe” (after the Green Shoe ther capital in the future. ceeds to the company or selling share- Manufacturing Company, which first holders consistent with a favourable implemented the option in 1963). Price Fixing Mechanism aftermarket performance. Once both Hereby the company and / or selling There are three main price fix- parties have agreed on an offering shareholders extend to the underwriting mechanics: price (which often needs a board reso- ers the option to purchase a specified lution or other delegated authority), the number of additional shares beyond – Bookbuilding underwriting agreement and the syn- the base deal size. This over-allotment – Fixed price dicate agreements will be signed. option is exercisable within a maxi- – Auctions mum of 30 calendar days following After having determined all pa- the first trading day of the offering Bookbuilding rameters relevant for the pricing and and typically consists of up to 15% of The most commonly used ap- the size of the IPO, the shares have to the offering size. In order to be able to proach is the bookbuilding process. be allocated to investors. Within this effect the over-allotment, the syndi- The idea is that the syndicate bank process, the syndicate banks will cate banks borrow shares which are attempts to determine at what price come up with appropriate allocation then allocated to investors along with to offer shares in an IPO based on the recommendations reflecting various the main offering. The primary pur- demand from institutional investors, underlying criteria. These criteria gen- pose is to pursue a reasonable offer- such that the IPO proceeds are max- erally include: ing price while facilitating positive imised under the constraint of a sol- aftermarket performance. If no over- id aftermarket performance. In order – Quality of institution allotment option is provided, the syn- to do so, the underwriter collects – History of long-term holding and dicate banks’ ability to stabilise the non-binding indications of interest continued aftermarket interest in share price is limited, since they can- from investors, until a pre-specified both previous IPOs and compara- not buy shares in the market. deadline, at which the orderbook will ble companies Related to the question of the be closed. Once the book has been – Timing of order

52 Preparing the IPO Preparation

CONSIDERATIONS PRICE DISCOVERY PROCESS

ORDER BOOK Bookrunner Bookrunner Bookrunner – Size – Quality – Price sensitivity – Likely aftermarket demand

Investor feedback / Agreement on Price / Size Allocations to Investors EXTERNAL FACTORS size of book – Recent developments – Stock price levels – Market in general – Industry Company – Comparables Company Company – New issues in market

– Size of order price and offering size, without run- tioneer’s price. The auction stops if all – Anticipated aftermarket demand ning through the above described available shares in the IPO are allocat- steps of a bookbuilding process. The ed to the investors or if the auction- The allocation decision also issue price is then disclosed in the eer’s reserve price is reached. In an serves as an instrument to control the offering prospectus where the com- IPO, this method reduces the ineffi- institutional, retail and geographic dis- pany has the chance to justify the ciencies regarding costs and time of tribution of the offering. The company price by providing investors with de- the bookbuilding and ensures a fair or selling shareholders will then decide tails about the qualitative and quanti- valuation of the company and thus how the orderbook will be allocated tative factors. This approach is less prevents an underpricing of the IPO, and the share allocations agreed upon costly and less time-consuming than as it is the case for the fixed price pro- are then made by the syndicate banks the bookbuilding. However, fixed price cess. However, the downside to this with the consent of the company. The IPOs bear a risk of underpricing / over- approach is that the shares of the is- company has to agree to the alloca- pricing the IPO and do not represent suing firm may perform poorly after tions by the bank and has a right to an equilibrium price determined by the IPO and thus create a bad senti- agree or disagree with the allocation the seller(s) and buyer(s). ment within the investor community. book. The main objective underlying In addition, there is less control over the allocation decision is to ensure a Auction Process the quality of the investor base than in strong aftermarket performance, thus Within this rarely used pricing a bookbuilding process. Even though acting in both the issuers’ and inves- mechanism, the so-called Dutch auc- this form of price fixing is not fre- tors’ best interests. tion is the most popular process. In a quently used, there are a few high pro- Dutch auction the auctioneer prede- file examples of companies that made Fixed Price termines a maximum starting price use of this procedure, one of them In a fixed price IPO, the company and a reserve price. He then begins Google in 2004. or selling shareholders and the advis- to lower the starting price, until a ing syndicate banks agree on an issue participant is willing to accept the auc-

Preparing the IPO 53 Preparation

Managing Risk: Litigation and Indemnification

by Dr. Ralph Malacrida, advisors and other experts who are There are no official due dili- Attorney-at-law, LL.M., Partner, jointly and severally liable to the extent gence guidelines defining a set of Bär & Karrer AG any damage is attributable to each procedures that should be followed in of them. Internally, the underwriting a due diligence exercise. Rather, most agreement usually provides that the of the due diligence processes are issuer and / or the selling shareholders based on transactional experience or nder Swiss law and SIX Swiss (if any) must indemnify the underwrit- market practice as applied in interna- U Exchange regulations, IPOs of ing banks in the event of a prospectus tional equities securities offerings. shares involve the obligation to pub- liability claim. lish an offering and listing prospectus. As a rule of thumb, the following Due Diligence Defence procedures are typically considered IPO Litigation To avoid prospectus liability in when planning the due diligence pro- the context of an IPO all persons in- cess for an IPO: review of documents Prospectus Liability volved must ensure that the prospec- (often referred to as documentary The principal ground for liability tus and other communications, such due diligence), meetings with man- in connection with an IPO in Switzer- as press releases and roadshow pres- agement (typically kicked-off by land is what is called “prospectus lia- entations, do not contain any materi- presentations by members of the is- bility” according to Art. 752 of the ally untrue or misleading statements suer’s management, followed by Q&A Swiss Code of Obligations (CO). Ac- and do not omit to state a material fact. sessions), negotiation of representa- cording to Art. 752 CO anyone who tions and warranties contained in the participates in the preparation or dis- If a prospectus turns out to be underwriting agreement, legal opin- semination of a prospectus or similar incorrect, the persons involved may ions and disclosure letters of legal instrument containing an incorrect or still escape liability if they can prove counsels as well as officers’ certifi- misleading statement or a statement that they acted diligently when prepar- cates, comfort letters from the issu- that does not otherwise comply with ing and disseminating the prospectus er’s auditors on various matters relat- legal content requirements is liable to and any other communication to the ing to the issuer’s financial position the investors for any damage that has public. As the required standard of and results of operations, review of fi- been negligently or wilfully caused. care is based on an objective test, it is nancial statements and meetings with important to observe recognised mar- accounting personnel and auditors, Under Swiss law, there is no ket practice in order to mitigate pro- prospectus drafting sessions (typi- American-style class action. Prospec- spectus liability risks. Due diligence cally involving the issuer, the under- tus liability claims may be brought by procedures in relation to the issuer of writers and their counsels), directors investors individually against the issu- the securities are typically carried out and officers questionnaires regarding er, the directors, senior managers, the by the underwriters and their legal, compensation, holdings of securities underwriting banks, auditors, legal financial and tax advisors. and material transactions, interviews

54 Preparing the IPO Preparation

with third parties (including credi- the issuer, any press materials, and consequence, the issuer may not tors, customers, suppliers, and major any and all advertisements made by agree to indemnify the directors or shareholders on a selected basis), site or on behalf of the issuer). senior managers against any losses, visits, as well as bring-down due dili- claims or damages incurred with an gence calls at the time when pricing Indemnification of the Issuer’s IPO irrespective of the circumstances, is made and when closing occurs. Directors and Senior Managers as this would effectively relieve the Under Swiss law, directors and directors and senior managers of their Indemnification senior managers of a Swiss corpora- responsibility as laid down by Swiss tion are personally liable for any corporate law. The possibility of Swiss Indemnification of the Under- damage caused by an intentional or issuers to indemnify directors and writers negligent violation of their (fiduciary) senior managers is therefore limited. As a matter of standard practice, duties. The liability arises not only As a rule, in the absence of a body of the underwriting agreement provides vis-à-vis the corporation, but also vis- precedents, legal scholars are of the that the underwriting banks must be à-vis each shareholder and creditor of view that an issuer may indemnify and indemnified and held harmless by the the corporation. Whilst the corpora- hold harmless a director or senior issuer, and / or by the selling share- tion and the shareholders may bring a manager from and against all damag- holders (if any), for any losses, claims, claim at any time, the creditors may es, liabilities and expenses suffered and damages to which the underwrit- file a lawsuit on the grounds of direc- only if said person is not found, in a ing banks may be subject as a result of tors’ liability only if and when the final judgement or decree of a court, (a) any breach or alleged breach of any corporation has become insolvent and arbitral tribunal or governmental or representation or warranty, undertak- is declared bankrupt. In addition, as administrative authority of competent ings or agreements made by the issu- pointed out above, with respect to jurisdiction to have committed an er in the underwriting agreement, public offerings of securities, every intentional or grossly negligent breach (b) the omission or alleged omission person, including each director and of his duties as director or senior to state in the prospectus a material senior manager, who is involved in the manager. As a result, directors and fact necessary in order to make the public issuance of shares by way of senior managers will normally want statements therein, in the light of the a prospectus and deliberately or neg- to rely on D&O insurance which is circumstances under which they were ligently provides false, misleading or taken out by the issuer on their made, not misleading, or (c) an untrue incomplete information is liable for behalf. statement or alleged untrue statement any damage caused to the investors. of a material fact made in any other materials published by or under the di- Swiss law on directors’ respon- rection of issuer in connection with sibility may not be changed by an the offering (including, without limita- agreement entered into between a tion, information to shareholders of Swiss company and its directors. In

Preparing the IPO 55 Preparation

Directors’ and Officers’ Liability (D&O) Insurance

by Pascal Schweingruber, not be available. Under Swiss law, D&O Insurance Pre- and Post-IPO Executive Committee Member, corporate indemnification is not per- Following an IPO and with a Kessler & Co AG missible / not available in the follow- much harsher management climate to ing scenarios: contend with, claims are possible by a whole range of external stakehold- – When public policy prohibits ers in addition to regulatory matters the company from reimbursing including shareholders, bondholders, &O insurance has become a directors or officers, e.g. for employees, competitors and govern- D commodity product for public- actions taken in bad faith ments. But not only the ownership in ly traded companies in Switzerland. – When the company becomes the company changes with an IPO. The first line of defence for directors insolvent, or unable to pay New people come on board, new or officers is the indemnity the com- because of actions taken by an stakeholders will want to protect their pany provides to them. administrator or liquidator interests, and the company and its – When the board becomes antag- D&O’s receive much greater media A properly constructed D&O onistic towards a prior director or and public attention. This, combined insurance policy is designed to protect officer seeking protection or with the additional duties and liabili- the personal assets of individual direc- indemnification ties that come as a publicly traded tors and officers in the event that the – When damages assessed are company, means that the old D&O financial protection of the company’s to be paid to the company itself, policy of a company that existed pre- indemnification obligation protects as in derivative actions according IPO will no longer suffice to cover them inadequately. However, the to section 756.1 of the Swiss both, the past and the future. memorandum and articles of a com- Company Law pany may allow an indemnity – for Companies undergoing a full greater certainty directors increas- D&O policies are generally writ- listing are best advised: ingly prefer that a specific deed of in- ten on a “claims-made” basis. It is the demnity or other contractual relation- actual making of a claim against the – To let their existing (pre-IPO) ship be put in place. The D&O policy insured during the term of the policy, D&O policy go into run-off, there- will then pay for all legal expenses and not the occurrence of injury or dam- by covering future claims against losses the individuals are liable for, but age that causes the policy to respond. the past D&O’s, and only in excess of or in absence of any The type of allegation a D&O policy – To cover the new D&O’s and indemnification available. It shall be covers is described in the policy’s possible future wrongful acts and noted, however, that most D&O poli- definition of “wrongful act”, which omissions through a new D&O cies will also reimburse the company generally means any error, misstate- policy designed for a publicly for indemnities paid for or on behalf of ment, misleading statement, act or traded company and with fresh its directors and officers (often subject omission, neglect, or breach of duty limits of liabilities. to an agreed self-insured deductible). actually or allegedly committed or at- tempted, by an individual in his / her So D&O insurance matters most capacity as a director or officer of the when corporate indemnification may company.

56 Preparing the IPO 57 Preparation

D&O Insurance Structure for an IPO The new D&O policy will pay for the legal costs of directors and officers to protect their interests in relation Date of IPO D&O Policy responding to civil claims, breach of securities to a claim laws, and regulatory investigations. Time made post IPO The limits of liability for both legal costs and indemnities may need to be wrongful acts Liability for wrongful acts D&O Run-Off increased drastically. In Switzerland, prior IPO (privately (decreasing over time) privately held companies purchase held company) STATUTORY 1 LIMITS limits of roughly CHF 13 million , while OF public companies obtain on average IPO-related Liability for wrongful acts LIABILITIES Public Offering and limits of CHF 66 million (with maxi- wrongful acts (decreasing over time) Security Insurance (POSI) mum limits of several hundreds of millions). wrongful acts post IPO Liability for wrongful Publicly traded (publicly traded acts (on-going) company D&O The growing number of compa- company) nies launching lawsuits against their former directors can also present an issue. Most standard policies include “insured versus insured” cover for such claims, but the scope of such coverage can vary widely. Lastly, the scope of coverage may be broadened to also cover the company’s costs and legal indemnities in a security litigation. This additional cover is only available as an add-on to a D&O policy. It provides valuable coverage but it clearly dilutes the limits of liability purchased. Any payment to the company will reduce the limits available to the directors and officers.

D&O Insurance for the Transaction The liabilities attached to the transaction and more importantly to the prospectus need specific consideration. The IPO prospectus is both a selling document and a document that is required to meet the disclosure requirements of the regulator

58 Preparing the IPO Preparation

(“a liability document”). Frequent long as the statutory limits of liabilities and warranties to the insurer. Addi- types of claims brought against direc- apply under Swiss law. This will offer tionally, the law allows amending tors, officers and deal advisors (invest- directors, officers and deal advisors a some of its more stringent rules in fa- ment bankers, underwriters, legal greater confidence that their insuranc- vour of the policyholder, as in the case advisors, accountants etc.) are es provide cover, which matches their of gross negligence or the provisions based on misrepresentations and exposures and objectives, and as a about mid-term cancellation. non-disclosure of material informa- result provides peace of mind. tion in the prospectus. Signatories of Conclusion a public prospectus for a securities of- The Insurance Market in Switzer- It is evident that publicly traded fering have a personal responsibility land companies and their boards of direc- for its contents and could therefore be Switzerland has the highest den- tors and C-level suites may well face found personally liable for the losses sity in insurance companies globally, lawsuits at some point. D&O insurance of securities holders. Also it is com- with an annual premium spending of is a great tool to mitigate those risks. mon in the event of a flotation, for di- USD 7,701 per-capita. The city of Zu- The company will want to negotiate rectors and/or the company to give in- rich is home to some of the largest in- coverage with the carrier in view of demnities about the prospectus to the ternational insurers and reinsurers. In the specific risk situation and in con- underwriter or the sponsor of the flo- this competitive environment, direc- sideration of the interests to be protect- tation. Such warranties made outside tors and officers of any corporation ed. And the company is best advised their capacity as a director or officer seeking to access the Swiss capital to evaluate all options and alternatives or not arising from a wrongful act (as market can be assured: there is suffi- the insurance market offers to obtain defined in the D&O policy) are unlike- cient capacity, intelligence and exper- the best value for the premium francs ly to be covered by their D&O’ policy. tise available to cover any personal spent. and professional risk. Swiss-admitted These risks can be ceded to the insurance markets in total offer D&O insurance market in form of a Public insurance capacity well in excess of Directors’ Advice: Offering and Security Insurance (POSI). CHF 500 millions. It is crucial you know your D&O policy This insurance protects companies and how to make a claim. Know as and their directors and officers from The insurance sector (carriers, much as possible about the policy’s liabilities associated with an IPO (or brokers, agents) is regulated by limits, key extensions and exclusions. secondary offerings). POSI is de- FINMA, the Swiss Financial Market It provides an aggregate limit that is signed specifically for the transaction Supervisory Authority and insurance shared with other directors in your and therefore ensures suitable cover- contracts (policies) are governed by group, so it is important you are happy age for liabilities arising out of the the Swiss Insurance Contract Act. that it is high enough. Ensure you are prospectus / listing, for liabilities relat- This law is recognised for its liberal aware of any restrictions in the cover or ing to prior negotiations, discussions content, so insurance buyers in geographical limits (especially when the and decisions in connection with the Switzerland benefit from the free- D&O policy is placed outside Switzer- offering, and for losses arising from dom in contract design and the very land within a non-admitted carrier) and securities claims. POSI provides long- few obligations the law imposes on how the D&O insurance interacts with term non-cancellable coverage for the policyholder. With respect to the indemnities provided. future claims made against all persons D&O insurance, this is especially involved in the transaction and for as true for the disclosure requirements

Preparing the IPO 59 Preparation

Board-level Risk Management: Delegation and Monitoring Processes

by Pascal Schweingruber, are being protected. A useful way of board Chairman, for example, really Executive Committee Member, approaching this exercise is viewing centre on the appropriate tasks that Kessler & Co AG existing management as having been the board should carry out. From delegated powers from the external these tasks flow the supporting pro- investors, and being accountable cesses and information requirements. n IPO marks a watershed in the to the investors for the use of that In selecting these tasks, the chairman A organisational design and pro- authority. and senior management need to cesses of enterprises. These enterpris- recognise the limits of the board’s es may be formed as a private compa- Companies going down the IPO capability. It can only act as a group, ny, with a handful of owners. They route will need to establish a board spends a limited amount of time may also be organised as a partner- of directors. It is now commonplace together, and has limited resources ship, with a number of employees also around the world for boards of public (when compared with management). holding the rights of control over the listed companies to have a number, if So leading boards will limit their for- organisation. Regardless of the form not a majority, of independent non- mal authority over decisions to those of organisation, the decision to use executive, outside, or supervisory which are more efficiently taken by the public equity markets to raise cap- directors. From an organisational per- the board alone and to those where ital brings with it a new set of circum- spective, this involves the pre-IPO there is a conflict of interest if the CEO stances which those in charge must controllers inserting a new group of and senior management were to have address. The paragraphs that follow decision-makers in the chain of au- the decision authority – an obvious explain these key features, and how thority between the external investors example are remuneration decisions. they can be dealt with in terms of risk and management. There may be both management at the board level. executives and non-executives in that In terms of the decisions for board, and for effective risk manage- which it is more efficient for boards to The principal new feature is that ment it is necessary for the unique hold authority, this is largely a ques- a set of external investors are granted role and function of the new body to tion of what has worked well for the certain powers and rights in exchange be defined. organisation in the past. However, it is for committing their capital. Linked to worth revisiting this question at the this is that the equity becomes listed The board in turn transfers a lot time of an IPO. It may be that very for trading on a public, regulated mar- of authority to the CEO and manage- large capital expenditure decisions ket. From the company’s perspective, ment for carrying out the manage- above a threshold require the board once powers and rights are assigned ment function (even though the CEO to take the decision because it can to these external parties who do not might also be a member of the gov- essentially ‘bet’ the company. This have a day-to-day presence inside the erning board). Failing to recognise and may also be the case where there are company, then it becomes necessary then articulate these unique and dif- significant shifts in operations, such to develop new mechanisms (or ferent roles can lead to confusion, and as into new geographies or into new strengthen existing ones). These mech- overlap, which in turn heightens the business areas. anisms ensure that the participation in level of manageable risk which is the company is made meaningful by faced by board members. Equally, boards might also have the provision of information about an important and valuable role to play company performance, and the sense The choices that are available to in the development and adoption of that the external parties’ interests management and the incoming new certain key policies, such as policy on

60 Preparing the IPO Preparation

environmental matters for companies dates extend to the development of man can then assess the extent to that are involved in the extractive financial reporting and accounting which the format and content of re- industries. In each case, the matters policies, the relationship with the ports need to be adjusted to support decided for board involvement and external auditor (including appointing the active and confident participation authority are determined by the and evaluating that firm), the relation- of new non-executive directors. unique capability that the board has, ship with the internal auditor, and in- Where an Audit Committee Chairman and can bring to the particular issue. deed setting the risk management has been identified, close cooperation Indeed, the way in which the board framework and evaluating the compa- between the CFO and that person is role and its decision authority takes ny’s performance under it. clearly very beneficial in the set-up shape may determine the qualities and phase. Invariably, the preparatory work experience being sought of new non- In remuneration process terms, identifies resourcing and personnel executive directors. the mandates extend to the design of gaps which need to be budgeted for overall policy applying to the CEO and filled. Depending on the existing Carefully identifying and articu- and senior management, the devel- structure of the company, this might in- lating the board role can therefore opment of metrics by which perfor- volve at a minimum strengthening the have a role in the recruitment and mance will be judged, the processes Company Secretariat, the Internal Au- nomination process. Of course, for- for interacting with the senior human dit, and the Investor Relations functions. mal legal requirements may also be resources professionals in the com- relevant as to what is considered to be pany, and the format and style of re- With all the pressure of keeping within the board’s remit, although porting to shareholders over remu- the business going in preparing for the there is normally significant discretion neration choices. IPO, and the constraint on resources, as to what authority is retained and it is tempting to focus only on the what is delegated. For a company coming to the transaction. However, from a board public markets for the first time, the risk management perspective, there As for the board’s role in dealing practical timing issues are important are a number of important choices with natural conflicts of interest, this and designing and implementing and steps that can be undertaken in a tends to be concentrated in the areas a board delegation and monitoring structured way to support the transi- of audit and risk, and executive remu- system and associated processes tion from a private, closely held organ- neration areas. For boards that have needs to be done over a 12 to isation to a listed public company. executive members, one organisation- 18 -month period, where possible. Where a new board with non-execu- al step that must be taken is for For companies shifting from a pure tive directors follows from selling a committees composed only of inde- executive board model, a very help- significant proportion of equity to pendent non-executive directors to ful, practical step is to design a for- external investors, there is a genuine be established, and given mandates. ward board and committee agenda need to develop new structures and These mandates (or terms of refer- for the first 24 months following the processes. Boards and management ence) become a further elaboration of IPO. This requires the existing report- can make a great contribution to man- how the board (or committees, under ing and assurance processes to be re- aging risk at the asset level and at board authority) take on processes to visited and to work out what new or board level by being disciplined about represent and protect the interests of stronger reporting processes are nec- the manner in which authority is trans- external investors. essary. ferred and accounted for. In audit process terms, the man- Management with the new Chair-

Preparing the IPO 61 62 Preparation

Tax Due Diligence / Tax Structuring

by Susanne Schreiber, privileges or tax holidays are or will outs for the group. Where a tax audit Partner, Head M&A Tax, not be met, this may result in tax im- has started and material tax liabilities & Stefan Kuhn, plications going forward or trigger his- appear likely, a provision or at least a Head Corporate Tax, toric tax risks. Such risks may impact disclosure may be required. The same KPMG AG the valuation of the group and the is true for ongoing tax litigation. findings of the tax due diligence can nlike in a sales process, an inves- therefore also be a starting point for Intercompany Relationships / U tor has no option to ask for con- looking for solutions to mitigate such Set-up of Foreign Activities tractual protection, but can only reflect risks. The Swiss Corporate Tax Reform Transfer pricing, i.e. the set-up of tax risks in his investment decision III will result in the abolition of current intercompany relationships, is becom- based on the information disclosed in income tax privileges and will provide ing more and more important, in par- the prospectus. Thus, the tax risks of for attractive new rules, which need ticular driven by international develop- the group going public are normally to be reflected in the valuation model. ments like the OECD’s BEPS (base reviewed in a tax due diligence and, erosion and profit shifting) action plan. where relevant for the investor, dis- Impact of the Capital Contri- Tax authorities increasingly focus on closed in the prospectus. bution Principle identifying non-arm’s length transac- The following areas will typical- Switzerland has introduced the tions and lacking documentation of ly be a focus of the pre-IPO tax due capital contribution principle in 2011 such relationships. Challenges by the diligence: which allows the distribution of tax authorities can result in additional certain qualifying reserves of Swiss tax payments, but also penalties. Thus, Risks from Past Restructurings companies without withholding tax, it is highly advisable to establish a and Tax Structuring as well as providing for Swiss inves- solid transfer pricing concept in the The preparation of the IPO may tors to receive such distributions free pre -IPO phase. Further, the set-up of require changes in the group structure of income tax (also from foreign com- foreign activities may trigger taxes, in order to streamline and optimise it panies). As this is very attractive for e.g. if a permanent establishment for the capital market. Disposals, investors, the amount of qualifying (fixed place of business or dependent mergers or intercompany transactions reserves should be analysed and sales agent) is assumed by a foreign which have not been diligently possible reductions may need to be tax administration. This may lead planned and implemented can trigger disclosed in the prospectus. to double taxation and compliance significant tax exposures (taxation duties (for corporate income tax, but of hidden reserves, withholding tax, Utilisation of Tax Loss Carry potentially also payroll tax). stamp duties, transfer taxes etc). Forwards When considering certain pre-IPO Tax loss carry forwards may in tax structuring measures, it should be certain countries forfeit upon the IPO Summary: taken into account that the structure or prior to restructurings. Where tax As mitigating tax risks and implement- will be subject to a pre-IPO due dili- losses have been reflected in the ing tax planning takes time, it is essen- gence and thus, confirmation by the effective tax rate going forward, a tial to perform an assessment of the tax competent tax authority should be possible forfeiture should be ad- position and tax risk management pro- sought, where possible. The impact of dressed in the prospectus. cesses very early on in the process and an aggressive or non-tested structure not only when the due diligence is re- on the valuation may in certain cases Compliance / Tax Audits / Tax quired in the IPO process. This is the best outweigh its tax benefits. Litigation way for tax exposures to be effectively Negligence in compliance tasks managed and tax risks to not affect the Special Tax Status and Tax Holidays can – at least in certain jurisdictions – valuation of the group during the IPO. If the conditions for certain tax result in severe penalties and cash-

Preparing the IPO 63 64 Preparation

Legal Due Diligence

by Dr. Hansjürg Appenzeller, information for knowledgeable inves- To achieve this, a comprehensive Attorney-at-law, M.C.J., Partner, tors to reach an informed assessment process of due diligence must be car- Homburger AG of the assets and liabilities, financial ried out in relation to the company, position, profits and losses and pros- its subsidiaries and their operations. pects of the company, as well as the If adequate due diligence has been rights attached to the shares to be carried out, it will be more likely that listed. persons involved will be in a position egal due diligence is an integral If a prospectus is inaccurate or to show that reasonable care was L part of the process required to incomplete, every person involved in used in the preparation of the pro- be carried out in connection with a its preparation may be exposed to spectus, and that it was reasonably contemplated IPO. The term “legal due prospectus liability claims if such a believed that the information it con- diligence” in connection with IPOs person has acted wilfully or negligent- tained was true and not misleading or broadly refers to an investigative pro- ly. In addition, if the company issues a that a matter was properly omitted. cess pursuant to which information defective prospectus, the persons relating to the company, its subsidiar- responsible for such information may Legal Due Diligence Process ies and their operations is reviewed be at risk of criminal sanctions. The overall due diligence pro- with the aim of providing prospective Persons who have participated cess will consist of legal due diligence, investors in the prospectus with all in the preparation of the prospectus financial due diligence and business material information, without a mate- may exonerate themselves to a certain due diligence. In the process, the in- rial misstatement or omission, prior to degree if they can demonstrate that formation required to be included in making an investment decision. they exercised all diligence and care the prospectus will be gathered. Such Legal due diligence is designed in connection with the preparation of information will form the disclosures to help minimise potential liability for the prospectus or that they justifiably that must be made to comply with the the persons involved in the prepara- relied on the advice of experts (the prospectus disclosure requirements. tion of the prospectus. The scope and so-called “due diligence defence”). comprehensiveness of the legal due Legal due diligence plays a key role in Legal Due Diligence Request List diligence investigation is important establishing a due diligence defence. The first step in the process will not only from a legal standpoint to In addition, legal due diligence usually be the preparation of a legal minimise liability but also from a rep- will highlight at an early stage of the due diligence request list setting out utational perspective as the reputation process any issues that need to be all documents and information neces- of persons involved in the IPO process dealt with to ensure that the company sary for analysing and evaluating the may be significantly damaged if it will be suitable for the IPO. Through company, its subsidiaries and their op- turns out that they failed to uncover this process, the company will also erations. It is an important step in for- and disclose to prospective investors gather the information required to be mulating the scope of a due diligence critical issues relating to the company included in the prospectus. review. or the IPO. To minimise potential liability the The company and its advisors persons involved must: will be asked to provide written re- Responsibilities and Potential – Ensure that the prospectus sponses in relation to the questions Prospectus Liability contains all of the necessary set out in the request list and/or A company that intends to make information and complies with copies of documents. The legal due a listing application must produce a the prospectus disclosure diligence request list will usually be prospectus disclosing the information requirements extensive and will cover almost all of required by the Listing Rules of SIX – Reduce the risk of any material the areas of the company’s business. Swiss Exchange and, in connection omissions and A detailed and targeted request list with primary offerings, article 652a – Ensure that the prospectus can make the due diligence process of the Swiss CO. The prospectus informs potential investors of any more efficient, which may also lead to must include, in addition to a number risks associated with investing a more thorough and cost-effective of specific disclosures, sufficient in the company review.

Preparing the IPO 65 Preparation

In general, a due diligence re- in the company or its group, bankrupt- Legal Due Diligence Report quest list will cover: cies, convictions and the like. A legal due diligence report will then usually be produced from the – Corporate information Data Room information gathered in the due (e.g. constitutional documents) The documents and information diligence process. The report is sup- and history of the company collected based on the due diligence posed to reflect the results of the due – Share capital and shares request list will be made available to diligence. Insofar as a document has – Board of directors and officers the persons involved in the prepara- a direct bearing on the contents of the – Financial information tion of the prospectus. To that end, the prospectus, the prospectus should be – Tax matters company must set up a data room that amended as appropriate. – Financing will allow these persons to review the – Property and leases collected documents and information. The depth of detail in the report – Business activities of the compa- The data room will enable the compa- will depend on the nature of the trans- ny and its subsidiaries, including ny, the underwriters and the advisors action, including the amount of the strategy, markets and competi- to verify necessary information to be fundraising to be undertaken by the tors, customer and supplier infor- included in the prospectus. company and the level of risk associ- mation as well as material agree- ated with the IPO. ments, such as agreements with The traditional data room is a unusual or onerous terms and /or physical room, normally in the com- Legal Opinions related party contracts pany’s offices (or those of its lawyers), The syndicate banks request its – Intellectual property and informa- which the underwriters and the advi- own and the company’s legal advisors tion technology and the associat- sors will visit in order to inspect and to issue legal opinions. Legal opinions ed rights used by the company report on the various documents and often serve to establish their due and its subsidiaries other data made available. Teams in- diligence defence. To enable legal ad- – Employee matters, pension and volved in the due diligence review will visors to issue legal opinions, a thor- employee benefit plans typically have to be flown in from ough due diligence review is indispen- – Any litigation and investigation many countries. sable. that the company and its subsidiaries may be involved in On certain IPOs it may prove Usually, legal advisors are re- – Insurance more convenient and efficient to set quested to issue technical legal opin- – Environmental and safety issues up a virtual data room (VDR) where ions and disclosure opinions. The key – Regulatory and compliance the key documents and information points in technical legal opinions requested under the due diligence would cover legal aspects (such as Despite the general nature of the request list will be made available for due incorporation of the company, types of information that will be re- online review. A VDR is essentially an valid title transfer of the shares and the quested, the list itself should be fairly internet site with controlled access like). In a disclosure opinion, legal ad- specific, and tailored to the company (using a secure log-on supplied by the visors confirm that to their knowledge and the business sector in which it op- company which can be disabled at and belief, the prospectus neither erates. any time) to which the underwriters contains any statements which are and the advisors are given access. incorrect, misleading or not in compli- Directors’ and Officers’ Ques- ance with the statutory requirements, tionnaire Due Diligence Review nor omits to state any material fact. In compliance with applicable The legal due diligence includes regulations, the prospectus must con- the review of all documents in the data tain certain information pertaining to room with respect to their potential Conclusion: the members of the board of directors relevance for disclosure in the pro- Due diligence and, in particular, legal and the executive management of the spectus. Any information which due diligence play an integral part in company. The aim of the directors’ – May have an influence on a preparing a company for the IPO. The and officers’ questionnaire is to gath- reasonable investor’s decision to comprehensive investigation involved in er the necessary information required purchase shares of the company carrying out legal due diligence in to be included in the prospectus. – May have an influence on a relation to a company, its subsidiaries reasonable investor’s perception and their operations will assist in mini- The questionnaire to be sent of the price or value of the shares mising any potential prospectus liability separately to each (proposed) mem- of the company or by helping to ensure that the prospectus ber of the board of directors and the – May shed a new light on state- contains all the relevant details relating executive management of the compa- ments made in the prospectus to the company and that it complies with ny usually requests information about should be disclosed in the pro- the applicable disclosure requirements. the personal circumstances, interests spectus.

66 Preparing the IPO

Preparation

The Underwriting Agreement

by Dr. Daniel Daeniker, with the Swiss Financial Market Su- several selling shareholders, known as Attorney-at-law, LL.M., Partner pervisory Authority FINMA may act as a secondary offering. The proceeds of & Dr. Frank Gerhard, underwriters in Switzerland; non- a secondary offering go exclusively to Attorney-at-law, LL.M., Partner, Swiss banks dealers may participate in the shareholders who have chosen an Homburger AG the offering on a cross-border basis. IPO as a way to exit their investment. An IPO may also combine a primary Usually, the underwriting agree- with a secondary offering. hen a company goes public, it ment is executed on the day before W enters into an agreement with the launch of the IPO, i.e. before the In both cases, the company will the banks organising the share offer- subscription period begins. However, commit to taking all necessary steps ing and listing. This agreement, known in order to be responsive to current to procure the creation of newly is- as an underwriting agreement, broad- market conditions, the offer price will sued shares and the delivery of existing ly serves two purposes: only be determined after the end of shares on the closing date. the subscription process. Hence, the – Firstly, the underwriting agree- agreement will be completed by a Pricing and Allocation ment defines the IPO process pricing supplement signed before the The bookbuilding method is the and the rights and obligations of first trading day. prevalent pricing method for IPOs in the company (and selling share- Switzerland. Before the bookbuilding holders) on the one hand, and the Underwriting agreements are commences, in the pre-marketing banks on the other hand usually governed by Swiss law and period, the banks canvas the views of – Secondly, it provides for a risk typically provide for a jurisdiction potential investors on the company allocation between the company clause with place of jurisdiction being and the valuation of the offered and the banks, in particular with Zurich. shares. Based on this feedback, the a view to potential prospectus banks will set the price range for the liability The Underwriting Agreement bookbuilding which will take place as Defines the IPO Process … part of the subscription process. The banks are organised in a The underwriting agreement is During the subscription period, banking syndicate the members of entered into by the company and the the offering is marketed to institution- which are sometimes called under- selling shareholders, if any, on the one al and retail investors for up to two writers, sometimes managers. There hand and the members of the banking weeks. Institutional investors have the is a certain hierarchy of banks within syndicate on the other hand. right to place preliminary, non-binding the syndicate: the top level comprises orders for a given quantity and price one or several global coordinators and Shares Sold in the Offering of the shares being offered; the inves- bookrunners responsible for manag- An IPO may involve the sale of tors’ indications of interest are recording the offering, assessing the demand newly issued shares, which is known ed by the syndicate in an order book. and making proposals for the final IPO as a primary offering. The proceeds of Retail investors place orders for a price as well as the investors to whom a primary offering go to the company given number of shares without any shares are allocated. Lead managers and can be used for debt reduction or indication of purchase price. and co-lead managers, each under- investments into ongoing projects. writing a smaller number of shares, At the end of the bookbuilding assist in the offering process. Gener- Alternatively, an IPO may involve process, the bookrunners (i.e., the ally, only securities dealers registered the sale of existing shares by one or most senior banks in the syndicate)

68 Preparing the IPO Preparation assess the highest price at which repurchase shares in the open they are not aware of any issues relating the shares can be offered consistent market, which has a stabilising to the company or the prospectus un- with a satisfactory performance in the effect on the share price, and der which the shares are being offered. aftermarket. Selling at the highest thus cover their “short” position price to the highest bidder makes by these repurchase without Indemnity little sense, because investors who having to exercise the over- In a public offering of securities, have over-subscribed will immediate- allotment option the most common basis of liability is ly dump their shares on the market, based on false or misleading state- causing downward pressure on the Thus, the over-allotment option ments in the offering prospectus. Un- share price. Rather, shares should be is generally exercised only if the shares der Swiss statutory law, anyone who placed with long-term investors at a perform well in the aftermarket. has participated in the preparation or price which causes them to buy addi- dissemination of a prospectus or a sim- tional shares immediately after the Commission ilar communication containing state- IPO, thus effecting a share price The underwriting agreement ments which are untrue, misleading increase after the offering. usually provides for the payment of a or not in compliance with statutory commission to the underwriters only requirements, may be held liable to Concurrent with the determina- in the case of the closing of the offer- any acquirer for the loss incurred as a tion of the offer price before the first ing. In addition, the underwriting result of such statements. The under- trading day, the banking syndicate al- agreement sometimes provides for an writing agreement will typically con- locates the shares to the institutional incentive fee paid by the company at tain an indemnity under which the and retail investors in accordance with its sole discretion. Finally, the agree- company and, to a certain extent, the allocation criteria agreed between the ment sets forth the costs and expens- selling shareholders, agree to com- company and the banking syndicate. es which have to be paid by the com- pensate the banking syndicate if a Swiss underwriters are subject to the pany and the selling shareholders. third party sues the banks for pro- Swiss Bankers’ Association’s Directive spectus liability. The logic behind the on the Allocation of Equity-related … and the Underwriting Agree- provision is that the company is in a Securities offered by way of a Public ment Provides for Risk Alloca- better position to control the accuracy Offering in Switzerland (the Allocation tion and completeness of the prospectus Directive), which sets up minimum than the banks. standards for the banking industry. Representations and Warranties The underwriting agreement Conditions and Termination Over-allotment Option normally provides for a list of represen- The underwriting agreement typ- The underwriting agreement tations and warranties by the compa- ically provides that the obligations of typically allows the banking syndicate ny and, to a lesser degree, the selling the banking syndicate to purchase and to over-allot, i.e. to sell more shares shareholders. Among other things, pay for the shares will be subject to the than have actually been offered in the the company will represent: satisfaction of certain conditions, in- first place. Since the banks sell more cluding : shares than are being offered, they are – That the offer prospectus is com- “short” with respect to the over-allot- plete, correct and not misleading – The correctness of the representa- ted shares; this short position is cov- – That the shares to be offered are tions and warranties of the com- ered by an over-allotment or “green duly authorised and validly pany and selling shareholders shoe” option granted to the banks by issued, and that subscribers will – The approval of the listing the company or other sellers of shares. obtain ownership of these shares – The absence of any material The over-allotment option entitles the without any restrictions adverse change likely to affect banks to subscribe or purchase, re- – That the books and records of the company’s business spectively, additional shares on the the company are in order – The receipt by the banks of same terms as the original offer – That the company is operating certain confirmations from the shares. It therefore affords the under- its business in compliance with auditors and the lawyers advising writers some flexibility in providing applicable law, in particular as on the offering (comfort letters, aftermarket support for the shares regards obtaining the necessary legal opinions) following the IPO: authorisations and licences, – The absence of material market complying with anti-bribery disruptions, known in jargon as – If the share price rises and stays and similar laws, being up to force majeure events above the offer price, the under- date with taxes and social writers typically exercise the security and the like In case of a termination after the over-allotment option and thus capital increase has been registered in close their “short” position The selling shareholders generally the Commercial Register, a mechanism – If the price falls below the offer represent that they own and can freely to unwind the transaction is provided price, the underwriters typically sell the shares being offered, and that for in the underwriting agreement.

Preparing the IPO 69 Preparation

Management Participation

by Dr. Matthias Courvoisier, tures in a closely held company are on Securities Trading and Stock Ex- Attorney-at-law, MSc in Finance, Partner, rarely compliant with the require- changes. Again, disclosure is required. Dr. Marcel Giger, ments of a publicly listed company. In Apart from the stake held in the issuer, Attorney-at-law, M.C.J., Partner particular, where certain pre-IPO in- the prospectus will contain a descrip- & Theodor Härtsch, centives are agreed, they should be tion of the lock-up obligations, includ- Attorney-at-law, Partner, paid out to management prior to the ing their term. Baker &McKenzie IPO. This may lead to disclosure in the prospectus. Some issuers wish to allow for a preferential allocation of shares in the anagement participation is key In addition, management partic- offering for second tier management. M in every IPO. It is management ipation schemes (share or restricted It is possible that the shares are that bears responsibility for a signifi- stock unit plans, stock option plans, allocated at the offer price or with a cant portion of the offering docu- cash-based performance plans or sim- discount to the offer price, giving an ments. Management typically pre- ilar participation plans) must comply additional incentive for members of pares the data room for the legal due with the restrictions imposed by the the second tier management (or even diligence, participates in the drafting Ordinance against Excessive Compen- employees) to subscribe for such sessions for the prospectus and in sation in Listed Stock Companies shares. Both options are permissible, the financial due diligence meetings. (VegüV). They must be disclosed in the provided that there is adequate disclo- It is also management which holds the prospectus as well. These participa- sure in the prospectus. In such cases, road show presentations, thereby tion schemes will have to be tailored the syndicate banks will insist on ad- selling the stock of “its” company to to the circle of participants. Further- ditional lock-up obligations for these prospective anchor investors. It goes more, the issuer will need to take into members of the management or the without saying that a proven manage- account employment and tax law re- employees (particularly if they re- ment with a strong track record, which strictions of all countries in which par- ceive shares at a discount). remains invested in the issuer after the ticipants are domiciled or in which they IPO, is a strong signal of confidence work. In many instances, an issuer will Additional disclosure is related to the market. Because of these fac- establish an umbrella participation to compensation of the members of tors, it is important that management scheme, which is complemented by a an issuer’s board of directors and participation is structured and dis- number of local sub-plans dealing with executive board. As per the VegüV closed in an appropriate manner. the particularities of each jurisdiction. requirements, the aggregate total compensation of each of these gov- In some instances, particularly in If management holds a stake in erning bodies and the individual com- case of issuers held by private equity the issuer, it will typically be subject pensation of each member of both companies prior to an IPO, there are to lock-up obligations for a term of management bodies must be dis- different share classes providing spe- 180 days to 360 days. During this pe- closed. In addition, loans to members cial rights to investor and / or to man- riod, management must not sell any of the governing bodies or transac- agement shareholders. Typically, an shares without the prior consent of tions between them and the issuer, issuer will create a single share class the syndicate banks. Provided their which are material or not at arms’ prior to the IPO. Very often, issuers aggregate shareholding in the issuer length must be disclosed as well. To have incentive schemes for the mem- exceeds 3 %, the members of the avoid disclosure, the parties may re- bers of the executive management in management subject to lock-up obli- structure their relationships ahead of place. In many cases, these incentive gations will also form a group of sig- the IPO, bearing in mind that this may schemes must be adjusted prior to the nificant shareholders in accordance avoid disclosure in the prospectus but launch of an IPO, as incentive struc- with Art. 20 of the Swiss Federal Act not in the financial statements.

70 Preparing the IPO 71 Preparation

Prospectus Including Offering Restrictions

by Philipp Haas, Contents of the Prospectus Directive on the Presentation of a Attorney-at-law, LL.M., Partner Complex Financial History. The prin- & Thomas M. Brönnimann, Disclosure Requirements Pursu- cipal disclosure items are: Attorney-at-law, LL.M., ant to the SIX Swiss Exchange Partner, Listing Rules – Risk factors Niederer Kraft & Frey AG The disclosure requirements un- Under a specific heading “Risk der SIX Swiss Exchange Listing Rules Factors” of the listing prospec- are largely modelled on the EU Pro- tus, the issuer must describe the n issuer intending to list its spectus Directive, but are less exten- principal risks of relevance for A shares on SIX Swiss Exchange sive and more flexible. Switzerland is the issuer and the shares. is required to publish a listing pro- not an EU Prospectus Directive The former should be specific to spectus pursuant to articles 27 et seq. jurisdiction, i.e. the EU Prospectus the issuer and its industry – often of the Listing Rules. In addition, pub- Directive is not applicable to a pub- a prospectus will divide the risk lic offerings of newly issued shares are lic offering of shares in Switzerland factors so as to address these subject to certain prospectus require- and the listing of shares on SIX Swiss separately. ments set out in article 652a of the Exchange. Swiss Code of Obligations (CO) (issue – Business description prospectus). In practice, the informa- The listing prospectus must This section must describe the tion required to be published in the list- contain the information necessary for issuer’s business and operations. ing prospectus and in the issue pro- competent investors to make an in- It usually starts with an overview spectus is usually integrated in one formed assessment of the assets and section, followed by a summary single document (a so-called “offering liabilities, financial position, profits of the issuer’s strengths and and listing prospectus”). and losses and prospects of the issu- strategies and a description of er, as well as of the rights attached to the principal products or services No Offering Restrictions the shares. The information must be sold by the issuer, together with Article 652a CO requires an is- presented in such a way that a com- a description of where and how sue prospectus when new shares are petent investor is enabled to assess these are produced and sold, offered to the public in Switzerland the quality of the issuer and the char- including information on the and also contains certain disclosure acteristics of the shares. The prospec- issuer’s customers and suppliers. items that must be included. The is- tus must not contain inflammatory or The business description section sue prospectus must be made avail- promissory statements. These are the must also include information able to investors but is not subject to overreaching requirements of the SIX on the number of employees, any registration requirements with Swiss Exchange Listing Rules but location and real estate owner- any Swiss regulator. Thus, in contrast there are some more detailed content ship, patents and licences, to many other jurisdictions, the pub- requirements for the listing of shares research and development and lic offering of shares in Switzerland is contained in the prospectus disclo- pending or threatened material not subject to offering restrictions in sure schemes A (relating to equity court, arbitral and administrative the narrow sense. A breach of the securities), B (relating to investment proceedings. prospectus requirements set out in companies) and C (relating to real article 652a CO may, however, result estate companies), in the Directive in prospectus liability. on Financial Reporting and in the

72 Preparing the IPO 73 Preparation

– Information on the supervisory – Other information about the issuer: Board may be produced and pub- body, the executive management – Capital structure, shares, voting lished in German, French, Italian or and the auditors and other shareholder rights English. This rule also applies to the The listing prospectus must – Overview of capitalisation prospectus meaning that the prospec- provide information on the mem- and indebtedness tus may for instance, be produced bers of the supervisory body and – Dividend policy and published in English only, without the executive body including – Principal past, current and the need to prepare a summary in their ownership of shares and op- future investments German, French or Italian. tion rights of the issuer and po- – Principal shareholders tential legal proceedings and con- Responsibility for the Prospectus victions against them, describe Disclosure Requirements Pursu- The prospectus must include a employee participation schemes ant to Article 652a CO statement of the issuer that it assumes and state the auditors for the last With the exception of the re- responsibility for the information in three years. quirement to include the most recent the prospectus. Responsibility for the unconsolidated statutory financial prospectus carries with it the possibil- – Financial information statements of the issuer and to pro- ity of liability for the issuer as well as The listing prospectus must vide information on the dividends dis- its directors, officers, employees or include the audited consolidated tributed within the last five years, the advisors involved in the preparation or annual financial statements for disclosure requirements pursuant to dissemination of the prospectus. the last three full financial years article 652a CO are not particularly de- (exemptions specifically applying manding and a prospectus compliant Listing Procedure to young companies are laid with the SIX Swiss Exchange Listing The listing of shares on SIX down in a directive), drawn up in Rules generally contains the minimum Swiss Exchange requires a listing ap- accordance with (i) IFRS, US disclosure requirements of the CO. plication that needs to be submitted GAAP or other internationally ac- together with, among other docu- cepted accounting standards for Form of the Prospectus ments, the prospectus to the Regula- companies not incorporated in As a general rule, the prospectus tory Board for review and approval no Switzerland for listings according must be a single document. There are later than 20 trading days prior to the to the International Reporting two exceptions to this rule: intended listing date or, if the offering Standard or (ii) Swiss GAAP FER and listing of the shares involves a or the standard according to the – Offer price and / or offer size bookbuilding procedure, no later than Swiss Banking Act for listings ac- supplement: 20 trading days prior to the start of the cording to the Swiss Reporting Information on offer price and / or bookbuilding period. Generally, the Standard, and interim consolidat- offer size can subsequently be prospectus approval process is less ed financial statements if the bal- published in a supplement to the onerous than in most EU jurisdictions ance sheet date of the last audit- first part of the prospectus once and the US. For example, the prospec- ed consolidated financial the offer price and / or the offer tus may be submitted to the Regula- statements is more than nine size is / are fixedat the end of tory Board in draft form and amended months in the past on the date the bookbuilding period. The first drafts may be filed within the 20-trad- the listing prospectus is published. part of the prospectus together ing day review period without starting The listing prospectus must also with the supplement forms the the review period all over again. disclose material changes in the final prospectus. issuer’s assets and liabilities, financial position and profits and – Incorporation by reference: losses that have occurred since Information may be included in the most recent annual or interim the prospectus in the form of a financial statements. If the corpo- reference to specific previously rate structure of an issuer has or simultaneously published doc- undergone significant changes uments including annual financial that has not been presented in statements and auditor’s reports the most recent audited financial as well as interim financial state- statements, additional pro-forma ments and documents that have financial information for the last been produced in connection financial year and / or audited with a specific transaction, such combined financial statements as a merger or spin-off. for the last two (possibly three) financial years must be presented Language in the listing prospectus. Generally, all documents that must be submitted to the Regulatory

74 Preparing the IPO Preparation

Research and Publicity Guidelines

by Dr. Matthias Courvoisier, Google founders a few weeks prior to has passed a series of filters. Attorney-at-law, MSc in Finance, Partner, the first day of trading! The research guidelines in con- Dr. Marcel Giger, trast ensure that the analyst reports Attorney-at-law, M.C.J., Partner Similarly, investment banks are are independently prepared by the & Theodor Härtsch, subject to a number of rules relating syndicate banks’ research depart- Attorney-at-law, Partner, to the avoidance of conflicts of inter- ments. They contain detailed rules and Baker &McKenzie est. Naturally, the investment banking regulations as to the flow of informa- division orchestrating an IPO aims at tion between the syndicate banks and presenting an IPO candidate in the the issuer as well as within the syndi- best possible way. However, it is key cate banks. Typically, the issuer and esearch and publicity guidelines that a bank’s buyside analysts prepare the investment banking division will R have one common goal: they the reports relating to the issuer con- only have the opportunity to review shall ensure that any communication ducting the IPO independently from the redacted draft research reports of the issuer as well as research re- the investment banking division as with respect to factual errors. The an- ports prepared by syndicate banks are well as the issuer itself. Adhering to alysts’ valuation and the conclusions prepared and distributed in accord- the research guidelines shall ensure will not be shown to them, thereby ance with applicable securities laws. If this. They also ensure that the re- ensuring that neither the issuer nor complied with, these guidelines are an search report is not considered an of- the investment banking division may effective means of mitigating liability fering-related document, thereby cre- even be tempted to influence an ana- risk for all parties involved in the IPO. ating potential prospectus liability for lyst’s opinion. Only the syndicate the banks. banks’ compliance departments and In many jurisdictions, including their law firm will review the entire Switzerland, any communication by To mitigate these risks, all parties report. Furthermore, the research the issuer in connection with the of- involved in the IPO process commit to guidelines also contain rules related fering is considered to be a prospec- adhere to certain procedural rules. The to the dissemination of research re- tus-like document which could poten- publicity guidelines provide for the pri- ports, as the banks involved other- tially trigger prospectus liability for the or approval of any issuer communica- wise could also become subject to issuer. In addition, any uncoordinated tion by the syndicate banks and the prospectus liability, given that a re- dissemination of offering-related com- law firms involved in the IPO. Further- search report could be considered an munication could lead to registration more, they contain appropriate leg- offering-related document. obligations in certain jurisdictions. ends which must be included in any Both events could trigger lengthy cool- press releases. Finally, they also deal Even though both guidelines ing-off periods which would lead to a with the use of the internet. As this is seem to be of a formal nature only, postponement of a planned IPO or a global medium, the issuer will usual- and are often regarded as a nuisance, even to its cancellation. Remember the ly ensure that any offering-related in- they are key to a smooth and success- famous Playboy interview of the two formation is accessible only after a user ful IPO.

Preparing the IPO 75 76 Preparation

Listing Requirements on SIX Swiss Exchange

by Rodolfo Straub, wiss federal law enshrines the high level of acceptance due to the in- Head SIX Exchange Regulation S principle of self-regulation. With clusion of the various market players in Therese Grunder, regard to the listing conditions, this issuing the rules – sometimes also in Co-Head Listing, means that the stock exchange issues the form of public solicitation of com- Marc Enseleit, a rule on listing and the admission of ments. Shorter decision-making paths Head Listing Equity, securities to trading that specifies what compared to government regulation SIX Exchange Regulation information is required in order for in- make it possible to react quickly to vestors to be able to assess the charac- market changes. The Listing Rules of teristics of the securities and the quali- SIX Swiss Exchange create transpar- ty of the issuer. This rule must take ency with regard to issuers and their internationally recognised standards securities. The goal is balanced regula- into account. It is the duty of the Regu- tions that take into account the interests latory Board to issue the Listing Rules. of both investors and listed companies. This board is composed of representatives of listed companies, banks, and in- SIX Exchange Regulation, an investors, which ensures that differing independent and autonomous entity terests are safeguarded. The Listing within SIX, is responsible for the appli- Rules must be approved by the Swiss cation and enforcement of the Listing Federal Financial Market Supervisory Rules. In this way, the regulatory func- Authority (FINMA). tions are consistently separated from the operating business of SIX Swiss This framework permits market- Exchange, which serves to avoid pos- oriented regulation, which enjoys a sible conflicts of interest.

Admission and Maintenance Criteria by Regulatory Standards

STANDARD INTERNATIONAL SWISS STANDARD FOR STANDARD FOR STANDARD FOR REPORTING REPORTING INVESTMENT REAL-ESTATE DEPOSITORY STANDARD STANDARD COMPANIES COMPANIES RECEIPTS REQUIREMENTS

Accounting Standard IFRS, US-GAAP Swiss GAAP FER, stan- IFRS, US GAAP Swiss GAAP FER, IFRS IFRS, US GAAP dard under banking law*

Track Record 3 years 3 years n.a. n.a. 3 years

Free Float 20% 20% 20% 20% 20%

Min. Market Cap 25m 25m 25m 25m 25m Free Foat (CHF)

Equity Capital (CHF) 2.5m 2.5m 2.5m 2.5m 2.5m

* according to applicable statutory regulations

Preparing the IPO 77 Preparation

Financial Reporting Standards (IFRS) Efficient Listing Procedure and US GAAP are permitted for issu- The listing procedure of SIX ers of equity securities, whereas in Swiss Exchange stands out due to its the Swiss Reporting Standard, Swiss short lead times and straightforward GAAP FER and the standard under procedures. SIX Swiss Exchange of- banking law are permitted. Both reg- fers its new issuers an efficient admis- ulatory standards allow the possibili- sion process that takes a maximum of ty of listing a company with a track re- four weeks to complete. From the cord of only one year. In this case, submission of the listing application “In principle, however, a company must comply straight through to the first trading with increased transparency obliga- day, all related decisions are taken by shares and equity tions; specifically, it is obligated to the competent internal governing publish quarterly reports until it has bodies. In contrast to admission pro- securities can be existed for three years. cedures in EU member states and other countries, no government au- listed in accord- Standard for Investment thorities are involved in the listing pro- Companies cedure at SIX Swiss Exchange. ance with the Inter- Investment companies are joint- stock companies whose main pur- After the First Trading Day national Reporting pose is the investment in collective Once successfully listed, issuers investment schemes and thus earn- are under the obligation to report cer- Standard and the ing yields and / or capital gains. They tain facts and events. Issuers must do not perform a commercial activi- publish potentially price sensitive Swiss Reporting ty in the literal sense (see Arts. 65 et facts arising from their areas of oper- seq. Listing Rules). The listing of an ation according to specific rules (ad Standard of investment company is linked to spe- hoc publicity) as well as management cific disclosure obligations with re- transactions through the reporting SIX Swiss gard to the investment policy applied platform provided for this purpose by and the investments purchased. SIX Exchange Regulation. In addition, Exchange.” listed companies must likewise pub- Standard for Real Estate lish the significant shareholdings of in- Companies vestors reported to them using an A company qualifies as a real es- electronic reporting platform provid- tate company if it continually draws at ed for this purpose. The compliance least two thirds of its revenue from real with the provisions on corporate gov- estate related activities (see Arts. 77 et ernance is to be disclosed in the annu- seq. Listing Rules). Real estate compa- al report. Reporting obligations under Regulatory Standards nies are obligated to publish detailed the Listing Rules are intended to en- Depending on the accounting information about their investment sure that all relevant information on standard used by the company, equi- strategy and their real estate portfolio listed securities is made available to ty securities are listed either accord- in the listing prospectus. In addition, the exchange, investors and market ing to the International Reporting more extensive requirements apply to participants in general, in a timely Standard or the Swiss Reporting the particulars to be published in the manner and suitable form. The infor- Standard. Investment and real estate annual financial statements and the in- mation transmitted to SIX Exchange companies are listed according to terim financial reports in the context of Regulation allows the exchange to their own regulatory standards, for maintaining the listing. guarantee smooth and orderly securi- which specific publication require- ties trading. The fulfilment of these re- ments apply depending on the busi- Standard for Depository porting obligations is a basic require- ness activities of these companies. Receipts ment for maintaining a listing on SIX Depository receipts are listed ac- Swiss Exchange. International stand- International Reporting Standard cording to a specific regulatory standard ards are also taken into account in the and Swiss Reporting Standard (Arts. 91 et seq. Listing Rules). The depos- regulations on maintaining a listing. The “International Reporting” itory must be a bank or securities trader Reasonable ongoing listing require- and “Swiss Reporting” regulatory and must be subject to the supervision of ments keep the overall costs of being standards differ solely by the permit- the competent federal agency or a com- public on a comparatively low level. In ted accounting standard with all re- parable foreign supervisory authority. contrast to other stock exchanges, maining requirements applying to The listing prospectus must publish there is no regulatory requirement to both standards. In the International additional particularities on the underly- publish quarterly reports or to prepare Reporting Standard, International ing equities as well as the depository. and publish an insider list.

78 Preparing the IPO Preparation

Efficient Listing Procedure

4 WEEKS BOOKBUILDING LISTING TRADING

Submission of application Examination of Decision of the – Price setting – Prospectus the application and Regulatory Board – Allocation – Official notice proposal to the – Extract from the Issuers Committee of Commercial Register the regulatory board – Articles of association Publication of the price Publication of the final – Declaration of the lead range prospectus and the issue manager regarding price distribution under Art. 19 LR (free float) – Declaration of the issuer in accordance with Art. 45 LR * to be filed subsequently

Responsibility of recognised representatives (pursuant to Art. 43 LR) Responsibility of SIX Exchange Regulation

Ongoing Listing Requirements

BEING PUBLIC

PRIMARY LISTING - ISSUER DUTIES

RECURRING DUTIES EVENT-RELATED DUTIES

Financial Reporting – Audited annual and unaudited Ad hoc Publicity – Disclosure of price-sensitive facts interim reports

– No quarterly reporting

Corporate Governance – Principle of «Comply or Explain» Disclosure of Management – Members of the board of directors, Transactions the executive committee or related – Exceptions Art. 663b CO parties

– Manager has duty to notify company within 2 business days

Regular Reporting Obligations – Main contacts Disclosure of Shareholdings – Duty to disclose if thresholds (acc. to SESTA 20) of 3, 5, 10, 15, 20, 25, 33 1/3, 50 – Dividends or 66 2/3 % exceeded

– Capital structure changes etc.

Preparing the IPO 79 80 Preparation

Cross-border Listings / Dual Listings

by Dr. Christoph Balsiger, Primary Listing country’s company law, the time at Attorney-at-law, Partner which the shares are legally created is & Andrea Huber, Listing Requirements not the same as that under Swiss law Attorney-at-law, LL.M., Securities from an issuer having (such as entry in the Commercial Reg- Counsel, its registered office outside of Switzer- ister). Niederer Kraft & Frey AG land and that are not listed on a stock exchange either in the issuer’s home Being Public country or in a third country may only Primary- listed foreign compa- be listed on SIX Swiss Exchange if the nies are generally subject to the same ross-border and dual listings issuer can provide confirmation that reporting obligations as companies in- C have gained in importance over the absence of listing in these coun- corporated in Switzerland. the past few decades as many com- tries is not due to non-fulfilment of panies have become more interna- investor protection regulations. Thus, Financial Reporting tional in their orientation. In addition, issuers must provide either a legal The SIX Swiss Exchange Direc- technological progress and the liberal- opinion from an independent law firm tive on Financial Reporting specifies isation of capital flows have fostered or a relevant extract from the rejection the accounting standards recognised considerable competition among decision issued by the competent by the SIX Swiss Exchange Regulato- global stock exchanges for equity list- authority in the home country in con- ry Board. With respect to the listing ing and trades. Access to a broader in- nection with the registration process according to the International Report- vestor base and increased marketabil- in question. It must be clear from this ing Standard of SIX Swiss Exchange, ity of a firm’s securities are the main extract that the company was not it accepts either IFRS or US GAAP. benefits of pursuing cross-border and refused listing because it failed to Foreign incorporated issuers may also dual listings. comply with the pertinent investor apply the accounting standards of protection regulations. Prospectus re- their home country if these standards SIX Swiss Exchange has issued quirements for equity securities are are recognised by the SIX Swiss Ex- a Directive on the Listing of Foreign the same as for Swiss issuers. change Regulatory Board. Issuers of Companies (“DFC”). If a foreign com- debt securities only that are not incor- pany is not yet listed on another stock Listing Procedures porated in Switzerland may use other exchange recognised by the SIX Swiss The issuer must describe in the accounting standards if certain re- Exchange Regulatory Board, its only listing prospectus those publications quirements are met as described in route to go is a primary listing. By con- in which the announcements required the SIX Swiss Exchange Directive on trast, if a company is already listed on under the home country’s company Financial Reporting. a recognised stock exchange with law will appear. In addition to the issu- equivalent listing provisions, it may er declaration required under Art. 45 Corporate Governance choose between a primary listing and SIX Swiss Exchange Listing Rules, the The SIX Swiss Exchange Direc- a secondary listing. The same applies issuer must recognise the Swiss tive on Information relating to Corpo- if a company is to be listed simultane- courts as having jurisdiction over rate Governance also applies to ously on its primary exchange and on claims arising out of or in connection foreign incorporated issuers whose eq- SIX Swiss Exchange, also known as with the listing on SIX Swiss Ex- uity securities are listed on SIX Swiss dual listing. Where the form of secu- change. Exchange but not in their home rities is subject to the law of the issu- country. Such issuers are further er’s home country, the applicant must The SIX Swiss Exchange Regu- obliged to apply Art. 14–16 of the or- ensure that trades can be cleared and latory Board reserves the right, how- dinance against excessive compen- settled efficiently on SIX Swiss Ex- ever, to modify the listing procedures sation at listed joint-stock companies change. as appropriate if, under the home (“OaEC”) analogously.

Preparing the IPO 81 Preparation

Disclosure of Shareholdings / change, the SIX Swiss Exchange Reg- Facts arising in the issuer’s Takeover Laws ulatory Board will recognise the listing sphere of activity that are potentially The rules on disclosure of share- prospectus drawn up in connection relevant to the price of the equity se- holdings pursuant to Art. 20 of the with listing on the primary exchange, curities must be published in accord- Federal Act on Stock Exchanges and as approved by the competent body ance with the regulations of the prima- Securities Trading (“SESTA”) do ap- of that exchange, provided that tech- ry exchange. The issuer must ensure ply to foreign incorporated compa- nical information such as security that SIX Exchange Regulation and the nies whose shares are listed on SIX number, Swiss paying agent, settling primary exchange are supplied with Swiss Exchange as well. Likewise, agent and trading currency be added the information at the same time. the SESTA rules on public tender of- for the Swiss market. fers apply to both Swiss and SIX Exchange Regulation con- foreign companies whose equity se- An abridged prospectus for sec- ducts an annual data collection survey curities are, in whole or in part, listed ondary listing on SIX Swiss Exchange among secondary-listed issuers with on a stock exchange in Switzerland. must be submitted if the initial SIX respect to data such as information Swiss Exchange listing takes place about the company and the securities, Secondary Listing more than six months after listing on its capital structure, dividend pay- the primary exchange, and a listing ments, etc. Further, the issuer must Listing Requirements prospectus was produced in connec- ensure that all information that is pub- The requirements that apply to tion with the primary listing. Please lished under the primary exchange’s the issuer are regarded as having been note that each abridged prospectus regulations is also made known to the fulfilled if its equity securities are list- must also contain a “no material Swiss investing public. In addition to ed in its home country or in a third change” declaration. the annual data collection survey, spe- country on a stock exchange recog- cific reporting obligations exist vis-à- nised by the Regulatory Board with In addition to the fulfilment of vis SIX Swiss Exchange concerning fi- equivalent provisions. By appointing the provisions concerning form and nancial statements, change of name auditors, the issuer must fulfil the timing, a listing notice must further or registered office, capital reduction requirements of the Federal Act on the contain reference to the secondary and dividend payments. Admission and Oversight of Auditors. listing, including mention of the home The issuer must report any changes country exchange and the trading concerning its auditors immediately symbol used there and trading cur- to SIX Exchange Regulation. rency on SIX Swiss Exchange.

The free float is considered In case of all capital transac- adequate if the capitalisation of the tions that are subject to a listing appli- shares circulating in Switzerland is at cation, as well as the reporting of least CHF 25 million, or if the applicant dividend payments, the issuer must can demonstrate otherwise that there ensure that an official notice is sub- is a genuine market for the equity mitted to SIX Exchange Regulation. securities. Being Public Listing Procedures Confirmation from the primary If an issuer submits a listing ap- exchange of the current number of plication for equity securities within listed equity securities must be sub- six months of the same equity securi- mitted once a year. ties being listed on the primary ex-

82 Preparing the IPO Preparation

Comfort Letters

by Therese Amstutz, Comfort Letter” issued by the Insti- For the purpose of the issuance Director, Legal tute of Public Auditors in Germany of the comfort letter the auditors car- & Thomas Wicki, (IDW AuS 910). The type of comfort ry out certain procedures which usu- Director, International letter issued depends on the facts and ally include the reading of minutes of Accounting and Reporting, circumstances of the transaction. the board of directors, reading of in- KPMG AG ternal management accounts and Content and Procedures making enquiries and receiving repre- In a typical comfort letter, the sentations from management. In ad- auditors report on the procedures dition to the procedures related to the performed and on changes in financial change period, auditors are generally anks acting as lead managers information on a date shortly before asked to verify whether certain finan- B in capital market transactions the issuance of the comfort letter (the cial information included in the pro- involving a securities prospectus reg- “change period”). The change period spectus agrees to the audited or re- ularly require the issuer to procure procedures are made on specific viewed financial statements or the a comfort letter from its auditors. In financial statements line items in rela- underlying accounting records of the such cases, the auditors perform tion to the latest audited or reviewed issuer. agreed-upon procedures relating to financial statements included in the financial information of the issuer. prospectus. These line items are A comfort letter is dated on the agreed between the lead managers same date the prospectus is issued. The procurement of a comfort and the auditors and typically include The lead managers may ask the audi- letter is part of the financial due dili- line items such as revenue, share cap- tors to provide more than one comfort gence process, which lead managers ital and long-term financial debt. letter in cases where there is a book- undertake in order to verify the accu- building process and more than one racy and completeness of a prospec- The lead managers will usually prospectus is issued. In addition, tus. The scope of work to be carried request that the auditors provide what auditors may be asked to provide an out by the auditors is determined by is referred to as “negative assurance” update of the comfort letter (referred the lead managers and the issuer. on the change period findings. Nega- to as a “bring-down” comfort letter) Accordingly, a comfort letter does not tive assurance is a representation by on the closing date. include representations regarding the the auditors that nothing has come to sufficiency of the procedures for the their attention that caused them to be- Due Diligence Calls lead manager’s purposes. lieve that there have been changes in or Meetings the specified financial statement In addition to obtaining a com- Professional Standards items during the change period (e.g. a fort letter, lead managers often re- In the absence of specific Swiss decrease in revenue or an increase in quest that auditors participate in “due professional standards governing long-term financial debt). If the audi- diligence” calls or meetings, during comfort letters, audit firms have de- tors have not received sufficient which the auditors are asked to re- veloped model comfort letters based appropriate evidence with respect to spond to certain questions in relation on established foreign guidance such such changes, they may not provide to the audit or review. Information as AU 634 / AU-C 920 “Letters for Un- negative assurance. In such cases, the provided by the auditors during such derwriters and Certain other Request- comfort letter is limited to stating the calls or meetings is generally limited ing Parties” of the American Institute procedures performed and the find- to responses to enquiries regarding of Certified Public Accountants, the ings obtained. The same can apply if factual matters of the audit or review Handbook of the International Capital the change period exceeds 135 days, and does not include commentary on Market Association (ICMA) and the according to for example, standards specific accounting matters, details German “Standards for Issuance of a such as SAS 72 or IDW PS 910. of internal controls or future events.

Preparing the IPO 83 84 85 Preparation

Financial Reporting

by Lukas Marty, interim financial information is re- entity. Carve- out or combined finan- Member of the Executive Committee quired if the listing occurs later than cial statements have to be prepared in & Susanne Haas, nine months after the date of the accordance with one of the accepted Director, Audit, latest annual financial statements. accounting frameworks and have to KPMG AG Shorter time limits may apply based be audited. on company law, for example six months in the case of capital increas- The purpose of pro forma finan- ne of the prerequisites applies by Swiss entities. Interim financial cial information is to present the O cable to IPO candidates is a information does not need to be re- hypothetical financial situation of the financial track record documented by viewed by the entity’s auditors. issuer as if the structural change or historical financial information cover- transaction had occurred at the begin- ing three financial years preceding the Reporting on a Complex Financial ning of the last annual period present- listing. Exceptions may be granted for History ed in the historical financial statements. young companies. The issuer’s corporate structure This is accomplished by adjusting the may have undergone a significant historical financial statements (balance Historical Financial Statements change or the issuer may intend to sheet and income statement including SIX Swiss Exchange generally carry out a significant transaction, for earnings per share) of the last annual requires financial statements prepar- example an acquisition or a spin-off period by applying appropriate ased in accordance with IFRS, but US of certain operations. If such a struc- sumptions, which may not take into GAAP is also permitted, except in the tural change is significant and has not account any anticipated synergies. Pro case of real estate companies. When been presented in the historical finan- forma adjustments are presented listing on the Swiss Standard or as a cial statements, additional information individually in the form of a tabular rec- real estate company, entities also have is required in order to provide a trans- onciliation. In addition, the basis of the option of applying Swiss GAAP parent picture of the issuer’s financial preparation and each adjustment need FER Accounting and Reporting Rec- situation. The determination of wheth- to be described in detail by way of ommendations, which form a less er a structural change is significant is explanatory notes. Independent auti- complex accounting framework that based on a comparison of profit, turn- tors must provide assurance on the also provides a true and fair view. Is- over and total assets before and after compilation of the pro forma financial suers not incorporated in Switzerland the change in structure. information. may use the accounting standards of their home country provided these are Depending on the nature of the Practical Considerations recognised by the Regulatory Board change in structure, the additional fi- The timely preparation of the (currently IFRS as adopted by the nancial information may be in the form financial information required may European Union and Japanese GAAP). of pro forma financial information or be challenging, considering that addi- in the form of specific historical finan- tional consolidated financial infor- These requirements apply to the cial statements such as carve-out mation (such as interim financial consolidated financial statements. In or combined financial statements. statements) or a conversion to anoth- most transactions, the prospectus Carve-out financial statements are er accounting framework may be also includes the (unconsolidated) used when only a part of the organisa- required. Diligent time planning and statutory financial statements of the tion, such as a division, will be listed. sufficient allocation of resources are issuer. Annual financial statements Combined financial statements are therefore key. need to be audited and the respective prepared in the absence of consolidat- audit firm has to be licensed by the ed financials by combining the individ- Federal Audit Oversight Authority or ual financial statements of business an equivalent foreign authority. units under common control so that According to the Listing Rules, they are considered as one reporting

86 Preparing the IPO Preparation

Identifying Investor Relations

by Thorsten Pauli, together, in particularly when there is intensive relationship with the inves- Managing Director and Head Equity leakage of deal-specific information. tor base is a higher liquidity post-IPO Capital Markets Switzerland, Generally, external IR advisors can be and thus a lower share volatility. This UBS AG especially helpful in managing exter- also guarantees a full and fair valua- nal communication in leak situations tion by the market. An established due to their field-specific know-how relationship with the investor commu- and experience. It is also worth men- nity allows the company to obtain nvestor relations (IR) describe a tioning that external IR advisors are direct feedback from market partici- I company’s activity of communi- most useful in raising public aware- pants and to maintain an ongoing cating with its existing shareholders ness in situations where there is an dialogue post-IPO. This can be espe- and creditors as well as potential debt offering to retail persons in the do- cially valuable when the company and equity investors. This communi- mestic market. In this context, IR ad- intends to raise capital in the future, cation includes both mandatory (e.g. visors can perform a retail demand as the access to capital markets is annual reports, ad hoc publicity) as analysis, if required. facilitated and the cost of capital is well as voluntary (e.g. corporate social minimised. Furthermore, the opera- responsibility reports) elements. The Objectives and Benefits tional and, more importantly, the IR department is responsible for shap- It is essential for a company with reputational risk can be minimised ing a company’s public perception the intention of going public to recog- by controlling the corporate informa- and interacts most frequently with ex- nise that IR is not just a support function flow to the public. Other positive isting shareholders, potential inves- tion. It is a key strategic element, which side-effects are that the value of the tors, research analysts and journalists. creates value by ensuring a fair valu- issuer’s brand is enhanced and the Larger corporations usually establish ation and reducing risks. The main culture within the company and its a dedicated IR team. For smaller com- objective of IR activities is to create personnel is promoted. panies it can be more viable to assign an environment of informed invest- this role to the responsibilities of a ors and to avoid misperceptions or Proactive and Inactive IR CFO / Treasurer or to outsource it to a false expectations in the market. An- In general, there are two differ- specialised public relations firm act- other important measure, which IR ent approaches to IR that have to be ing as external IR advisor, although is responsible for, is to implement distinguished: the proactive and the this is less common. the so-called Regulatory Compliance. inactive approach. Proactive IR is Regulatory Compliance ensures that based on the provision of a maximum IR in the Context of an IPO policies and processes are in place amount of information and transpar- In the context of an IPO, IR is an within the company so that the laws, ency creating a better understanding issue which should be considered ear- rules and regulations of the relevant of the company and its competences ly on in the IPO process. Ideally, a ded- listing location and stock exchange in the market leading to a greater in- icated team is appointed at the start are followed and satisfied. This also vestor confidence. On the other hand, of the IPO preparation process to includes an informed management the inactive approach limits the infor- make sure it can get to know and deal and employees being educated on mation flow to a minimum. Further- with investors early in the process and topics like compliance. more, there are two possible approach- become familiar with them. This team es lying in-between these extreme will be the first point of contact for in- These efforts will pay off, be- views: the company can provide the vestors pre- and post-IPO and hence cause they finally lead to a community market with sufficient information the better settled it is the more valua- of supportive and trusting investors such that investors are guided to a ble it can be for the company and its and stakeholders, as the company certain view or it can make available investors. The company, the potential demonstrates its commitment to just the information that is requested external IR advisor and the mandated shareholder value. Direct implica- by market participants. syndicate bank must closely work tions and benefits from a good and

Preparing the IPO 87 Preparation

Case study: Sunrise Communications Group AG

by Thorsten Pauli, he 2015 SIX-IPO of Sunrise Com- aration might put a question mark on Managing Director and Head Equity T munications Group AG (Sunrise) the planned timing. However, in con- Capital Markets Switzerland provides an illustrative overview of the nection with the Sunrise preparation & Dr. Sebastian Harsch, key characteristics of an IPO process: process, markets recovered relatively Executive Director and Head fast from their downturn in October Transactions Legal Switzerland, Transaction Background 2014, overcoming this first challenge. UBS AG On 14 January 2009, Sunrise an- The removal of the EUR / CHF floor by nounced the plan to list the newly cre- the SNB one day after the publication ated holding company Sunrise Com- of the intention to float has been an- munications Group AG on SIX Swiss other challenge. Fortunately, the only Exchange. The proceeds of the IPO sector in the SPI that kept stable fol- were intended to be used to substan- lowing the SNB announcement was tially strengthen its balance sheet and telecommunication. In addition, Sun- exploit future growth opportunities. rise had only very limited exposure to The Swiss IPO demonstrates the com- EUR revenues, meaning that a pany’s long-term commitment to the strengthening of the CHF versus EUR Swiss market and supports its corpo- did not significantly impact the busi- rate strategy of investing in state-of- ness case. the-art integrated mobile and fixed network technology. Having successfully managed these exemplary challenges, Sunrise Transaction Highlights successfully launched its IPO, which The preparation process lasted resulted in a total size of c. CHF 2.3bn for c. 6 months until the decision was (post greenshoe), following two up- taken to publish the intention to float sizings (CHF 290m at launch and (media release stating plans to list the CHF 340m at day of pricing), being the shares). This time span can be consid- largest IPO in Switzerland since 2006. ered average, but might be shorter in other cases, e.g. the pure listing of This case shows that a listing is shares. not a standardised process, but will often create additional and unique ob- The Sunrise IPO provides in- stacles. Keeping that in mind, it is im- sights into additional specific chal- portant to maintain close co-operation lenges, which have to be managed between the company, banks, and during the preparation process. Fac- other advisors to manage these issues ing market-deteriorations during prep- and allow a successful listing.

88 Preparing the IPO Preparation

Company Overview Transaction Summary

Company Sunrise Communications Group AG Issuer Sunrise Communications Group AG

Incorporation Zurich, Switzerland No. of shares listed 45,000,000

Listing SIX Swiss Exchange – International No. of shares placed 33,448,276 Reporting Standard

Sector Telecommunication Ticker on SIX SRCG

Revenue (2014) CHF2,084 million First trading day 6 February 2015

Share Performance Post Listing

2015 Volume SRCG SW Equity

88 9.000 86

84 8.000 82

80 1.200 78

76 800 Volume (000s) Volume Stock price (CHF) 74

72 400 70

68 0 06 18 02 14 26 07 19 February February March March March April April

Preparing the IPO 89 90 Preparation

There Is no Second Chance to Make a First Impression

by Dr. Michael Düringer, icies. The needs of the market require closely intertwined with a specific cul- Stefan Mathys, closer interaction with a greater number ture and that have grown origanically Martin Meier-Pfister, of stakeholders and interested parties over time must be reconciled with the Daniel Piller with differing interests. All in all, an IPO public stage. To qualify as an IPO can- & Jürg Stähelin, makes a professional, comprehensive didate, a company must uphold a cer- Partners, communications approach imperative. tain set of financial reporting stand- IRF Communications AG From one day to the next, communica- ards and refine its public profile and tions activities will have to be addressed corporate culture. n initial public offering (IPO) pos- to a larger group of institutional and pri- A es major opportunities and chal- vate investors. Also, financial analysts Public Awareness Matters lenges in term of communications. and journalists will be expecting a During the course of an IPO the Companies will have to respond adept- steady flow of information from the company’s shares are sold to new ly to a spike in interest from the finan- company. Moreover a listed firm will at- owners at a price that balances the in- cial community, the general public as tract more attention from competitors, terests of the former and new share- well as expert specialists. Once listed, the representatives of industry associa- holders. The valuation will be driven in a company must comply with stock-ex- tions and, not least, from industry ex- particular by the company’s strategy change disclosure rules and regula- perts and the stock exchange. and management, its recent operating tions; this will entail new policies and performance and its growth pros- operating procedures and a change in Pre-IPO Phase: Raising Public pects. Additional factors, such as the corporate culture. Awareness and Creating a Com- general market sentiment, the compa- munications Toolbox ny’s image and reputation, risk man- An IPO marks a major milestone in a Once listed on the stock market, agement policies, how the company’s company’s development. Whatever the a company is no longer free to decide achievements are communicated, a specific circumstances are: an IPO sig- when and which information to share comparison with competitors and so nificantly changes a company’s com- with internal and external audiences. on, are also relevant. munications activities. It puts a com- Going public requires a company to pany in the spotlight, it’s ‘going public’ comply with the increasingly tight list- A key question then is how to in its true sense: An IPO offers a rare ing regulations, which includes adher- positively influence internal and exter- chance to leapfrog in terms of aware- ence to the SIX Swiss Exchange’s di- nal perceptions. To begin with, a com- ness, reputation and perception. As rectives on financial reporting and ad pany’s messages and communica- a result, an IPO will also significantly hoc publicity as well as on corporate tions activities must be carefully increase the visibility of the top man- governance. These directives set new coordinated in order to create a con- agement and closely link the key ex- standards regarding corporate trans- sistent impression. A coherent image ecutives to the company and its pros- parency, reporting schedules and is key. It is possible only if there is an pects. These opportunities should not much more. internal consensus regarding the val- be missed. ues and messages that will be culti- It adds complexity, too. Regula- Hence, change is in the air. Op- vated and projected, both internally tion asks for enhanced information pol- erating procedures that are usually and externally. A first step on the com-

Preparing the IPO 91 Preparation

munications front in preparing for an tual transaction. This is when invest- The time between the initial an- IPO is a thorough analysis of the sta- ment bankers and lawyers are heavily nouncement of an IPO and the publi- tus quo. What are the strengths and involved in the process. At this point cation of the transaction details, typi- weaknesses from a perception point communications activities will be se- cally a period of two weeks, can be of view? This is followed by a concise verely restricted for regulatory rea- used for informal talks with selected and crisp formulation of the firm’s vi- sons. Some key issues at this stage, media to deepen their understanding sions, strategies and targets. Commu- which are often overlooked, are how of the company and the relevant sec- nicating the outcome of this process confidential information is being treat- tor. These are also relationship-build- is the next step and the objective here ed, and the company’s information ing opportunities and a means of en- is to secure shareholder support for management policies in general. The suring that the journalists who will be the company’s plans. precept of non-discrimination towards reporting about the IPO are up to date any and all stakeholder groups, the ad on the company’s strategy and issues. Practical Questions to Be Ad- hoc publicity directive and the gener- The accuracy of media coverage is dressed During the Pre-IPO Phase: ally higher level of transparency re- greatly enhanced if the journalists are – Have the key messages been for- quired of public companies impose re- already familiar with the company and mulated regarding company mar- strictions on the IPO candidate and its prospects before they write about kets, products, services, expan- mandate changes in company culture. the share offering and the fundamen- sion and development plans, etc.? Employees may no longer be given tal outlook for the individual business – Are these key messages being re- potentially price-sensitive information areas. One of the basic rules of com- flected in the current corporate before the general public is informed, munications must be heeded here: communications tools? for example. The compensation paid First impressions count. Opinions are – What is the IPO holding state- to the Board of Directors and the top formed on day one. Changing first im- ment and leak procedure? executives must be made public and pressions is a difficult undertaking, es- – Is the communications toolbox will be scrutinised. The same applies pecially because the media, once it based on the latest tools and to management transactions in the has taken a certain position, will not technologies? company’s shares. If the operating re- change position and take a complete- – Will the company’s brochures, sults fall short of expectations, there ly different viewpoint unless there is presentations and website will be a swift and severe negative good reason to do so. be in compliance with future backlash, and individual company requirements? managers may also be singled out for The announcement of the trans- – Who are the key contacts in the criticism. This abrupt shift from pri- action details and price range, usual- financial press? Do they know vate to public might cause resistance, ly via publishing a press release and our story? uncertainty or anxiety. Clever commu- arranging a press conference, is fol- – Which are the delicate topics a nications can help making this a grad- lowed by a roadshow that is organised journalist might write a story ual change, and prevent missteps. by the banks in the underwriting syn- about? What can be done to min- dicate. Company management takes imise the likeliness, or impact of IPO Phase: The First Impression to the road to present the equity story such a story? Counts to interested investors in numerous – Who is in charge for the commu- This is when things get serious: group and one-on-one meetings. nication with investors, the media The decision has been made to launch These meetings are scheduled over and the public at large? How are the IPO. One critical point is whether two weeks and take the top execu- the related responsibilities the financial community and the me- tives to the major financial centres in organised? How to ensure the dia have already been familiarised Europe and overseas for certain trans- one-voice principle? with the company’s business activi- actions. – Which other new stakeholders ties and targets. The timing of an IPO must be addressed, and how? announcement must be carefully se- Practical Questions to Be Ad- lected. Companies can choose from a dressed During the IPO Phase: Adaptation of Corporate Culture variety of platforms from which to – How and when will the intention Solid preparation is particularly make their announcement, ranging to go public be announced? important immediately before the pre- from an exclusive interview in a major – Are the key journalists familiar IPO phase gets under way, which financial newspaper to a simple “in- with the company, its business would be a few weeks before the ac- tention to float” press release. activities and targets? What is the

92 Preparing the IPO Preparation

general level of knowledge about Overdoing it Can Backfire the industry sector? What infor- An IPO is a salesmen exercise. mation has to be provided to It is about selling shares to new make the case easier to be under- shareholders. A management must stood? be convinced about the company’s – What groups of investors with strategy and prospects or it will not what level of knowledge and fa- be able to convince new investors, miliarity with the company will be which are sceptical by nature. primarily addressed? Has appropriate documentation been This goes along with a tenden- drawn up? cy to oversell. Nonetheless it is cru- – Have the new target groups been cial that the equity story is firmly added to company mailing and grounded in reality. Management distribution lists? Is the respec- will jeopardise its own credibility tive set-up suitable for a public quickly if false expectations are cre- company? ated; high hopes and low share pric- – What new sections and services es (shortly post IPO) are a common or information must be added to pair. Thus, when formulating the eq- the company’s website? uity story, it is best to follow the clas- sic rule of investor relations: Slightly Equity Story Serves as the Main under-promise, try to over-deliver. Sales Instrument Hence, the intention must be to pro- The equity story is a short version vide investors with a detailed picture of the company’s strategy in the lan- of the firm’s operating performance guage of the financial analysts and in- and strategy, with concise reasons vestors. It describes the positioning why the company merits their in- and the development of the company vestment. IPO candidates are well in relation to growth opportunities and advised not to use all their ammuni- value-creating potential as well as the tion during the IPO process and to relevant KPI’s to measure progress. It save a few PR arrows in their quiver also reflects the risks associated with for the subsequent demands that the business. Information about the will be placed on them as a public company’s market environment as well company. as its organizational structure is of primary importance, which means atten- The IPO process ends with the tion should focus on factors that man- fixing of the issue price and the allo- agement can influence or even control. cation of shares by the underwriting Other factors that a firm must contend syndicate. There are various ways of with by virtue of its business concept setting the issue price, the most and which it cannot influence directly common being the book-building are also important. Examples of major method where interested investors internal factors are corporate strategy, tell the underwriting syndicate how growth plans, acquisition criteria and many shares they would be willing strategic alliances as well as the unique to buy at what price. The issue price selling points of the company’s prod- and the number of shares that will be ucts and services. Examples of exter- issued are based on the bids re- nal factors are market data, the com- ceived and announced in press re- petitive situation, risks not directly leases issued by the underwriting related to operating activities and envi- banks and the issuer. This also coin- ronmental factors. cides with the first day of trading: the IPO has been completed!

Preparing the IPO 93 Preparation

“An IPO significantly changes a company’s communications activities. Greater complexity with regard to information policies and the need to interact with a greater number of stakeholders and interested parties with differing interests make a professional, comprehensive approach imperative.”

Communication Strategy – Phases and Measures

PHASE I PHASE II PHASE III PRE-IPO COMMUNICATION, PREPARATION SHARE MARKETING ONGOING IR

Objectives Objectives Objectives – Investment case is fine-tuned – Investment case is known by target groups – Credibility is built thanks to … – Company introduced to Swiss Financial – Awareness is there … good news, over-delivering on promises Community and media – Shares are allocated … continuity and consistency – Tools of Phase II ready

Measures Measures Measures – Introduction/awareness programme – Media one-to-ones – Establish IR office – Communications concept IPO/after IPO – Press releases – Annual/ interim reports – Key messages, Q&A, rehearsals – News/ analyst conference – Investor road shows – Prepare IR database – Roadshow, presentations – Concept ad-hoc publicity – Market monitoring – Website – Media relations – Prepare tools of phase II – Factsheet – Update website – Market monitoring – Market monitoring

94 Preparing the IPO Preparation

Post-IPO Phase: Focus on Build- – How can a company resolve ing Trust the conflict of interests between Conclusion: Once listed, the company needs providing the greatest possible Being Accurate is the Best Solution to establish its position on the trading transparency for the financial floor. Building trust is a top priority and market while not revealing Going public is a one-time experience. this requires a regular flow of informa- too much information to com- Careful planning and thoughtful execution and active public relations – also petitors? tion is key to broaden a company’s during hard times. The SIX Swiss Ex- awareness and to enhance its reputa- change’s listing regulations oblige tion. In the run-up to the IPO, for the companies to comply with certain CEO and other top executives it is not requirements concerning financial dis- just about what to say but, perhaps even closure, ad hoc publicity and other more, what not to say. For the years to reporting guidelines, which include come they will be measured on the the publication of an annual and inter- promises at the time of the share under- im report and regular updates of the writing. This offers a great opportunity investor relations pages of the compa- to demonstrate leadership via commu- ny’s website. In addition, current and nications, both internally and external- potential investors will be interested ly. But is also means that management in group or one-on-one meetings. needs to get used to potential criticism These new processes and procedures by investors, analysts or media. Hard will have to be established and moni- skin is required. tored closely to avoid sanctions by the stock exchange. The aim of active public relations en- compassing all stakeholders is to plant Practical Questions to Be the business firmly in a steady environ- Addressed During the Post- ment that takes due consideration of the IPO Phase: needs and interests of all stakeholders. – Does the share price reflect the From an investor’s standpoint, determin- intrinsic value of the business? ing the fair value of a company’s stock is What can be done if the market the key issue. Shareholders expect full and company management are transparency from the boardrooms re- too far apart in their assessment garding the current course of business of the firm’s true value? and future prospects, upon which they – How can long-term oriented base their estimation of the future direc- investors be attracted to the tion of the share price. Hollow promises company? and unrealistic expectations will lead to – How does the company address excessive fluctuations in the company’s the expectations of analysts stock price, as will overly cautious and and investors? How can these conservative statements. Such extremes expectations be managed? benefit primarily short-term-oriented in- – What information qualifies for vestors seeking to profit from the high an ad hoc statement? volatility. Therefore, company manage- – When must a profit warning or ment has a great interest throughout the upgrade be issued? IPO process to convey a “true and fair” – How can I manage the investor picture of the company’s performance to relations and financial PR internal and external target groups. processes cost-effectively?

Preparing the IPO 95 96 Switzerland as a global financial centre

Market the Investment Case

97 98 Marketing

Market the Investment Case – Overview

IPO Marketing Campaign

LAUNCH / INTENTION TO PRICE RANGE SETTING PRICING FLOAT PRESS RELEASE

PHASE Pilot fishing / Roadshow and Analyst presentation anchor investor Investor education bookbuilding approach

DESCRIPTION Management presentation to Management presentation to Syndicate research Management presents its syndicate research analysts key target investors analysts meet with investment case in one-on-one investors and group meetings to institutional investors

LENGTH Several hours Case by case basis ca. 2 weeks ca. 2 weeks

OBJECTIVES Present investment case Solicit early investor – Create awareness – Market equity story to syndicate analysts feedback on investment for investment case to broad universe of case as well as potential – Identification of key investor constituents demand from key opinion investors – Maximise demand and leaders – Provide feedback drive the pricing debate for development of equity story

he quality of the marketing pro- by Mark Hammarskjold, T cess is of utmost importance for Head Equity Capital an IPO. The execution of the market- Markets Switzerland ing strategy will determine the posi- & Amanda Robinson, tioning of the company in the public Director Equity Capital market and not only influence the Markets Switzerland, amount of demand and the price Credit Suisse AG achieved for the IPO, but also the post- IPO investor base of a company. To achieve the best possible outcome for the company, its employees, its shareholders as well as new investors, every marketing campaign will be unique- ly tailored and adapted to the prevailing market conditions (see e.g. SFS Group AG case study). The typical phases of a marketing process are laid out above.

Market the Investment Case 99 Marketing

Analyst Presentation

by Mark Hammarskjold Additional syndicate banks are valuation is typically based on a com- & Amanda Robinson, invited to join the IPO syndicate a few bination of relative valuation method- Credit Suisse AG weeks ahead of the analyst presenta- ologies (e.g. P / E s a n d / o r E V / E B I T D A tion, with the goal of having relatively multiples) as well as a funda- broad pre-deal equity research cover- mental discounted cash flow analysis age and allowing investors to review (i.e. DCF). Depending on the compa- different reports during investor edu- ny and its sector, there may be no or he management presentation to cation (cf. “Investor Education”). In or- a limited number of publicly listed T syndicate equity research ana- der to ensure that all syndicate ana- comparable companies available lysts is a key milestone in the IPO mar- lysts follow the same timetable and which requires in-depth fundamental keting preparation. It is the opportu- guidelines for the preparation, review analysis and investor education. nity for the management team to and distribution of research reports, present the company’s detailed in- all syndicate banks are sent the re- vestment case to the independent eq- search guidelines prepared by the uity research analysts of the syndicate underwriter(s)’ counsel ahead of the banks in a physical meeting. The ob- analyst presentation. jective is to educate the syndicate research analyst on the company’s eq- Following the analyst presenta- uity story which will form the basis for tion, the syndicate research analysts the drafting of the pre-deal research have a circa four-week drafting peri- reports. The analyst presentation doc- od before the publication of the re- ument is handed out in hard-copy for- search reports. It is common to have mat to the analysts and, among other Q&A and a structured dialogue be- items, typically includes an overview tween the management of the com- of the company’s market, competitive pany and the syndicate analysts dur- landscape and products as well as ing this period, in order to ensure that business and financial overview and the analysts don’t have any open strategy. questions. In addition to the documents provided to the analysts at the The management presentation analyst presentation, the analysts are to the syndicate research analysts also performing their own due dili- usually lasts for several hours, where- gence on the company during this pe- by the various divisional management riod. Before the research reports are representatives are invited to present published, management typically has their own segments / divisions in ad- the opportunity to review the draft re- dition to top management. If deemed ports for a factual accuracy check (as relevant, the company presentation defined in the research guidelines). can be combined with a site visit. The research reports are exten- The presentation is prepared by sive (depending on the company’s the bookrunner(s) together with man- complexity) and typically include the agement, whereby it is important to company description, the investment assure that the content is aligned with case, the positioning of the company the offering and listing prospectus. within its sector as well as a valuation. The business plan is not shared with The analysts will determine an equity analysts in order for the financial fore- and / or enterprise valuation range casts to be independent estimates by but will exclude specific share price the research analysts. guidance and recommendations. The

100 Market the Investment Case Marketing

Pilot Fishing and Anchor Investor Process

by Mark Hammarskjold more, it allows them to potentially – Understanding / track record of & Amanda Robinson, obtain early indications of interest investing in the company’s sector Credit Suisse AG from investors ahead of the formal and region launch of the bookbuilding process, – Institutions that can effectively thereby driving demand momentum act as opinion leaders and have once the IPO is launched and there- the potential to exhibit significant fore de-risking the IPO execution. support for the upcoming IPO – Investors that typically provide efore the intention to float (ITF) In addition to pilot fishing, it is insightful feedback and B press release is published and possible to include an anchor investor – Long-term focused investors who the pre-deal research reports are re- process into the overall IPO marketing are likely to support the company leased, it is recommended for issuers campaign as seen in various recent to meet with selected key investors European IPOs (e.g. Glencore and Ori- Although a pilot fishing or an- and opinion leaders on a confidential or). Anchor investors are knowledge- chor investor process is not a pre- basis. This process is called pilot fish- able investors that have credibility requisite for a successful IPO, it typi- ing and has been a key feature of most among the investment community cally helps drive the valuation of the European IPO executions in the last and which can either agree to sub- offering, supports momentum and few years. scribe to the IPO prior to the launch of demand generation and therefore bookbuilding (so called cornerstone de-risks the IPO execution. From an The meetings allow investors to investors; need for disclosure in the investor’s perspective it allows early develop greater comfort with man- prospectus) or alternatively at the be- contact with management which fa- agement through early involvement, ginning of bookbuilding. In case of cilitates the decision making process. which can deliver valuable feedback early IPO subscription (i.e. prior to on positioning, valuation, investment launch of bookbuilding), these inves- Feedback from the pilot fishing appetite and potential concerns allow- tors typically are expected to sign a and / or anchor investor process as ing the company to refine the equity lock-up agreement. well as from the equity research ana- story ahead of roadshow meetings. lysts via the research reports can be It also gives management the oppor- Anchor investors are selected used to take the final go- / no-go de- tunity to meet investors and practice by the bookrunner(s) based on the cision with respect to the public IPO the roadshow presentation. Further- following criteria: announcement (ITF).

Anchor Investor Process

Start confidential Potential commitment management meetings from anchor investors with anchor investors Price range Draft prospectus announcement provided to anchor investors Anchor investor orders

Analyst First anchor Launch / Pricing presentation investor intention to feedback float press release

ROADSHOW AND PILOT FISHING / ANCHOR INVESTOR APPROACH INVESTOR EDUCATION BOOKBUILDING

Market the Investment Case 101 Marketing

Investor Education

Evolution of Price Determination

Investor education 10 % Bookbuilding 5 % 0 % (5) % (10) % (15) % (20) % Valuation / price range / Valuation t-30 t-15 t-0 Time (25) % (days) VALUATION RANGE BY SYNDICATE RESEARCH OFFICIAL PRICE RANGE PRICING

by Mark Hammarskjold tionally, a period which typically lasts – Feedback on positioning: & Amanda Robinson, up to two weeks. During this period, Investor reactions to the position- Credit Suisse AG the analysts visit target investors, prin- ing of the equity story can be cipally on a one-on-one basis but also used to fine-tune the roadshow in certain group functions, in order to presentation and address key educate investors on the company’s investor concerns. investment case and value drivers. he investor education starts with – Selection of target investors: T the distribution of the pre-deal Feedback from investors follow- Based on investor reactions research reports to institutional inves- ing investor meetings is collected by to investor education, the tors by the syndicate banks – a well the syndicate banks’ sales forces and bookrunner(s) can fine-tune established practice in markets out- forwarded to the bookrunner(s). In or- the selection of target investors side the US. The pre-deal research re- der for the syndicate sales forces to be for one-on-one meetings with ports provide a valuable tool to edu- as effective as possible when setting management, ensuring that cate target investors about the issuer’s up the investor education meetings management time during the industry, peer group, investment case and collecting investor education roadshow phase is used to and valuation drivers while raising the feedback, each syndicate analyst is maximum effect. company’s profile in the capital mar- briefing the bank’s equity sales force ket. Given that these reports are wide- about the equity story at the start of Investor education is a period of ly distributed by the syndicate banks, investor education. In addition, it is rec- active dialogue between equity re- the distribution of the reports is typi- ommended for the company’s man- search analysts, investors as well as cally preceded by the public intention agement to present the investment the sales forces. Investors typically to float announcement (ITF), where case to the syndicate banks’ sales have a variety of questions during this the company pro-actively informs the forces at the beginning of investor ed- period which need to be addressed market about its IPO plans in order to ucation. This will give the sales teams directly by the sales forces as well as drive the communication with the the opportunity to meet management equity research analysts in order to market. While the entire IPO process and ask potential questions directly educate investors. The corporate fi- has been confidential until this point, and will provide a good backdrop to nance teams are actively updating the company’s plans are now public. address potential investor questions. the sales forces with relevant (sector) Investor education feedback is valua- news during this period. Once the pre-deal research re- ble for the following reasons: ports have been published, the re- Investor education is a key ele- search blackout period commences, – Valuation feedback: ment of the price determination during prohibiting any additional distribution Investor reactions to the valua- the IPO process. of research reports until 40 days post tion proposed in the pre-deal closing of the IPO. Syndicate research research can be assessed and analysts can now start their investor taken into consideration when education in Switzerland and interna- setting the IPO price range.

102 Market the Investment Case Marketing

Price Range Setting

by Mark Hammarskjold Given that investors are likely to the market prevailing at the time of the & Amanda Robinson, receive pre-deal research reports from IPO. Demand tension in the order book Credit Suisse AG different syndicate banks with differ- can reduce such IPO discount. ent assumptions, projections and he bookbuilding method is the financial models, valuation feedback The IPO price range typically cor- T most frequently used price and is typically communicated using differ- responds to a valuation range ca. 20 % discovery mechanism for IPOs (alter- ent metrics: e.g. certain investors may wide (depending on the specific com- native pricing methods include the provide feedback using different rela- pany as well as prevailing market con- fixed price offerings and e.g. Dutch tive valuation multiples (e.g. P / E vs. ditions – Swiss IPOs had an average auctions). It is a mechanism in which, EV / EBITDA multiples), different pro- price range of 20–22% since 2005), during a period of up to ca. 2 weeks, jection years (e.g. 2011 vs. 2012 multi- which provides flexibility and protects the offer book is open and bids from ples), different absolute numbers (e.g. against potential adverse market de- investors are collected at various equity vs. enterprise value) or different velopments or adverse changes in prices, within a band specified by the projections (e.g. their own bottom-up comparable stock trading during the issuer, the “price range”. model or using one particular analyst’s bookbuilding period. projections or consensus estimates). The price range is based on a Common practice is to set the range of data points, such as the valu- It is the bookrunner(s) responsibil- bottom end of the price range at such ation feedback collected during inves- ity to translate all such feedback into a a level to maximise overall interest and tor education and potential pilot fish- uniform picture, in order to be in a posi- demand momentum. The top end will ing and / or anchor investor meetings tion together with the company to de- then be set at a level which is aspira- and is backed by the fundamental val- termine the appropriate valuation / price tional without being so high that it fo- uation from the equity syndicate re- range for the IPO. Investors often ex- cuses investors solely on the bottom search and the corporate finance val- pect to pay a discount to the fair value end of the price range. The momen- uation conducted by the lead banks. of a stock (so called “IPO discount”), in tum generated in the roadshow is de- order to be compensated for the risks signed to move investors up the price All this feedback is collated to associated with a new listing. The size range, with the pricing leverage shift- set a price range per share, published of the IPO discount is largely a function ing from investor to issuer as demand in the preliminary prospectus. of the market volatility / robustness of for the offering accelerates.

Illustrative Investor Valuation Feedback (1) P / E based on research consensus forecast Enterprise value (CHFm) 535 550 565 579 594 609 624 638 653 668 682 697 Demand in shares (@ price per share) Equity valuation (CHFm) 485 500 515 529 544 559 574 588 603 618 632 647 Implied share price (CHF) 33.0 34.0 35.0 36.0 37.0 38.0 39.0 40.0 41.0 42.0 43.0 44.0 Implied P / E (1) 8.8x 9.1 x 9.4x 9.6x 9.9x 10.2x 10.4x 10.7x 11.0 x 11. 2 x 11.5 x 11.8 x Investor 1 Investor 2 Investor 3 Investor 4 Investor 5 Investor 6 Investor 7 Investor 8 Investor 9 Investor 10 Investor 11 Investor 12 Investor 13 Investor 14 Investor 15

Market the Investment Case 103 Marketing

Management Roadshow and Bookbuilding

by Mark Hammarskjold of the transaction has been published. The bookrunner(s) typically brief the & Amanda Robinson, Media representatives attending the management team in detail ahead of Credit Suisse AG press conference are given the prelim- every roadshow meeting about the inary prospectus as well as a compa- next investor meeting and key is- ollowing announcement of the ny presentation or brochure (optional). sues / questions to be addressed. F price range and the distribution of the preliminary prospectus, the The management discussion Target investors for the road- marketing strategy culminates in a c. with investors during the roadshow show meetings are carefully selected two-week intensive series of manage- takes the form of one-on-one meet- by the bookrunner(s) based on inves- ment presentations to investors. The ings, group events and conference tor education feedback as well as in- preliminary prospectus is distributed calls, each normally lasting up to 60 vestor quality and tiering (c.f. “Pricing by the syndicate banks to a wide au- minutes including Q&A and usually and Allocation”) in order to maximise dience of investors and is also avail- starting on the day of announcement the hit ratio during the roadshow and able on demand by eligible investors. following the press conference. The attract a high quality order book. It is roadshow material typically includes important to market the investment The roadshow is typically kicked the preliminary prospectus and a pres- case to the entire addressable inves- off by a management press confer- entation slidebook. A well-rehearsed tor universe for the offering (includ- ence on the day of announcement and well-briefed management team ing e.g. non-institutional investors) once the press release with the details is crucial for a successful roadshow. in order to increase overall demand.

Illustrative Book of Demand

INVESTOR RANK COUNTRY DEMAND LIMIT PRICES DEMAND IN SHARES (@ PRICE PER SHARE) NAME (SHARES) 38.0 39.0 40.0 41.0

Investor 1 Tier 1 Switzerland 500,000 Unlimited 500,000 500,000 500,000 500,000

Investor 2 Tier 1 Switzerland 450,000 Unlimited 450,000 450,000 450,000 450,000

Investor 3 Tier 1 UK 450,000 Unlimited, 41, 40, 38 450,000 400,000 380,000 370,000

Investor 4 Tier 2 UK 400,000 Unlimited, 39 400,000 350,000 350,000 350,000

Investor 5 Tier 1 Germany 300,000 Unlimited 300,000 300,000 300,000 300,000

Investor 6 Tier 2 US 250,000 40 250,000 250,000 – –

Investor 7 Tier 1 US 250,000 39 250,000 – – –

Investor 8 Tier 1 Switzerland 250,000 39 250,000 – – –

Investor 9 Tier 2 US 200,000 40 200,000 200,000 – –

Investor 10 Tier 1 UK 100,000 Unlimited 100,000 100,000 100,000 100,000

104 Market the Investment Case Marketing

Illustrative Evolution of Book of Demand

Tier 1

Tier 2

Tier 3

Tier 4

Offer size Demand in #m of shares

Day 1 Day 2 Day 3 Day 4 Day 5 Day 6 Day 7 Day 8 Day 9 Day 10

The exact sequence of the road- prospectus. As the management team it’s not over until it’s over. If the order show schedule will depend on the ex- progresses on its schedule of meet- book is well subscribed with high- pected investor demand and typically ings and conference calls during the quality demand towards the end of starts in the company’s home market roadshow, investors place orders for bookbuilding, the bookrunner(s) may in order to maximise early demand shares with the bookrunner(s), gener- issue a price guidance to the market, momentum. If shares are also offered ating a book of demand which grows thereby giving investors the chance to to US investors under Rule 144A, over the course of the roadshow. In- remove or increase their price limits. the roadshow schedule will typically vestors can submit orders by either At the end of a successful bookbuild- include marketing in the US. Depend- indicating an absolute amount of ing, the order book should be over- ing on the target demand analysis, demand in CHF or in number of subscribed with high-quality allocable considerations can be given to split- shares. In the event that certain inves- demand. ting the management team into two tors set price limits on their orders, a separate groups to cover more ground demand curve emerges reflecting any during the roadshow. price elasticity in the order book.

The bookbuilding is launched in The sales force(s) are in constant parallel to the management road- dialogue with investors during book- show. Investors are invited to partici- building, discussing the investment pate in the offering on the basis of the proposition and valuation while ad- price range per share published in the dressing potential investor concerns –

Market the Investment Case 105 Marketing

Pricing and Allocation

by Mark Hammarskjold – Overall quality: & Amanda Robinson, measured by (i) level of sophisti- Credit Suisse AG cation and, (ii) investment time horizon in combination with (iii) funds under management – Commitment: measured by (i) active participation in the marketing of the trans- ased on the book of demand gen- action (eg. investor education and B erated in the IPO and prevailing roadshow meetings), (ii) amount market conditions, the bookrunner(s) of effort put into understanding will recommend a price per share at the and evaluating the company’s end of the roadshow and bookbuilding. investment case, (iii) the existence The objective is to price the IPO in the of holdings in comparable compa- upper half of the price range should nies, (iv) order size relative to an conditions allow – i.e. a strongly over- investor’s typical holding (or subscribed IPO with high-quality or- assets under management), (v) ders and little price sensitivity on the likely, or explicit, aftermarket strat- part of target investors – while at the egy with respect to further pur- same time allowing for a positive after- chases, and (vi) post-offer behav- market performance. iour in other relevant offerings – Price sensitivity: In order to achieve such a positive measured by the existence of aftermarket performance, allocations price limits while making the to investors should be scaled back, appropriate judgement on orders thereby encouraging buy orders in the without explicit price limits immediate aftermarket. However, too low allocation levels should be avoided In order to optimise the alloca- as they create disappointment and lead tion process, institutional investors to aftermarket sales if the positions re- are ranked by the bookrunner(s) in tier ceived by investors are too small to ac- groups reflecting their assessed tively manage. quality, as illustrated below.

The allocation process is per- Once the allocations have been formed on a bottom-up basis by the agreed by management and the book- bookrunner(s) which are proposing the runner(s), the individual allocations are allocations to management. The objec- communicated to investors via the syn- tive is to create a high-quality, diversi- dicate banks ahead of start of trading. fied and broad shareholder base com- Market sentiment towards the issuer prised of investors who intend to retain post-IPO is often linked to pricing in re- their shares in the company in the long lation to the price range and the imme- term. The allocation strategy should diate aftermarket performance making cover both qualitative as well as quan- the pricing and allocation process a titative criteria as follows: critical success factor for the IPO.

106 Market the Investment Case Marketing

Illustrative Price Sensitivity in Book of Demand Tier 1

Tier 2

Tier 3

Tier 4

Offer size Demand in #m of shares

Offer price (CHF) 35.0 36.0 37.0 38.0 39.0 40.0 41.0 42.0

Illustrative Investor Tiering

TIER 1 – Demonstrated commitment to the transaction throughout the (pilot fishing), investor education and company roadshow process – Undertaken detailed analysis – Provided valuation feedback and insight – Placed orders early in the bookbuilding – Substantial assets under management – Show limited price sensitivity – Are known as top participants in IPOs and holders of new stock in the aftermarket

TIER 2 – Undertaken detailed analysis in investor education and roadshow – Provided valuation feedback and insight – Generally smaller assets under management than Tier 1 investors and / or smaller order size

TIER 3 – Mixed quality investors, due to: – size of assets – level of analysis – amount of feedback – timing of order

TIER 4 – Investors who have spent little time on the proposition – Typically provide liquidity in the aftermarket

Market the Investment Case 107 Marketing

Over-allotment Option and Aftermarket

by Mark Hammarskjold trades above the issue price, the short from a capital increase. The reason for & Amanda Robinson, position can be covered by exercising such preference is that the company’s Credit Suisse AG the over-allotment option. Exercising capital needs should primarily be cov- the greenshoe means exercising a call ered by the capital increase in the option (an option to buy shares at the base offering, rather than from an IPO price) given by the company or uncertain over- allotment option. In selling shareholder to the syndicate addition, a sale of new shares would o ensure a successful aftermar- banks, to convert the loaned shares have a valuation impact depending T ket performance, an over-allot- into shares available to the syndicate if the over-allotment option is exer- ment option (often referred to as the banks for sale to investors. In this way cised or not (i.e. more shares out- “greenshoe”, named after the first the base offer will have been increased standing) and therefore makes it company to use an over-allotment op- by the greenshoe amount. The syndi- harder for investors to build accurate tion, the Green Shoe Manufacturing cate will then transfer the proceeds of financial models. Company) is commonly part of an IPO the sale of the extra shares to the com- offer structure. The over-allotment pany or selling shareholder(s). Once the company is public, option is a mechanism that gives the stakeholders such as shareholders, po- syndicate the right to purchase shares In the event that the share price tential new investors, analysts, press, representing up to an additional 15% falls below the IPO issue price in the employees and clients will take a much (typically) of the offering size at the 30 days following the first trading day, more active interest in any communi- IPO price for a period of 30 days fol- the short position can be covered cation by the company. Hence, effec- lowing the first trading day. This over- through aftermarket purchases by the tive public relations and IR are of allotment option allows the book- stabilisation manager (i.e. the book- utmost importance. It is critical that runner(s) to allot up to 115% of the runner responsible for the stabilisation the designated IR person (if different respective offer size at pricing, thus on behalf of the syndicate). IPO inves- from CFO) is in place at the time of the creating a significant technical short tors deem this support mechanism as IPO. Ideally, this person is already on position for the syndicate. In order for an important “safety net”. board during the IPO execution phase, the syndicate to allot 115% of the so that it can, for example, attend the offer size at IPO, the additional 15% All things being equal and roadshow and analyst presentation, must be lent to the syndicate by either assuming the company is profitable, and meet investors and syndicate the company or a pre-IPO shareholder. investors typically have a preference analysts at an early stage. for the over-allotment option to con- If the company’s share price sist of secondary (i.e. existing) shares Syndicate analysts are subject does well in the aftermarket and rather than from new shares stemming to the research guidelines which pro-

108 Market the Investment Case Marketing

Greenshoe as a Main Stabilisation Instrument

115% 100% Short

Greenshoe option (30 days)

Base offering size Allocation Eventual offer size Eventual offer underwritten at to investors if Greenshoe not size if Greenshoe pricing exercised exercised

hibit them from publishing their initia- Scenario 1 – Market Rises After Pricing tion research reports on the company for a period of 40 days post closing. Once this period has lapsed, syndicate Stabilisation manager analysts typically publish their initia- exercises greenshoe option tion research reports on the company. to cover over-allotment In addition to syndicate analysts, the company can also reach out to other analysts post-IPO in order to achieve the broadest possible research cover- Issue price age. It is important for the company to priceShare As share price rises above issue price, stay in contact with the analysts not stabilisation manager cannot buy back only upon results announcements but shares at or below issue price also at other times throughout the Time year (e.g. management meetings, analyst days).

Equally important is the regular contact with existing and prospective shareholders in order to develop a Scenario 2 – Selling Pressure After Pricing stable shareholder base consisting of investors who appreciate the longer- term prospects of the company. In ad- Stabilisation manager buys back dition to the communication of results loose stock from the market to cover over-allotment and important business developments, investors appreciate other Issue price forms of period contacts such as non-deal roadshows and meetings at

sector / regional conferences. priceShare When short position is covered, stabilisation ends and shares trade with market

Time

Market the Investment Case 109 Marketing

Case Study: SFS Group AG

Company Overview

ENGINEERED COMPONENTS FASTENING SYSTEMS DISTRIBUTION & LOGISTICS

Manufacturing technologies Competences in sales, and capabilities services, distribution & logistics, e-business

GROUP SERVISES Common support processes, ERP platform, proprietary IT, solutions

Equity Story and Positioning SFS combined all the ingredients for a successful IPO:

KEY THEME SFS POSITIONING RESULT

STABLE AND FOCUSSED – Proven and differentiated value proposition providing for effective barriers to entry BUSINESS MODEL – Longstanding innovation and supply partner of choice to blue chip customer base – Leading positions with targeted customers across applications, geographies and end markets – Global footprint with local presence √

ATTRACTIVE SECTOR – Significant growth opportunities through leveraging of newly established platforms, innovations and industry consolidation – Solid macro growth providing for strong end market momentum √

STRONG MARKET POSITION – Global leader in solution critical precision engineered components and fastening technology √

SOLID FINANCIAL RESULTS – Proven track record of strong margins and profitable growth across the cycle √

LOW BALANCE SHEET RISK – Net debt / LTM EBITDA of below 1x pre IPO √

STRONG CASH FLOW GENERATION –FCF conversion of above 50% in 2013

CONVINCING MANAGEMENT – Experienced management team with on average 27 years of industry experience – Over 600 employees were already shareholders at the time of the IPO √

110 Market the Investment Case Marketing

Management Roadshow

by Mark Hammerskjold Analysts were invited to a one-day Price Range Setting & Amanda Robinson, presentation and site visit at SFS’ The price range was set at CHF Credit Suisse AG headquarters in Heerbrugg. 57–69 per share, representing an equity value of CHF 2,138–2,588 Pilot Fishing million post money. Such pricing In order to educate key opinion was consistent with institutional in- leaders on the SFS equity story and to vestors’ price indications, with the get their feedback on valuation and corporate finance valuation as well appetite to participate in the IPO, SFS’ as with the research analysts’ views n 7 May 2014, the CHF 704 mil- management met with a number of on fully distributed fair value. O lion IPO of SFS Group AG (SFS) long only funds and some hedge on SIX Swiss Exchange was success- funds in Zurich, Geneva and London. The price range was set to cre- fully completed. ate positive momentum and to gen- Following the meetings, detailed erate strong interest by Swiss and Company Overview feedback on attractions, potential international lead investors, while SFS is a global market leader for concerns, valuation indications as well the bottom end of the price range mechanical fastening systems and as indications on likely appetite were provided a protection against ad- precision formed components. The gathered and evaluated by the book- verse changes in markets during the Company operates on a global scale, runners. Key investor attractions in- marketing period. developing, manufacturing and mar- cluded SFS’ growth potential, the keting products for the construction, competitiveness of the business (tech- Management Roadshow / electronics, automotive, capital goods, nology), its proximity to clients and its Bookbuilding aerospace and other industries. It is operational excellence. Furthermore, Following the investor education also active in the sale and distribution investors were impressed by SFS’ by the syndicate research analysts, of fasteners, tools for professionals, management team. SFS’ management embarked on a architectural hardware and related 9-day roadshow across Europe. products in Switzerland. Investor Education The analyst presentation led to a The management teams met with In 2013, SFS generated sales of consistent understanding of SFS’ eq- ca. 180 institutions in one-on-one CHF 1,331 million and an EBITDA mar- uity story and in the two weeks follow- meetings, conference calls and group gin of 20.3% and employed 7,000 FTEs. ing the intention to float announce- meetings. ment, the syndicate analysts interacted Marketing Strategy with around 350 institutional inves- The marketing strategy for SFS tors, mainly in one-on-one and group was designed to de-risk the execution meetings across Europe. Valuable and optimise the outcome of the IPO feedback on the investment case and for all stakeholders. valuation was gathered.

Analyst Presentation Most positive feedback was The objective of the analyst pres- around the management team, the entation was for research analysts to solid and diversified business model, achieve a thorough understanding of the high quality products and SFS’ op- the key value drivers of the SFS and erational excellence as well as the the dynamics of its main end markets. strong set of financials.

Market the Investment Case 111 Marketing

The offer size for the SFS IPO was covered on the first day of the roadshow. By day 6 of the roadshow, over 200 investors had put their orders in the order book. The conversion rate of orders vs. investors met in one-on-one meetings was over 60%.

Pricing and Allocation The strong demand allowed to price the offering at CHF 64, the upper half of the price range. The allocation strategy for the SFS IPO was concentrated to achieve a long-term stable investor base and to generate solid aftermarket buying. The share price had a good start to trading, opening up 4.7% and closing up 4.0% on the first day of trading. The strong aftermarket performance allowed the banking syndicate to exercise the over-allotment option on the 7th day of trading.

Evolution of Gross Demand Gross demand Base Offer Size Incl. Greenshoe Shares

April 23 April 24 April 25 April 28 April 29 April 30 May 01 May 02 May 05 May 06 Zurich London London Geneva Zurich Frankfort London London Paris Conf.Calls

112 Market the Investment Case Marketing

Demand by Geography 5 4 3

1. Switzerland 69 % 2. UK 20 % 3. Germany 4 % 4. FL 2 % 5. Other 5 %

Summary of the Offering

ISSUER SFS Group AG

PRICE RANGE CHF 5757–69 – CHF 69

OFFERING SIZE CHF 704m704 m includingincluding over-allotmentover-allotment optionoption

SHARES OFFERED Base offering: 10,008,910 shares 5,057,500 primary and 4,951,410 secondary Over-allotment: 992,420 shares (all secondary) TOTAL OFFERING: 11,001,330 shares

FREE FLOAT 34%34 % includingincluding over-allotment;over-allotment; 45%45 % post post lock-up lock-up

LISTING SIX Swiss Exchange

TOTAL SHARES ISSUED 37,500,000 shares

DISTRIBUTION Switzerland: Public offering International: Distribution to institutional investors under Reg. S outside the US

LOCK-UP 6 months for company 12 months for directors, managers and selling shareholders

PRICING CHF 64

MARKET CAPITALISATION AT PRICING CHF 2.40 bn

Market the Investment Case 113 114 Obligations of a Public Company

115 Aftermarket

Obligations Affecting Shareholder Management, Ad Hoc Publicity and Management Transactions

by Dr. Patrick Schleiffer, See also “Financial Reporting Require- ness of the company, the execution Attorney-at-law, M.C.J., Partner ments”, “Corporate Governance” and and the results of the audit, respec- & Urs Reinwald, “Maintain the Listing” for details. tively. These information rights, how- Attorney-at-law, LL.M., ever, are not unlimited; in particular, Lenz & Staehelin Shareholders have a right to re- the company may refuse to disclose view the annual report and the audi- information if and to the extent that tors’ report prior to the ordinary share- business secrets or other legitimate in- hile a private company’s duty holders’ meeting which should take terests of the company are at risk. W to provide shareholders with place no later than six months after information can be characterised as the end of any given business year. Shareholders may only inspect being “periodical” (because it is, with The reports must be available for re- the company’s business records on some exceptions, essentially limited view by shareholders at the compa- the basis of an express authorization to the duty to prepare an annual report ny’s registered office at least 20 days by the shareholders’ meeting or the and respond to the information re- prior to the shareholders’ meeting. board of directors. Such inspection quests of shareholders at sharehold- Each shareholder may also request right, however, is subject to business ers’ meetings), a public company is delivery of a copy of these docu- secrets of the company. If a share- held to higher standards with respect ments. A listed company must provide holder’s request for information or in- to both the quantity and the quality of shareholders as well as any other per- spection of the business records is de- information it has to provide to its son with a copy of the annual report nied by the company, the shareholder shareholders and the market. in the form approved by the share- may refer the matter to the competent holders’ meeting and a copy of the au- court. Any shareholder may further re- Shareholders’ Right to Information ditors’ report upon request for a peri- quest that certain facts be investigat- The main source of information od of one year following the respective ed in a special audit by a court-ap- for shareholders is the annual report. ordinary shareholders’ meeting. Also, pointed special auditor, provided that Companies listed on SIX Swiss Ex- the annual and interim financial state- (i) such audit is necessary for the exchange must publish an annual report ments including any supplements ercise of shareholder rights; and (ii) including the audited financial state- must be available on the website of the above-mentioned information and ments and the auditors’ report and a the issuer for a period of five years. inspection rights have already been half-year report including (unaudited) exercised to no avail. The decision on interim financial statements within four At the shareholders’ meeting, whether a special audit is conducted months and three months, respective- shareholders may also request infor- lies with the shareholders’ meeting, ly, of the respective balance sheet date. mation from the board of directors or, alternatively and subject to certain Quarterly reports are not required. and the auditors relating to the busi- conditions, the competent court.

116 Obligations of a Public Company 117 118 Aftermarket

Ad Hoc Publicity and Other closure of management transactions. shares, similar equity securities, con- Duties to Provide Information The basic principle of these rules is version rights or rights to purchase or Any Swiss issuer and any non- that members of the board of direc- sell of the issuer. Swiss issuer that is listed on SIX tors and the executive committee of Swiss Exchange, but does not have an issuer have to report transactions As a general rule, any transaction any securities listed in its home juris- in equity securities or related financial executed without the person subject diction, must inform the market of any instruments of the issuer to the issuer to the reporting obligation being able potentially price-sensitive facts with- who must then forward such informa- to influence such a transaction is ex- in its sphere of activities in the form tion to SIX Exchange Regulation for empted from the reporting obligation. of an ad hoc notice as soon as it be- publication. In particular, no reporting obligation comes aware of the main elements of exists if a transaction takes place on such facts. In order to trigger the dis- While the duty to report man- the basis of an employment contract closure duty under the ad hoc public- agement transactions primarily lies or is part of a compensation scheme ity rules, a fact must be significantly with the company’s board of directors and the person subject to the report- price-sensitive (i.e. expected to result and management committee, it is the ing obligation cannot effect such a in a share price movement consider- issuer who is formally subject to the transaction by his / her conscious de- ably larger than usual fluctuations) disclosure obligation and who there- cision. Thus, a firm allocation of and therefore capable of affecting an fore has to ensure that the members shares, similar equity securities, op- average market participant’s invest- of its board of directors and executive tions or other rights to acquire shares ment decision. committee report all transactions sub- is not subject to the reporting obliga- ject to the reporting obligation by im- tion. However, a subsequent exercise Ad hoc notices have to be distributed plementing the necessary internal or sale of such shares or rights must to (i) SIX Exchange Regulation; (ii) at regulations and reporting processes. be reported. Further, transactions of least two widely used electronic infor- the issuer in its own equity securities mation systems (e.g. Bloomberg, Reu- The reporting obligation is limit- or related financial instruments are not ters or SIX Financial Information); (iii) at ed to members of the board of direc- subject to the reporting obligation and least two Swiss newspapers of nation- tors and the executive committee, i.e. neither are pledges, usufructs, securi- al importance; and (iv) interested par- the two top management levels, and ties lending, inheritances, gifts or the ties who have requested to receive ad certain transactions of related parties division of marital property. hoc notices via e-mail distribution (life partners, individuals living in the (“push system”) outside of trading same household and legal entities, The reporting obligation arises hours (whenever possible). Further, the partnerships and fiduciary institutions when the reportable transaction is en- issuer must simultaneously publish the if the person subject to the reporting tered into, even if such a transaction ad hoc notice on its website where it obligation holds a management posi- is subject to conditions. For transac- must remain available for a period of tion within such an entity, controls the tions settled over an exchange, the re- two years after publication (“pull sys- entity directly or indirectly, or is a ben- porting obligation arises when the tem”). Annual and interim reports also eficiary of such entity or institution). transaction is executed. The person have to be published in accordance Other executives are not subject to the subject to the reporting obligation with the ad hoc publicity rules. An is- reporting obligation, and neither are must notify the issuer no later than on suer may delay the disclosure of price- former members of the board of direc- the second trading day after the re- sensitive information, provided such tors or the executive committee or portable transaction has been entered facts are based on a plan or decision of members of any advisory board. into. The required content of the noti- the issuer and the publication is capa- fication is set forth in detail in article ble of prejudicing interests of the issu- Provided the respective transac- 56 of the Listing Rules of SIX Swiss Ex- er, but only for as long as it can keep tion has a direct or indirect impact on change. The issuer must within three the information confidential. In addi- his / her assets, a member of the board trading days after receipt forward any tion to disclosures pursuant to the of directors or executive committee notifications to SIX Exchange Regula- rules on ad hoc publicity, issuers of se- must report any transaction involving tion via the electronic reporting plat- curities listed on SIX Swiss Exchange (i) shares or similar equity securities of form made available by SIX Swiss Ex- have to notify SIX Exchange Regula- the issuer; (ii) conversion rights or change. SIX Exchange Regulation tion of certain changes relating to the rights to sell or purchase that provide maintains a database of all notifica- issuer itself or the listed securities (see or allow for a physical settlement in tions and publishes them (stating the “Maintain the Listing”). shares or similar equity securities, information required pursuant to arti- conversion rights or rights to sell or cle 56 of the Listing Rules, except for Disclosure of Management purchase of the issuer, and (iii) finan- the name of the person subject to the Transactions cial instruments that provide or allow reporting obligation and the date the Issuers with a primary listing of for a cash settlement and contracts for issuer has been notified). Notifications equity securities on SIX Swiss Ex- difference, the performance of which remain publicly accessible for a peri- change are subject to the rules on dis- depends to at least one-third on od of three years after publication.

Obligations of a Public Company 119 Aftermarket

Maintenance Costs

he fees for a listing on SIX Swiss by Dr. Patrick Schleiffer, T Exchange are set forth in the List Attorney-at-law, M.C.J., Partner of Charges of SIX Swiss Exchange & Urs Reinwald, (Gebührenordnung). The table on the Attorney-at-law, LL.M., right shows the fees in connection Lenz & Staehelin with an initial public offering of equity securities on SIX Swiss Exchange as well as the annual fees for maintaining the listing on SIX Swiss Exchange.

In addition to the costs inciden- tal to an initial public offering and the costs for maintaining the listing, the higher reporting and transparency standards for listed companies also lead to increased costs in other areas. Since the amount of such additional costs may vary greatly, the following is only a generic description of factors that will likely lead to higher costs. After their initial public offering, Fees in Connection with Listing listed companies typically need to invest in additional manpower for their Processing of listing application CHF 3,000 finance and / or investor relations departments, improved internal control systems as well as the implementation Examination of listing prospectus CHF 5,000 of the necessary corporate governance structures (e.g. board commit- Surcharge for new issuers CHF 10,000 tees). As compared to private companies, listed companies typically also incur additional costs in connection Variable fee for listing of new equity CHF 10 per each million of market capitalisation, with the maintaining of the share reg- securities (calculated on the closing price but not more than CHF 80,000 ister and typically also incur higher of the shares on the first trading day) auditors’ and legal fees. The increased investor-relations-related costs are Annual Fees for Maintaining the Listing typically related to the preparation of the annual report, support in connection with ensuring compliance with Annual fee CHF 6,000 the ad hoc publicity rules, the organisation of the presentation of the financial results as well as the preparation Variable fee (calculated on the CHF 10 per each million of market capitalisation, closing price of the shares on last but not more than CHF 50,000 and organisation of the annual share- trading day of previous year) holders’ meeting.

120 Obligations of a Public Company 121 Aftermarket

Ownership Reporting by Shareholders

by Dr. Jacques Iffland, – So-called “share positions”, closeable positions represent 3% or Attorney-at-law, Partner, i.e. positions in physical more of the issuer’s voting rights hav- Lenz & Staehelin (including borrowed) shares ing to notify their interest in the com- – So-called “acquisition positions”, pany. This involves in principle the de- i.e. positions in physical shares as livery of a notice to both the company well as in certain financial instru- and the Swiss stock exchange where he listing of a company’s shares ments that increase the exposure the relevant equity securities are T on a stock exchange not only of the holder to such shares listed. However, where the relevant results in obligations imposed on the (such as call options) and shares are listed on SIX Swiss Ex- company itself. The listing also in- – So-called “disposal positions”, change, the delivery of a notice of sig- volves obligations imposed on the i.e. positions in certain financial nificant shareholding is not required if company’s shareholders. These are instruments that reduce the ex- the detail of the relevant shareholders’ required to make announcements posure of the holder to the rele- interest is described in the listing pro- when their interest in the company vant shares (such as put options) spectus of the issuer. reaches, exceeds or falls below certain thresholds. The violation of this A disclosure obligation arises if Persons Required to Make the duty is a criminal offence, which can any of the baskets mentioned above Disclosure result in the imposition of significant reaches, exceeds or falls below a Under the Swiss regulations, the fines or, as the case may be, in the disclosure threshold. The disclosure duty to notify significant interests in suspension of the relevant sharehold- thresholds are set at 3 %, 5%, 10%, listed companies lies with the bene- 1 ers’ voting rights. 15%, 20%, 25%, 33 /3 %, 50% and ficial (as opposed to legal) owner of 2 66 /3 % of the issuer’s voting rights. the relevant positions. This means Triggering Events that where certain positions are held The duty to notify significant The aggregate number of shares through controlled entities, the person interests in listed companies arises used to make the relevant calculations required to notify the position is the when a discloseable interest reaches, (i.e. to determine the denominator of person ultimately controlling the re- exceeds or falls below a disclosure the relevant fractions) is the number levant entities, and not the entities threshold. of shares of the issuer registered in the through which the positions are held. commercial registry. For example, if a discloseable interest The discloseable interests are is held through a holding company, calculated by aggregating certain po- The Swiss disclosure rules only the duty to notify lies with the control- sitions held by a person in both the apply to positions held in Swiss- ling shareholder of the holding com- shares of the relevant listed company listed companies, i.e. in companies pany, and not with the holding com- and certain financial instruments hav- with registered offices in Switzerland pany itself. ing these shares as underlying. To whose equity securities are listed in assess whether a duty to notify exists, whole or in part on a Swiss stock The Swiss rules require share- shareholders are required to deter- exchange. The initial listing of the holders to provide detailed infor- mine whether either one of the follow- shares of a Swiss issuer on a Swiss mation on the manner in which they ing “baskets” reaches, exceeds or falls stock exchange consequently re- hold their discloseable interests in below a disclosure threshold: sults in all shareholders whose dis- Swiss listed companies. In particular,

122 Obligations of a Public Company Aftermarket where the discloseable interests are resulting from this regime. In a “Dis- of the target’s voting rights and held through controlled entities, the closure Office Notice” 1/09 dated who has asked to participate in Swiss rules require that information 7 April 2009, it has eased the disclo- the proceedings held by the TOB be provided with respect to both the sure obligations that would otherwise to assess the legality of the rele- legal (direct) and beneficial (indirect) apply to the persons having entered vant public takeover offer and owners, and that the relationship be- into lock-up agreements, by exempt- – Where required by the TOB, tween the legal and beneficial owning such persons from the duty to persons holding 3% or more of ers be explained. publish certain information. the target’s voting rights and / or of the voting rights of the compa- The Swiss rules contain detailed Time Limits ny whose securities are being provisions relating to the reporting of Where a duty to notify arises, offered in exchange positions held by particular categories the relevant shareholder (or beneficial of investors or intermediaries, such owner) is required to inform both the During an offer period, the bid- as investment managers, investment relevant issuer and the Disclosure Of- der and the persons acting in concert funds, banks or securities dealers. fice of the stock exchange where the with it are required to notify their relevant equity securities are listed trades in accordance with the above- The Swiss rules require that the (i.e. generally the Disclosure Office of mentioned rules exclusively. The gen- discloseable interests of persons act- SIX Swiss Exchange). The notice must eral duty to notify the fact that their ing in concert be aggregated and no- be submitted within four trading days. interest in the target has reached, ex- tified on a consolidated basis. Resolv- ceeded or fallen below certain thresh- ing to act in concert can consequently Issuers must publish the notices olds is suspended until the end of the result in the relevant shareholders of significant shareholdings submit- offer period. being required to notify their interest ted to them within two trading days in the company if their aggregate po- from receipt. Where the equity secu- Sanctions sition reaches, exceeds or falls below rities of the relevant issuer are listed Failure to comply with the re- a disclosure threshold as a result of on SIX Swiss Exchange, the publica- gime regarding disclosure of signifi- the formation of the group. For exam- tion must be made through a dedi- cant interests in Swiss listed compa- ple, three persons each holding 1% of cated web platform administered by nies is a criminal offence and may the voting rights of a Swiss-listed this stock exchange. In addition, issu- result in the imposition of a fine of up company will be required to notify a ers are required to publish informa- to twice the purchase or sale price of consolidated interest of 3% if they tion relating to the positions held in the discloseable interest subject to the resolve to be acting in concert with their own share capital (e.g. treasury breach (for intentional breaches) or up respect to their relevant positions. A shares) within four trading days from to CHF 1 million (for non-intentional concerted action is deemed to exist in these positions having reached, ex- breaches). this context where different persons ceeded or fallen below a disclosure coordinate their conduct with a view threshold. In addition, a court may decide to acquiring or selling equity securities to suspend the voting rights held by or exercising voting rights. Particular Disclosure Duties in any person who has failed to notify Takeover Situations a significant interest in a Swiss-listed Under a controversial practice Swiss law imposes particular company in compliance with the Swiss that has however been confirmed on disclosure duties in takeover situa- disclosure rules. The suspension can several occasions, the Disclosure Of- tions. In such a case, certain persons be imposed for a maximum period of fice of SIX Swiss Exchange takes the are required to report any trade relat- five years. The ruling can be issued at position that shareholders who enter ing to the securities of the target com- the request of the Swiss Financial into lock-up agreements (i.e. who un- pany or (where the takeover offer is an Market Supervisory Authority (FINMA), dertake not to dispose of their shares exchange offer) the securities offered the issuer or any of its shareholders. It during a certain period of time) in con- in exchange. The trade reports must can also be issued at the request of the nection with a public offering of secu- be made on a daily basis to the Swiss TOB if the violation of the Swiss disclo- rities are deemed to be acting in con- Takeover Board (TOB) and the Disclo- sure rules occurred in the context of a cert for the purpose of the disclosure sure Office of the relevant stock ex- public takeover offer. rules, and are consequently required change. They are published on the to report their positions as a group. website of the TOB. The persons sub- This creates significant difficulties ject to this particular trade reporting in practice, since it requires all the regime during an offer period are: persons having entered into lock-up agreements to inform each other of – The bidders and any persons their trading activities. The Disclosure acting in concert with them Office of SIX Swiss Exchange has – The target tried to address some of the issues – Any person holding 2% or more

Obligations of a Public Company 123 Aftermarket

Corporate Governance

by Matthias Wolf erial changes must be reported either cross-shareholdings with other com- & Hans-Jakob Diem, in a separate section on material panies exceeding 5 %. Lenz & Staehelin changes or in a clearly designated manner under the relevant section. Capital Structure nder the Swiss Federal Stock The disclosures must be made in a This Point requires disclosure of U Exchanges and Securities Trad- separate section of the annual report. information on the issuer’s share cap- ing Act (the “SESTA”), SIX is author- ital, any authorised or conditional ised to determine the information re- Principles: Clarity, Materiality, capital, changes in the share capital in quired to be published by listed “Comply or Explain” the last three reporting years, number, companies to allow investors to evalu- The guiding principles of the class and descriptions of shares and ate their securities and their quality as DCG are: other equity securities, restrictions issuers. In so doing, SIX is required to on transferability (including the rules take into ac count internationally rec- – Clarity: and reasons for granting exceptions ognised standards. SIX has adopted Information should be presented and the pertinent practice), the per- the Directive Corporate Governance clearly and comprehensibly to an missibility of nominee registrations, (the “DCG”) which contains the re- average investor. and the procedures and requirements porting requirements of issuers relat- – Materiality: for cancelling privileges and transfer ing to corporate governance. It has Only information essential to un- restrictions. Further, this section been amended in 2014. derstand and assess the corpo- must describe outstanding convert- rate governance of the issuer ible bonds and options. Purpose and Scope of Applica- should be reported. tion of the DCG – Comply or explain: Board of Directors The DCG applies to all issuers Companies may elect not to dis- The members of the issuer’s whose equity securities have their pri- close certain information normal- board of directors must be pres- mary or main listing on SIX. Compa- ly required if a specific and sub- ented with name, nationality, educa- nies who only have a secondary list- stantiated explanation for each tion and professional background. ing on SIX and companies with (only) instance of non-disclosure is given. For executive directors, their man- debt securities listed on SIX are not agement tasks must be mentioned. subject to the DCG. Overview of information to be For non-executive directors, any disclosed management functions held with the On November 20, 2013 the The following briefly summa- issuer in the last three years and any Swiss government adopted the Ordi- rises the matters to be disclosed ac- significant business connections of nance against Excessive Compensa- cording to the DCG Annex following the director or persons or organisation (“OaEC”) which contains numer- its order of sections (“Points” in the tions related to the director must be ous rules on executive compensation, terminology of the DCG Annex): reported. Any significant other gov- including regarding disclosure of erning, supervisory, permanent executive compensation in a yearly Group Structure and Shareholders management or consultancy func- compensation report. The OaEC is ap- This Point covers a presentation tions as well as governmental or po- plicable to Swiss companies whose of the operative group structure includ- litical functions must also be report- shares are listed in Switzerland or ing all material consolidated entities ed. Issuers subject to the OaEC must abroad. With the OeEC in place, the and information on significant share- also disclose their rules on the num- DCG Annex now differentiates in the holders who must summarise (or refer ber external mandates permitted to context of information to be dis- to) the disclosure notifications by be held by board members. closed, between issuers who are sub- shareholders required by the SESTA. ject to the OaEC and issuers who are This means that the lowest reporting For each board member, the not subject to the OaEC. threshold is 3%. The individual reports time of first election and possible re- regarding significant shareholders that strictions on the term of office must Relevant Date; Manner of Publi- were published during the year under be reported. Issuers subject to the cation review must be listed or a reference OaEC must additionally indicate any The relevant date for the corpo- must be given to the website of the rules in the articles of association rate governance reporting is the bal- SIX Exchange Regulation Disclosure deviating from the statutory rules on ance sheet date. Subsequent mat- Office. Finally this point also includes the appointment of the chairman,

124 Obligations of a Public Company Aftermarket the members of the compensation This means that, in summary, disclo- shareholders’ meetings and the committee and the independent vot- sure of the following information on right to submit proposals; ing representative. For Issuers not compensation must be made: – Record date for registration of subject to the OaEC the additional shareholders allowing participa- information required is limited to a – Remuneration paid to current tion in shareholders’ meetings; description of the election proce- board and executive committee and dure. members; – For issuers not subject to the – Remuneration paid to former OaEC, disclosures of any restric- Executive Committee board and executive committee tions to voting rights and rules on The members of the issuer’s sen- members to the extent it is relat- the granting of exceptions for in- ior management must be presented ed to their former roles or not stitutional proxies, as well as any with name, nationality, function, edu- awarded at market conditions; exceptions actually granted in the cation, professional background and benefits from occupational pen- year under review and for issuers any previous tasks and positions held sions schemes are exempt. who are subject to the OaEC, any by them at the issuer. Further, if the is- rules in the articles of association suer is subject to the OaEC, the rules in Remuneration is subject to dis- relating to instructions by share- the articles of incorporation on the per- closure irrespective of its nature or holders to the independent voting missible number of external mandates legal basis and includes any kind of representative, and on electronic must be summarised and (for all issu- benefits. Compensation that is not participation by shareholders in ers) any such activities in governing or permissible for issuers subject to the the shareholders’ meetings. supervisory functions in other organi- OaEC, such as severance payments, sations as well as permanent manage- advance compensations and incentive Change of Control and Defence ment and consultancy functions must fees for M & A transactions must also Measures be mentioned. If management func- be reported. Any outstanding loans Under this Point, issuers must in- tions have been delegated to persons and credits granted to the current dicate whether the issuer’s articles of outside the issuer’s group, such dele- members of the board of directors or incorporation provide for an “op- gations must also be disclosed. the executive committee as well as ting-out” or an “opting-up”, i.e. an elec- any outstanding loans and credits that tion to be exempt from the mandatory Board and Executive Compensa- had not been granted at market con- offer duty of the SESTA or an election to tion, Shareholdings and Loans ditions to former members of the increase the applicable shareholding All issuers must disclose the board or the executive committee percentage threshold triggering the content and the method of determin- must also be disclosed. mandatory offer duty. (The statutory ing the compensation and any em- threshold triggering a mandatory bid ployee participation programmes. In Finally, the remuneration report under the SESTA is 33⅓% and an in- addition, the following information must indicate any compensation, crease is permissible up to 49 %). The from the issuer’s articles of incorpora- loans or credits not awarded or grant- issuer must further disclose change of tion must be reported by issuers sub- ed at market conditions to persons control clauses in agreements and ject to the OaEC: related to members or former mem- schemes for the benefit of members of bers of the board of directors or the the board or the management (e.g. – Principles applicable to perfor- executive committee. “golden parachutes” and the like). mance-related pay and to the allocation of equity securities and Shareholders’ Participation Rights Auditors options, as well as any additional This Point requires a description The corporate governance sec- amount approved by the share- of the following: tion of the annual report must indicate holders for payments to execu- since when the auditors and the lead tive committee members ap- – Limitations on voting and repre- auditor responsible for the audit have pointed after the annual sentation in shareholders’ meet- been in charge, the total of auditing say-on-pay vote; ings and rules regarding excep- fees and the total of any additional – Rules on loans, credit facilities tions from such limitations, any fees charged by the auditors for other and post-employment benefits such exceptions granted in the services. for board and executive commit- year under review and the rea- tee members; sons for them, procedures and Information Policy – Rules on the say-on-pay vote by requirements for an abolishment Finally, the corporate govern- the shareholders’ meeting. of such limitations and the rules ance section must indicate available on participation and representa- sources of information, how and how Issuers who are not subject to tion at shareholders’ meetings; often shareholder information is made the OaEC must issue a remuneration – Majority requirements for share- available, and what other permanent report applying the pertinent rules of holders’ resolutions; sources of information and contact ad- the OaEC (articles 14–16) by analogy. – Rules on the convocation of dresses are available to shareholders.

Obligations of a Public Company 125 126 Aftermarket

Financial Reporting Requirements – Overview

by Roger Müller, Partner, Reporting Requirements for Public Companies Head IPO and Listing Services Switzerland & Jvo Grundler, Managing Partner, Legal Services Switzerland FINANCIAL INFORMATION DUE DATE Ernst & Young AG, Switzerland

Annual report *) 4 months after balance sheet date

Interim financial report *) 3 months after interim balance sheet date

*) additional information is required for investment companies and real estate companies

isted companies (or “issuers”) Reporting requirements regarding corporate governance are outlined in the L report to their shareholder and section “Corporate Governance”. the financial community in various ways – some of them are scheduled Financial Reporting Requirements at Year-End throughout the year while others arise Each issuer is required to publish an annual report. This report includes upon certain events. This article out- the audited annual consolidated financial statements as well as the correspond- lines the financial reporting require- ing audit report. These consolidated financial statements also have to comply ments of a listed company. In addition with Swiss law (Swiss CO). The financial information must be presented in ac- it describes why risk management is cordance with the following recognised accounting standards: an important element for a listed company to early address potential issues which also can have an impact Recognised Accounting Standards *) additional information is required on its reporting. Finally, the article describes the common issues beyond ISSUERS OF EQUITY SECURITIES IFRS US GAAP SWISS financial reporting which a newly list- GAAP AAR ed company is confronted with after International Reporting Standard Allowed Allowed Not allowed going public.

Financial Reporting Requirements Standard for Investment companies Allowed*) Not allowed Not allowed Listed companies (or “issuers”) are required to publish the following Standard for Real Estate companies Allowed*) Allowed*) Allowed*) financial information (based on the Directive on Financial Reporting (DFR) Swiss Reporting Standard Not allowed Not allowed Allowed issued by SIX Swiss Exchange):

Obligations of a Public Company 127 Aftermarket

Besides the annual consolidated regard to reporting and disclosure. The growth and organisational change financial statements companies also publication of quarterly financial state- create new risks and can expose have to present the financial statements is voluntary. In the case where weaknesses in corporate govern- ments of the ultimate parent (“issuer”) quarterly financial statements are pub- ance. to their shareholders. These financial lished, they must be prepared accord- – Operational risks: statements are relevant for the distri- ing to the same principles as apply to People and infrastructure. bution of profits and have to comply semi-annual financial statements. Life after an IPO can be distract- with Swiss law (CO). ing for staff. The company should Interim financial statements are remain focused and understand Swiss law (“transparency law”) not subject to a mandatory audit review. their new responsibilities. further stipulates that corporations Furthermore, they should consid- whose shares are listed on a stock Corporate Calendar er whether systems, controls and exchange shall disclose in the notes In addition to the financial report- policies are still adequate to the financial statements any coming requirement, each issuer must pub- – Compliance risks: pensation and loans / credits granted lish a corporate calendar which pro- Rules, regulations and controls. to current or former members of the vides information on the dates that are The company will have to comply board of directors, the Executive of major importance to investors, spe- with a host of new rules and Board or the Advisory Board and to cifically the annual general meeting and deadlines. Any failure to comply persons closely related to members of the publication dates of the annual and will alarm investors. such bodies. Legislation requires the interim financial statements. Further- information to be disclosed in the more, in accordance with the ad hoc Specifically, new listed compa- notes to the financial statements and publicity rules, the issuer must inform nies may need to reconsider their thus makes it subject to audit. The the market of any price-sensitive facts approach to risk management. The risk auditor has to ascertain whether which have arisen in its sphere of activ- management process should be an in- compensation, loans / credits and par- ity. Price-sensitive facts are facts which tegral part of a company’s daily busi- ticipation are completely and accu- are capable of triggering a significant ness, monitored regularly and when rately disclosed in the notes. change in market prices. necessary enhanced or modified.

Financial Reporting Require- It is generally recommended that Other Challenges Beyond Financial ments for Interim Periods companies prepare well in advance Reporting In addition issuers of listed equi- before completing an IPO, specifically Leading a fast-growth company ty securities are required to publish establishing a robust financial report- through an IPO can be an intense and semi-annual consolidated financial ing process covering monthly, quarter- emotional ride. But the need for hard statements. Interim financial state- ly, semi-annual and annual reporting. work does not end there. Life is very ments must be prepared in accordance different for newly listed companies. with the same accounting standard ap- Risk Management Three of the key challenges that complied to the annual financial state- In addition to establishing a ro- panies typically face in the post-IPO ments. The simplified manner of inter- bust financial reporting process, a period are: im financial reporting provided for newly listed company will need to under IAS 34 or, as it were, Swiss consider priority issues in an environ- – Delivering on promises GAAP ARR 12 is applicable. By way of ment of changing risks and higher – Maintaining the pace of growth analogy, US GAAP preparers must ad- attention by the shareholder and the fi- – Working with a larger and more here to Financial Accounting Stand- nancial community. The common diverse body of investors ards Board (FASB) Accounting Stand- threats which should be considered are: ards Codification Topic 270 in their An IPO is a transformative step interim financial statements, and must – Financial risks: for a business. And it can change the publish additionally at minimum a con- Surprises and transparency. lives of the executives involved. There densed balance sheet, statement of The market does not like are personal rewards, but also risks. cash flows and statement of share- surprises. Setting and communi- holder equity. In their interim financial cating realistic goals as well Delivering on Promises reports, issuers that are not domiciled as ensuring that the business is The public market is an unforgiv- in Switzerland and do not apply IFRS or financially transparent is key. ing place. To thrive, the company needs US GAAP must adhere at least to the – Strategic risks: to demonstrate to investors that it is provisions of Swiss GAAP AAR 12 with Growth and governance. Rapid successfully executing the business

128 Obligations of a Public Company Aftermarket

plan, while ensuring flawless Regula- tory Compliance. Remember:

– Instilling new levels of discipline into the organisation – Defining the key metrics that “In addition to the financial will drive the business forward – Keeping on top of emerging reporting requirement, each Issuer threats must publish a corporate calendar Maintaining the Pace of Growth The preparations needed to take which provides information a business public can be arduous. With the transaction out of the way, on the dates that are of major it might be tempting to relax, but the company needs to keep moving importance to investors, specifically forward. Priorities should include: the annual general meeting and – Focus on the long term – Keep the IPO in context the publication dates of the annual Working with Investors and interim financial statements.” A business in private hands is most often accountable to just a few investors. But for a public company the situation changes radically. The company will have hundreds, possibly thousands, of shareholders. The company needs to cultivate effective relationships with them. Key points to keep in mind are:

– It takes strategic planning and proactive effort to build effective relationships – Keep refreshing and retelling the “story” – Cultivate relationships with key analysts, helping them to understand the business

The history and experience of what makes fast-growth companies thrive tells that the margin between success and failure is very slim: getting it right means getting the focus right. The ability to move from “growth company” to “market leader” depends on the company’s ability to successfully execute priority tasks in core business areas. They encompass the disciplines the company needs to master as the business completes its IPO jour- ney and becomes a public company.

Obligations of a Public Company 129 Aftermarket

Maintain the Listing

by Dr. Matthias Courvoisier, The obligation to disclose price- be potentially price-sensitive – the Attorney-at-law, MSc in Finance, Partner, sensitive facts only applies to events issuer does not have any Dr. Marcel Giger, that are price-sensitive and hence ca- discretion as to the potential Attorney-at-law, M.C.J., Partner pable of affecting the average market price-sensitivity in these cases) & Theodor Härtsch, participant in his / her investment de- Attorney-at-law, Partner, cision. The question to be answered The above list is not exhaustive, Baker &McKenzie to test whether a fact or an event is as it is not possible to give a compre- price-sensitive is the following: hensive list of potentially price-sensitive facts. In principle, the price-sensi- “Would the average market par- tive facts must have arisen in the o maintain its listing, an issuer has ticipant buy, sell or continue to hold the issuer’s sphere of activity. However, T to comply with several ongoing security concerned given this new un- also events beyond the control of the obligations: published fact because the market par- issuer may lead to the obligation to ticipant would think that the current publish an ad hoc release, provided – Timely disclosure of potentially price inadequately reflects this fact?” such event has a direct impact on an price-sensitive facts (ad hoc issuer’s operations and results. Exam- publicity) If the answer to this question is ples include the revocation of a busi- – Periodic reporting obligations, “yes”, the issuer is required to publish ness-critical licence, the approval of a including the filing of the semi- an ad hoc press release. drug (in case of a pharmaceutical com- annual and annual financial pany) or the downgrading by a rating statements Potentially price-sensitive facts agency, which could negatively affect – Publication of a corporate calen- include: an issuer’s refinancing possibilities. dar which must be kept up to date – Financial results (annual and semi- In case of a so-called profitwarn - – Periodic notification obligations annual financial statements) ing, the issuer is only required – Payment of annual listing fees – Significant changes in profits, to issue an ad hoc press release if it – Disclosure of management such as a profit collapse or a has created market expectation, e.g. transactions profit hike (significant rise in profit), through respective statements at the and, provided that the issuer occasion of a press conference or The most important obligation is has created expectations in the publication of its annual results. the issuer’s obligation to disclose po- the market, profit warnings Therefore, many issuers decide to be tentially price-sensitive facts unknown – Mergers and acquisitions careful with forward looking state- to the public that occur in connection (including takeovers) ments. However, as seen above, in case with its business activities in accord- – Restructurings (business of profit hikes or profit collapses, the is- ance with Art. 53 of the Listing Rules reorganisations, spin-offs, suer has the obligation to publish an ad (“LR”). Price-sensitive facts are new financial restructurings) hoc notice even if no expectations at all facts which are likely to result in sig- – Changes in the capital structure had been created. nificant movements in the price of the (capital increases, capital decreas- issuer’s securities. The purpose of the es) The issuer must inform the mar- ad hoc publicity rules is to ensure – Takeover offers ket as soon as it becomes aware of the transparency and equal treatment of – Changes in the board of main points of the price-sensitive fact all market participants. Furthermore, directors and changes in (Art. 53 para. 2 LR). It may postpone the ad hoc publicity also helps to pre- the executive committee (such disclosure, provided the following vent insider trading. changes are always considered to conditions are cumulatively met:

130 Obligations of a Public Company 131 Aftermarket

– The fact is based on a plan or stances, disclosure can or must be seqq. LR). First of all, they have to file decision of the issuer and made during trading hours, provided their annual and semi-annual reports – The dissemination of the fact that SIX Exchange Regulation has with SIX Exchange Regulation. The an- might prejudice the legitimate been informed 90 minutes in advance. nual report must contain a detailed re- interests of the issuer, while – This will give SIX Swiss Exchange the port on the issuer’s corporate govern- according to the regulatory prac- time to decide if a suspension of trad- ance. The financial statements as well tice – these legitimate interests ing is necessary due to the disclosure as the corporate governance report are must prevail over the interests of during the trading hours. subject to SIX Exchange Regulation’s the market participants that the review. Often, SIX Exchange Regula- fact is being disseminated The ad hoc press release must tion provides certain guidance to issu- (weighing of interests) and be sent to at least two electronic ers regarding the focus of its reviews, – The issuer must ensure that the information systems widely used by and issuers are well advised to follow price-sensitive fact remains con- investors (e.g. Bloomberg, Reuters, such guidance (e.g. SIX Exchange fidential for the entire term during or Swiss-based SIX Telekurs) and at Regulation communications, which which disclosure is postponed least two Swiss newspapers of na- define the main points of focus for the tional importance. In addition, the is- review of annual reports each year). The issuer is not allowed to post- suer must provide a service on its pone disclosure of facts which are website that allows interested parties Furthermore, SIX Exchange Reg- beyond its control. This principle ap- to receive notifications of potentially ulation’s Directive on Regular Report- plies, for example in case of a financial price-sensitive facts via e-mail (push ing Obligation for Issuers of Equity Se- collapse, a profit warning or a profit system). Finally, all ad hoc communi- curities, Bounds, Conversions Rights, hike, as these events are not based on cations must be available on the issu- Derivatives and Collective Investment a conscious decision of the issuer. If er’s website (pull system). Schemes (“DRRO”) sets out addition- the issuer decides to postpone disclo- al periodic reporting obligations, sure, it must, however, immediately in- Selective notification of market which include, among others: form the market about the fact in the participants constitutes a breach of the event of a leak. Therefore, issuers will principle of equal treatment. This also – Name changes typically prepare leakage concepts. applies with regard to the information – Information related to the general A leak by itself does not constitute a vi- of employees, selective press contacts meeting of shareholders olation of the relevant regulations; in or contacts with financial analysts. To – Information related to dividends contrast, not being able to react quick- avoid any violations of the ad hoc dis- – Share capital structure or ly enough and inform the market im- closure rules, issuers typically prepare – Information on the free float mediately in case of a leak may be con- internal rules and regulations setting sidered as organisational negligence. out the criteria to determine price-sen- The DRRO contains detailed lists sitive facts and the related duties and for each type of security listed on SIX The above considerations regard- responsibilities. Swiss Exchange, which makes it con- ing the postponement of disclosure ap- venient for issuers, as they can only ply also in case of a financial restructur- SIX Exchange Regulation as an “tick the box.” All related information ing. In this case, it is key for the issuer independent part of SIX Swiss Ex- must be submitted to SIX Exchange to postpone disclosure, as any informa- change is in charge of ensuring that is- Regulation. tion of the market about the need for a suers comply with their ad hoc disclo- financial restructuring would lead to an sure obligations. In cases where SIX The issuer has some organisa- acceleration of its insolvency. Of Exchange Regulation has any doubts tional obligations in relation to the re- course, the issuer will have to prepare whether an issuer has complied with porting of significant shareholdings in a comprehensive leakage concept. its respective obligations, they will start accordance with Art. 20 of the Swiss investigations. In case there is a breach Federal Act on Securities Trading and While Art. 53 LR only sets out the of Art. 53 LR, the Sanction Commis- Stock Exchanges and the reporting of basic principles, the Directive on Ad sion of SIX Swiss Exchange or, under management transactions according hoc Publicity contains detailed rules on certain circumstances, SIX Exchange to Art. 56 LR. the timing as well as the form of publi- Regulation itself will sanction the re- cation. As a general rule, the issuer spective issuer. Possible sanctions are, Finally, the issuer must pay the must publish potentially price-sensitive among others, reprimands and fines. annual listing fees, which consist facts either 90 minutes prior to start of The decision will usually be published of a basic charge in the amount of trading or after the close of the market on SIX Exchange Regulation’s website. CHF 6,000 per year and an additional (being the timeframe outside the so- variable charge of CHF 10 per CHF 1 called “critical trading hours”). This al- In addition to the ad hoc disclo- million of capitalisation per year which lows investors to assess the implica- sure obligations, issuers are subject to is capped at CHF 50,000, all as further tions of an event on the price of the a number of periodic disclosure and specified in the list of charges. stock. Under exceptional circum- notification requirements (Arts. 49 et

132 Obligations of a Public Company Aftermarket

Public Takeovers, Opting-out

by Dr. Matthias Courvoisier, of contract and the offeror’s and the – The price must be at least equal Attorney-at-law, MSc in Finance, Partner, target’s conduct. These rules apply to to the highest price the offeror Dr. Marcel Giger, Swiss companies and foreign compa- paid during the 12 months period Attorney-at-law, M.C.J., Partner nies with a primary listing at a Swiss prior to the start of the offer. & Theodor Härtsch, stock exchange; exemptions may Purchases by persons acting Attorney-at-law, Partner, apply to foreign companies. in concert with the offeror and Baker &McKenzie of derivatives on the shares are Most Important Rules for the also to be taken into account. Offeror Control premium have been abol- ublic takeovers result from a se- Besides the general principles of ished lately. P ries of share purchase agree- transparency and acting in good faith, – The price must be above the ments between an offeror and share- the most important rules applicable to market price which is either holders based on a public offer made the offeror are: the 60-days volume weighted by the purchaser. These agreements average price before the start of are governed by the laws on obliga- Mandatory Offer Rule the offer or, if the share is illiquid, tions – that is based on the principle If a shareholder exceeds the a price determined by valuation. 1 of freedom of contract. Offers for trad- 33 /3 % threshold of voting rights in a ed securities, however, have to take listed company, it has to offer to all Best Price and Equal Treatment into account particular interests that other shareholders the opportunity to Rule deserve protection. These are: sell all listed equity securities of said From the start of the offer, the of- company. The other shareholders thus feror has to treat all shareholders – Interest of shareholders not to have the option to divest in case of equally. This mainly concerns the price end up with an illiquid or delisted change of control. There is no further offered as opposed to prices paid share or an investment that is protection above this threshold such when purchasing equity securities in being changed by a new control- as an obligation of a majority share- the market. The offeror and parties act- ling shareholder without having holder to buy shares of minorities in ing in concert with the offeror may pur- had the opportunity to divest case of a delisting. chase shares in the market, but if they at a fair price pay a higher price than the offer price, – Interest of the offeror that its offer Minimum Price Rule the offeror has to increase the offer is not frustrated by changes The offeror may submit an offer price accordingly. This rule applies from to the target for part or all of the shares. If the offer the start of the offer until six months – Interest of the target not to be is for a number of shares that would after the subsequent offer period. Spe- negatively affected by the offer bring the offeror across the mandatory cial equal treatment rules apply in offer threshold or if the offeror must case of exchange offers. To protect these interests, the submit a mandatory offer, it has to Stock Exchanges and Securities Trad- comply with two minimum price rules ing Act and ordinances thereto contain (and the offer has to be extended to all rules that restrict the offeror’s freedom listed equity securities of the target):

Obligations of a Public Company 133 Aftermarket

Limitations Regarding Offer Equal Treatment Rule cludes that it has to put the company Conditions Under corporate law, the tar- on sale or proposes to merge with In mandatory offers, the offeror get’s board is obligated to treat all another company by a public takeo- may make its offer only dependent on shareholders equally. This means that ver submitted by the merger partner. obtaining necessary regulatory ap- the board shall use its position to aim provals, the board registering ac- at an offer that treats shareholders Unless the offeror plans a hostile quired shares with voting rights and equally. The target company has also bid, it will contact the target before the maintaining the substance of the tar- to treat competing bidders equally. offer launch to get the board’s support get company. In voluntary offers there If the board grants access to docu- for the offer and to get access to fur- are fewer restrictions. The offeror ments to one bidder, other bidders ther information. This is the most del- must have an interest in the condition may review the same documents. icate point for the target’s board and and must not be able to substantially the offeror. The offeror contacting the influence the condition. Conditions Submitting a Board Report target may trigger ad hoc reporting that in fact grant the offeror a right to The board comments on the obligations, but a premature disclo- withdraw the offer at will are inadmis- offer in the board report. To overcome sure may be detrimental to the offer sible. Conditions that require the of- conflicts of interest or to show dili- and the shareholders may lose an feror to contribute substantially may gence, the board often obtains a opportunity for an attractive offer. This nevertheless be admissible, such as fairness opinion regarding the offer may be avoided by either an outright obtaining regulatory approvals that re- price. refusal of an unspecific attempt to quire filings by the offeror. Conditions contact the target or by promptly en- must not be such that they are almost Limitation of Defence Measures tering into confidentiality undertak- impossible to meet. Typical condi- Absent an approval of the share- ings. Such undertakings often also tions are, for example, reaching an holders, during the offer, the board is, deal with information the target shall 2 acceptance threshold (often 66 /3 %), for example, restricted from substan- provide to the offeror, exclusivity removal of transfer and voting rights tially changing assets and liabilities of undertakings of the target and non- restrictions, registration of the offeror the target, agreeing on excessive sev- trading obligations of the offeror. with voting rights in the sharehold- erance packages (if admissable at all), ers’ register, consent of current board issuing equity securities without grant- For offers that are supported by members to follow instructions of the ing shareholders their pre-emptive the target’s board, the offeror and the offeror after offer settlement, non-oc- rights, and purchasing or selling own target enter into a transaction agree- currence of material adverse changes equity securities. Defence measures ment. This agreement sets out the and approval by regulatory authorities. that obviously violate corporate law terms of the offer and the obligations are also prohibited. Any defence meas- of the parties in connection therewith. Position of the Target Company ure intended to be implemented must Typical obligations of the target are to The target is not a party to the be reported to the Takeover Board. support the offer, not to solicit a com- purchase agreements concluded be- peting bid, to call shareholders’ meet- tween the offeror and the sharehold- Reporting Obligations ings, approve the transfer of shares ers. Nevertheless, the target’s board The target has to report its trades and register acquired shares with vot- has an important role as gatekeeper in own equity securities. The target ing rights, cause board members to to any due diligence. Unless the board has also to comply with ad hoc pub- resign, abstain from trading in own allows a due diligence, the offeror has licity rules, and may have to make equity securities and operate the no right to get non-public information. publications such as in case the of- company in the ordinary course of Depending on the type of company fer results are announced. business. By signing such an agree- this may make an offer impossible. ment the target becomes a party act- The board has also to submit a report Usual Timeline of a Public Offer ing in concert with the offeror; actions on the offer containing a recommen- A public offer begins with the by the target may be imputed to the dation to the shareholders. confidential preparations by the offer- offeror. The offeror must cause the or, often without involving the target. target to abstain from acquiring its own The target has various obligations In certain instances, the target is the equity securities and restrict the target within a public tender offer, such as: driver, such as when its board con- in changing equity participation plans.

134 Obligations of a Public Company Aftermarket

“Public takeovers are not the Part of the preparation is also the pre-discussion of the offer docu- daily business of a public company mentation with the Takeover Board and and may come without warning.” their review by a special review body. After the preparatory phase, the offer normally starts by publishing a pre-announcement, which contains the key terms of the offer, binds the offeror to its offer, and triggers the application of the obligations of the offeror and the target. Normally shortly after the pre-announcement, the prospectus is published. In friendly transactions, the board report is included in the prospectus. Otherwise, that report is to be published within 15 trading days after the prospectus.

A cooling-off period of ten trading days follows the prospectus publication. The offer period, during which the offer may be accepted, then lasts between 20 and 40 trading days, as determined by the offeror. After the offer period, the offeror publishes the interim results of the offer and states whether the offer conditions are met or waived. There are conditions that may last longer than the offer period, such as the granting of approvals by regulatory authorities, but not, for example, the reaching of an acceptance threshold. If the offer conditions that last until the end of the offer period are met or waived, a subsequent offer period of ten trading days runs during which shares may be tendered again. After the subsequent offer period and provided the remaining conditions are met or waived, the offer must be settled within ten trading days.

At the end of an offer, normally not 100% of the shares are tendered. There are ways to acquire non-tendered shares. For example, the offeror may squeeze out the remaining shareholders at the offer price through court proceedings to be started within

Obligations of a Public Company 135 136 Aftermarket

three months after the end of the sub- ling group sells their shares to new tive defence is good performance of sequent offer period, provided the group members. Further, with an opt- the company and effective communi- offeror holds, at the start of the pro- ing-out, the minimum price rules do cation of such good performance. ceedings, more than 98% of the not apply. An opting-up may be of voting rights in the target. interest if a shareholder holds about Defence Handbook 1 33 /3 % and wishes to have the flexi- Most important for the board Supervisory Authorities and Spe- bility to vary its holding. Opting-out of a public company is to know what cial Review Body and opting-up may be introduced (or to do if it is approached by an offeror. Public offers are supervised by removed) subsequently, but the Take- For this purpose it is helpful to prepare the Takeover Board which decides over Board may refuse to apply such a defence handbook. If properly made, whether the offer documents comply clauses if they are introduced for a it is a useful guide to create awareness with and enforces compliance with particular transaction or if the share- and to allow the board to take the takeover rules. Decisions of the Take- holders are not transparently informed legally correct and economically ap- over Board may be appealed with about the effect of the clause or the propriate immediate actions after hav- FINMA and thereafter with the Feder- double-majority requirement was not ing been approached by an offeror or al Administrative Court. complied with. when rumours of a public takeover are spread in the market. There is Further, the offeror is accompa- Defence Measures often no time to wait until the next nied by a special review body, which is A number of measures may be regular board meeting. chosen by the offeror and supervises taken to prevent an offeror from cheap- offer and offeror. The role of that body ly or easily acquiring a target. These is similar to the role of an auditor audit- measures shall allow the board to ne- ing financial accounts, except that the gotiate improved terms for the share- special review body has a direct report- holders, but may also be abused by ing obligation to the Takeover Board the board to keep its own position. and may be instructed by the Take- Typical defence measures in the arti- over Board to do further review work. cles are limitations of voting rights and transfer restrictions, a staggered board Early Preparation for Takeovers with limitations on the number of di- Public takeovers are not the daily rectors that may be dismissed at a business of a public company and time, the possibility for the board to may come without warning. Thus, a use authorised capital to issue shares public company has to do preparatory and conditional capital to issue con- work early on and even prior to the vertibles even during a public offer. listing of the company: Certain companies even agree on change of control clauses in major Opting-Out and Opting-Up agreements with the only purpose of Listed companies may provide preventing hostile offers. The defence in their articles of incorporation that measures in the articles do not help mandatory offer rules do not apply against an offer at a good offer price 1 (opting-out) or that the 33 /3 % thre- since shareholders will remove those shold be increased up to 49 % (opting- limitations. Such defence measures up). An opting-out may be of interest help however to defend against creep- for companies controlled by a single ing takeovers. Other defence meas- shareholder or a group of sharehold- ures, such as poison pills, are often of ers, if such control shall continue over doubtful legality and may, if detrimen- time. Without an opting-out, an ac- tal to the target, expose the directors quirer of the majority stake has to sub- to personal liability. They may also not mit a public bid to the other sharehold- help to defend against offers at a good ers. This may limit the market for the price since the shareholders may al- majority stake. This obligation may ways remove a board that unduly also be triggered if part of a control- resists a good offer. The most effec-

Obligations of a Public Company 137 138 Aftermarket

The Keys to Successful Stakeholder Communication

by Urs P. Knapp, a positive corporate image. And it’s “The Story is the Business, Maurus Staubli, especially about managing percep- Not the Stock Price” Sophie Dres tions. In today’s environment of easy Investor relations is a strategic & Dominic Thalmann, access to and overflow of information, management responsibility with the Members of the Financial increasing competition, and fast mar- purpose of enabling an effective two- Communications Practice Group, ket movements, communicating ade- way communication between a com- Farner Consulting AG quately and managing the corporate pany and the financial community. reputation has become a significant uring an IPO process, a compa- asset to a company’s well-being. For a newly listed company, the D ny puts a lot of work into estab- ultimate goal of investor relations is to lishing coherent messages and raising The reputation of a company and increase share price, right? No – that awareness of its attributes towards in- its products is built through the mes- is not the whole story. The goal of vestors and other stakeholders. Once sages disseminated by the company investor relations is to build trust, the first shares have traded, the whole to stakeholders such as employees, to manage a company’s reputation, team can take a big breath of relief. But, customers, investors. Companies have and that of its products, its people, the work is not done yet – it’s actually to develop a clear line of messaging to and its projects. Investor relations en- just starting. Because strategically use when communicating with all in- tails more than just disseminating planned and executed financial com- ternal and external target groups. The financial information. Financial indi- munications and reputation manage- practice of managing relations with cators provide information about past ment are critical to a company’s surviv- the financial community, or, morespe - performance, while information about al in the long term. cifically, with investors, cannot stand the company strategy focuses on the alone. An investor does not only base future potential. For example, a study Investor Relations = Managing his investment decision on financial in- finds that information about the top- Perceptions formation, but rather on his view of the management is the most important Corporate communications is all company that is influenced bythe out- for the financial community when about ensuring a timely and effective side world. Investor relations, corporate making decisions about buying and dissemination of information, maintain- communications and reputation man- selling a stock (Ernst &Young, 1997, ing a smooth and affirmative relation- agement are all complementary to and Measures that Matter). ship with stakeholders, and building co-dependent of each other.

Obligations of a Public Company 139 Aftermarket

Positioning Your Company – On ulations if the news has the ability enhance management’s relation- Three Levels to impact the stock price ship with analysts, investors We have seen that what and – One-on-one media contacts and and key media how a company communicates can press conferences: – Guidance and counsel on key have a huge impact on its reputation Regular media relations activities topics such as shaping the com- and hence its survival. Effective and can have a large impact on build- pany’s messages to prospective regular communication activities are ing a company’s profile investors and the financial com- thus more than just nice-to-haves – – Investor meetings: munity, communicating news they are essentially must-haves. And Roadshows, one-on-ones, com- and events, the timing and they should thus be thoroughly dis- pany-sponsored events and so on content of disclosure cussed and defined in a corporate – Corporate websites: – Marketing impetus and support communication strategy. A company Posting important information to increase visibility of the can position itself on different levels for investors and the media company’s public image – focusing on the company itself, the – Social and online media: management, or the products / ser- Media influence has been extend- The practice of investor relations vices, or a mix of all (see image be- ed further as social media takes blends financial analysis and ad hoc low). Determining the profiling focus, a more prominent role in compa- regulation compliance with the arts of the stakeholders to target, and the nies’ communication strategies communication and strategic plan- mix of channels and instruments to ning. Investor relations and financial use are the key elements of a commu- Role of a Communications Firm communications are thus comple- nication strategy. Financial communications is a mentary to and an integral part of a fast-moving and rapidly changing company’s internal and external com- Communication Tools world where communications tech- munication strategy. Only if investors A company can use an array of nology, official regulations, financial and other company stakeholders are tools for building its relationship with trends and the press frequently chal- satisfied with the company strategy, stakeholders and for conveying its lenge the status quo. When initiating reputation and progress can a compa- investment and business proposi- an IPO process in a new market, an ny survive in the long term. tions: external counsellor that has local expertise can offer you support and – Quarterly earnings and annual guidance during the ever so complex reports: IPO process as well as beyond the first Obligatory for listed companies gong of the bell. The role of a PR agen- – Press releases: cy entails: On company, product, management, and other news. Can be – A bridge between the company subject to ad hoc disclosure reg- and the financial community to

Three Levels of Positioning and Profiling

LEVELS CHANNELS / INSTRUMENTS TARGET GROUPS

Media Media relations Company Investor relations Investors

Public appearances

Financial community Public events and fairs Management Client / investor events Customers

Social and online media

Authorities Advertisements Products & Expertise Corporate publications Stock markets

140 Obligations of a Public Company Aftermarket

Investor Relations in the Age of That all sounds good, so should Financial figures and investment Social Media companies really consider using so- opportunities are often discussed in Social media spells new oppor- cial media in investor relations? The forums and online communities. tunities in investor relations. True, most common answer is probably: Companies ignore their potential Twitter, Wikipedia, LinkedIn and oth- yes, as a complementary tool. And opinion-shaping power at their peril. ers cannot replace personal contact with the objective of actively partici- Active participation is the appropriate and traditional communications. But pating in raising public awareness and response. While institutional inves- used intelligently, social media does forming the company’s reputation tors and analysts might perceive open new doors, not least in financial through its presence in the network social networks as threats to their communications. Companies that community. One must keep in mind, personal contacts, for most business- conduct investor relations know the though, that social media is not the es monitoring and involvement in the respective institutional investors and solution for all communication prob- social media are musts because to- analysts well. Dialogue with these lems under the sun. In fact, these day, professional investors trawl elec- target groups relies on one-on-one channels create their own set of im- tronic networks for information and contact. Another key element of fi- ponderables: controlling the flow of opinion-shaping tools as much as pri- nancial communication is managing information is more difficult and con- vate investors. current and potential investor expec- tacts tend to be less personal. Not to tations, transmitted through tradi- mention that in areas such as real-time tional media and by means of regular stock quotations, Facebook, Twitter and ad hoc reporting. and the like are not equal to traditional communication channels. Social Media as a Relationship Management Tool New Communication Culture In the context of managing rela- Let us not mistake the social me- tions with the financial community, dia as the exclusive province of ado- today’s social media can help solidify lescents. The influence of the ever- contacts. Blogs and Twitter can pro- larger internet and the social networks vide access to more contacts and wid- it has given rise to is vast and keeps er groups. Such social media tools can on growing. We are used to having in- also help spot emerging trends early, stant, 24/7 access to information, set agendas, convey messages, and wherever we may be. And we are thus boost the company profile. Social used to using virtual platforms to media can initiate the kind of close in- gather information and build opinions teraction with private investors that on companies, products and people. was the exclusive province of institutional investors in the past.

Why is social media used in investor relations?

Disseminate Information through alternative channel 60 % Reach out to new target audiences 50 % Increase awarness and familiarity 40 % Increase stakeholder reach 40 % Intensifie dialogue with IR target audiences 30 % Position ourselves as an innovative company 20 % Take proactive action 10 % Record external opinions and attitudes 10 % Gain immediate feedback 0 % Increase transparency 0 % Save costs 0 %

0% 10 % 20 % 30 % 40 % 50 % 60% 70%

Source: SIX Swiss Exchange Investor Relations Conference 2013. Use of social media in the areas of investor relations in SPI companies. GIRAS (Gesellschaft der Investor Relations Agenturen Schweiz).

Obligations of a Public Company 141 142 Aftermarket

Swiss Media Landscape: A Land “The characteristics that make of Many Facets Due to the different language Switzerland distinct – its strategic regions, the Swiss media landscape boasts a large number of regional ti- geographic location, its cultural and tles, radio and TV programmes, but no Swiss-wide media – something linguistic diversity, its differentiated that companies must keep in mind whilst planning their communication political system – all contribute activities. to the Swiss media landscape.” The characteristics that make Switzerland distinct – its strategic geographic location, its cultural and linguistic diversity, its differentiated political system – all contribute to the Swiss media landscape. Switzerland’s reliance on international trade is also reflected in the media coverage: international financial news is covered in great depth, and international business newspapers are widely read.

Historically, Switzerland has the greatest number of newspapers published in proportion to its population and geographic size. Local, regional and national publications serve a diverse, highly educated, affluent and How to Work with Swiss Journalists independent readership. Newspaper Swiss journalists may appear reserved readership remains on a very high lev- and less aggressive than in other coun- el compared to most EU countries. tries. They are, however, very conscious Nonetheless, since the turning of the of their independence. Swiss journalists 21st century, all common forms of are, in general, highly educated and well-informed about the topics they press concentration – publisher con- write about and the people they talk to. centration (a declining number of publishing houses), journalistic concentra- Therefore, it is crucial that information tion (a declining number of fully staffed content and all materials intended for papers) and a concentration of circu- the press, e.g. news releases, are adapt- lation numbers – can be observed in ed to the specifics of the Swiss market Switzerland. and translated into the local languages. For communication professionals, expertise in their company’s products and As throughout the world, social services and sound knowledge of the media as a news channel and multi- Swiss market and media landscape are plier has exponentially gained in im- essential when dealing with the press. portance in Switzerland. Journalists A continuous information flow on a are trained to think digitally, and the company’s activities to the relevant news world has become quicker journalists strengthens its position and and more spread out since Twitter profile in the press. However, Swiss and the online news platforms have journalists value quality over quantity. flourished.

Obligations of a Public Company 143 144 Aftermarket

Shareholder Activism

by Michael Trippel, structure, be sufficient to be able to An activist shareholder may in- Attorney-at-law, LL.M., Partner effectively influence the conduct of tend to optimise the return on eq- & Dr. Till Spillmann, business or corporate policy of a cor- uity by forcing the corporation to Attorney-at-law, poration. re-structure the balance sheet or Bär&Karrer AG In companies with a wide spread distribute (higher) dividends. shareholder base with no major share- – Sale / break-up of a company: holder, shareholder activism can An activist shareholder may in- hareholder activism describes the counter balance the power of the tend to work towards the sale or S use of an equity stake in a com- board of directors and the senior man- break-up of the company as this pany to directly or indirectly influence agement. could potentially cause the share decisions of a corporation (Aktienge- price to rise. sellschaft). In the past, shareholders of Potential Goals public companies often limited their Depending on the background Types of Activist Shareholders activities as shareholders to selling of activist shareholders, their goals Shareholder activism is not lim- their shares in case they were not sat- may vary within a wide range. Among ited to a certain type of shareholder. isfied with the strategy of the board of others, such goals can comprise: Therefore, major as well as minority directors and / or the performance of shareholders may act as activist the corporations’ stock (so called “vot- – Performance in compliance with shareholders. However, the following ing with feet”). Such a behaviour is le- good corporate governance: types of institutions are known to reg- gitimate under Swiss law as sharehold- Shareholder activism can focus ularly appear as activist shareholders: ers have no obligations towards “their” on a corporation’s corporate gov- corporation other than to fully pay-in ernance, in order to improve – Investment companies and in- the share capital and certain disclosure transparency or cause manage- vestment funds (in particular obligations under stock exchange laws ment compensation to be low- hedge funds) who are pursuing fi- and regulations. In particular, share- ered if such compensation is nancial goals. holders of a Swiss corporation are nei- deemed excessive. – Proxy advisors analysing and ther obliged to actively participate in – Establishment of specific policies: commenting prior to sharehold- shareholders meetings nor are they An activist shareholder may try to ers meetings on the agenda subject to fiduciary duties or confiden- improve environmental aware- items and proposals of the board tiality obligations vis-à-vis the corpora- ness, employment conditions or of directors. Such proxy advisors tion or other shareholders. achieve other improvements of a are of particular relevance in case The reasons for shareholders to similar, non-financial (i.e. social) of corporations with a wide engage in shareholder activism may nature. spread shareholder basis where range from increasing the short or – Appointment of new board mem- no shareholder is able or willing long-term shareholder value to striv- bers: to spend the necessary time and ing for objectives of a non-financial or An activist shareholder who is resources to analyse and assess even idealist nature. The attraction lies not satisfied by the way the board the proposals of the board of di- in the relative inexpensiveness and of directors runs the corporation rectors. simplicity compared to other forms of may try to replace specific mem- – Public pension funds and other exerting influence or obtaining control bers of the board or even the en- institutional investors who focus over a company, e.g. by launching a tire board. primarily on good corporate takeover bid. A relatively small stake – Capital structure / leverage / re- governance. According to the may, depending on the shareholder turn on equity: recently enacted Swiss Ordinance

Obligations of a Public Company 145 Aftermarket

“A well founded business strategy which is generally convincing to shareholders may prevent shareholder activism.”

against Excessive Compensation the compensation committee as well – By approving or rejecting the in Listed Companies Swiss pen- as the approval of the maximum aggre- maximum aggregate compensa- sion funds must exercise their gate compensation of the members of tion of the members of the board voting rights of shares held by the board of directors, the advisory of directors, the advisory board such pension funds in listed board and the executive management. or the executive management: Swiss Companies with regard to Accordingly, activist shareholders of a Activist shareholders may try to certain agenda items (e.g. elec- Swiss corporation have in particular influence the compensation poli- tion of members of the board of the following possibilities to actively in- cy of the company by not ap- directors and maximum aggre- fluence a corporation: proving the compensation for gate compensation of the board members of the board of direc- of directors and the executive – By making proposals and / or tors, the advisory board or the management). It is likely that counter proposals or putting executive management or the Swiss pension funds will, inter specific items on the agenda of a annual compensation report. alia, for efficiency reasons, in- shareholders meeting: Unlike in other jurisdictions, creasingly rely on the voting rec- The board of directors may be shareholders in Swiss listed ommendations of proxy advisors forced to react or comment on companies have a binding say making such proxy advisors even proposals and / or counter pro- on the annual compensation as more important players in the posals brought forward by an well as the main principles of context of contro-versial share- activist shareholder with regard performance-based compensa- holder votes. to topics tabled by the board of tion for members of the board of directors or items tabled by acti- directors, the advisory board and Instruments of Shareholder vist shareholders representing the executive management. Activism shares with a nominal amount – Proxy fights / empty voting: There are various ways by which of at least CHF 1 million. Activist shareholders may try to an activist shareholder may attempt to – By electing or removing mem- undermine plans of the board of influence a corporation and its man- bers of the board of directors directors by having other share- agement. Generally, it can be distin- (including the chairman of the holders vote in accordance with guished between (i) the exercise of board of directors and members such activist shareholders and / participation rights (Mitwirkungsrech- of the compensation committee): or by borrowing shares to in- te) granted to shareholders (such as Activist shareholders may try crease their voting power (“emp- the right to call and participate in to have a representative of their ty voting”). The share register of shareholders meetings, to request own elected to the board of Swiss listed companies is not that certain items are included in the directors as member or as chair- public. Activist shareholders are agenda of a shareholders meeting as man of the board of directors, therefore only able to contact well as to exercise voting rights in or to remove existing members those shareholders directly they shareholders meetings) and (ii) the ex- including the chairman of the know (e.g. on the basis of public ercise of rights granted to sharehold- board of directors to be able to sources such as publications ers to protect their investment permanently influence and / or made under mandatory disclo- (Schutzrechte) (such as the right to re- monitor the strategy of the man- sure obligations or otherwise). ceive financial and other information agement through “their” repre- However, activist shareholders regarding the company or to initiate a sentatives. According to the can neither force the company to review of specific matters). In addi- Ordinance against Excessive disclose the names of the compa- tion, the recently enacted Swiss Ordi- Compensation in Listed Compa- ny’s shareholders nor to forward nance against Excessive Compensa- nies each member of the board mailings of an activist shareholder tion in Listed Companies further of directors as well as each to such shareholders. strengthened shareholder rights in remember of the compensation – By exercising the shareholders’ spect of, inter alia, the election of committee has to be elected an- right to information or by initiating members of the board of directors and nually in an individual vote. a special audit (Sonderprüfung).

146 Obligations of a Public Company Aftermarket

– By entering into shareholders – Disclosure obligations and man- board of directors may thus pre- agreements with other share- datory takeover offer: pare itself and limit the agenda holders and thereby permanently Any acquirer of equity securities items to the maximum intent pooling their interests. of a public company must dis- possible in order to prevent ac- – By starting publicity campaigns close his shareholding if it ex- tivist shareholders to bring up or litigation: ceeds (and falls below) certain new proposals which are not in- Shareholder activism may also thresholds of voting rights. The tended by the board of directors comprise launching publicity board of directors is therefore to be resolved during the meet- campaigns or taking legal action informed about shareholders ing. However, it is permissible to against the corporation to en- who hold or are building signi- make counter proposals with re- force shareholders’ rights and ficant stakes and respective gard to items already put on the thereby increasing pressure on voting rights. Further, if such an agenda (e.g. if the board of di- the corporation as well as the acquirer’s shareholding exceeds rectors proposes to elect Mr X corporation’s board and senior one third he is obliged to make a as new member of the board of management. Experience shows mandatory takeover offer. How- directors an activist shareholder that publicity campaigns quite of- ever, as an equity stake of 25 to could propose during the share- ten prove to be a powerful instru- 30% in a public corporation is holders meeting (i.e. without in- ment for activist shareholders. often sufficient to control a pub- forming the corporation in ad- lic corporation the threshold of vance) that Ms Y instead of Mr X Mitigating Shareholder Activism one third is not always offering should be elected. In light of the As mentioned earlier, sharehold- adequate protection. Ordinance against Excessive ers of a Swiss corporation are neither – Transfer restrictions / Refusal of Compensation in Listed Compa- subject to any fiduciary duties (neither registration / Voting cap: nies which requires that mem- towards the corporation nor other A Corporation may refuse the bers of the board of directors shareholders) nor bound by confiden- registration of an activist share- have to be elected annually in an tiality obligations. Therefore it might holder in the share register as individual election (thereby ex- be desirable to mitigate shareholder shareholder with voting rights if cluding the possibility of stag- activism as it could be that an activist such activist shareholder (i) gered boards), the right to make shareholder’s interests do not neces- does not expressly declare that counter proposals might become sarily have to be aligned with the in- he has acquired the shares in more important in the future. terests of the corporation and / or oth- his own name and for his own – Good Performance: er shareholders (e.g. an activist account or (ii) requires registra- A well-founded business strate- shareholder may intend to force the tion in excess of a registration gy which is generally convincing corporation to enter into agreements limitation stated in the corpora- to shareholders may prevent with such activist shareholder or par- tion’s articles of association. shareholder activism. However, ties affiliated with such activist share- – No surprises at shareholders as described above, the inter- holder at terms which are favourable meetings: ests of shareholders may vary to such activist shareholder). All agenda items and proposals significantly or even contradict for the shareholders meetings each other and it is therefore dif- Although there is no way (and no must be published in advance ficult for the board of directors reason) to completely prevent share- by the corporation. Subject to to take into consideration all holders from trying to exert influence two minor exceptions no valid interests. on a corporation, its board of directors shareholders resolution can be or senior management, there are nev- taken with regard to matters not ertheless a number of precautions and properly announced. An activist measures that can mitigate the risks shareholder may therefore dur- connected with shareholder activism ing a shareholder’s meeting not 1,2 The thresholds are such as: bring forward new items. The 3, 5, 10, 15, 20, 25, 331 /3, 50, 662 /3 per cent.

Obligations of a Public Company 147 Liquidity in the Market

148 Switzerland as a global financial centre

149 Aftermarket

Liquidity in the Market

by Mark Hammarskjold, Following the marketing activi- Head Equity Capital ties during the execution of the IPO, Markets Switzerland companies engage in investor relation & Amanda Robinson, activities to maintain a relationship Director Equity Capital with their existing shareholders and Markets Switzerland, to attract new investors. It is common Credit Suisse AG practice for the management of a company to go on a “non-deal” roadshow following results announce- iquidity, or in other words the ments, where banks organise for the L ability to buy or sell an asset management team an investor road- without significantly moving its price show with one-on-one and group or changing its value, is an important meetings. Furthermore, various banks criterion for investors when evaluat- host investor conferences with differing an investment opportunity. ent regional and sector teams, giving The liquidity of a company is a companies the opportunity to meet function of its overall market capitali- with a number of different investors. sation and its free float as well as its investor base. Furthermore, the liquid- Establishing broad research ity of the overall stock exchange as coverage is an additional factor influ- well as the main index the company encing a company’s trading liquidity. is included in play an important role. The Swiss market is followed by both SIX Swiss Exchange is a highly liquid domestic and international research. stock exchange, with almost 156,000 Some companies included in the trades in domestic and foreign equi- SMI have 40 or more research ana- ties worth ca. CHF 3.4 billion a day in lysts covering them. For new compa- 20141. The SPI, comprising practical- nies listed on the stock exchange, ly all of primary listed SIX Swiss additional research from other banks Exchange-traded equity securities, is usually initiated following results had a free float adjusted market cap announcements. Many companies of CHF 1,278 billion as of end of also host analyst days, inviting exist- December 2014. ing and new research analysts for a one-day presentation on the compa- To guarantee maximum liquidity ny, often combined with a site visit. whilst retaining support from long- term-oriented investors, it is important to target and maintain a diverse investor base, comprising different geographies and constituencies. SIX Swiss Exchange is a highly regarded listing venue by both domestic as well as international investors, allowing issuers to attract a broadly diversified shareholder base and research coverage. 1 SIX Swiss Exchange

150 Liquidity in The Market Aftermarket

What Investors Expect in a Listed Company

by Thorsten Pauli, results (in reality probably even What will help the company in Managing Director and Head Equity more often), the management further firming its capital market pro- Capital Markets Switzerland, team should embark on investor file and to increase its market pres- UBS AG roadshows to meet local as well ence is transparency, timeliness of as international investors and information provision to investors, research analysts. Such road- consistency of information, access to shows are usually organised by top management, i.e. CEO and CFO brokers covering the company. on a regular basis. Investors prefer a n SIX Swiss Exchange, five During a roadshow, the company consistent information style that O standards can be distinguished will meet investors in one-on-one rather proves to be under-promising with individual admission and main- as well as group meetings. The di- and over-delivering. tenance requirements, i.e. the Inter- rect contact to management is an national Reporting Standard, Swiss important aspect for most of the An additional important factor Reporting Standard, Standard for In- institutional investors and here in terms of a listed company is adher- vestment Companies, Standard for roadshows are perfect occasions ing to the “one share, one vote” con- Real Estate Companies and Standard to address it. cept. Whilst it is acceptable for inves- Depository Receipts. These require- tors that certain companies maintain ments are covering disclosure as well – Investor relations / public rela- dual share classes due to various his- as corporate governance require- tions department: toric reasons, it is no longer consid- ments and reporting standards. Ideally, a company should have a ered best-in-class and can signifi- dedicated person and / or depart- cantly influence the attractiveness An investor with an investment ment dealing with requests from and liquidity in the underlying share. in a company listed on SIX Swiss Ex- investors and the media. This en- change does not only expect the com- sures one line of communication Finally, transparency, good cor- pany to be fully compliant with the and timely response to incoming porate governance, keeping a well-es- listing requirements but also adhere requests from media, research tablished and regular capital market to best-in-class standards in terms of analysts and investors alike. presence will increase the likelihood investor relations, corporate govern- of enhancing both liquidity and re- ance and capital market presence of – Company webpage: search coverage. the company in general. Investors expect an up to date company webpage which is easy Investor Relations and public to navigate and provides all rele- communication are key areas where vant media releases, company a company is expected to do more presentations, annual reports, than what is required under SIX Swiss corporate calendar, excel down- Exchange regulations. The items be- load files with relevant company low are by no means conclusive but figures, etc. In essence, the should provide some guidance as company website should to what a company can do to fulfil provide all publicly available investors’ expectations. information about the business in an orderly and easily accessi- – Non-deal roadshows: ble manner in order to provide On a regular basis i.e. as at least maximum transparency to twice a year around financial investors.

Liquidity in The Market 151 Aftermarket

Share Buy-Backs

by Dr. Sebastian Harsch, To avoid investor concerns, share the second trading line, put option Executive Director and Head buy-back programmes should be programmes are completed within a Transactions Legal Switzerland, clearly communicated to the market to comparatively short time window, but UBS AG inform existing shareholders of the they offer – once issued – no flexibility & Dr. Flavio Romerio, desired effects. Otherwise, market to the issuer. Beside this shares are Attorney-at-law, LL.M., Partner, participants might react nervously bought back at a premium. Homburger AG which can lead to unfounded volatility and a destabilised investor base. Both of these types of buy-backs are exclusively used for returning Types of Share Buy-Back Pro- share capital to the investors, with a grammes subsequent cancellation of the repur- hare buy-backs are done for mul- Three types of share buy-back chased shares. In both programmes, S tiple reasons; the most important programmes are most commonly the Swiss withholding tax of 35% is include returning excess capital to used in the Swiss market: automatically deducted from the sales shareholders and the conduct of proceeds. For this tax reason, only management, employee participation The predominant method for Swiss institutional investors and arbi- schemes or as underlying for equity- repurchasing shares is the second trageurs sell shares on the second linked products (i.e. convertible bonds). trading line, where only the issuer – trading line or exercise the put options, through a mandated bank – offers a which they purchase from Swiss retail In Switzerland, a company can bid price on a separate trading line. and foreign investors. buy-back of up to 10 % of its share The price paid on the second trading capital and hold it as treasury shares line is derived from the market price Finally, an issuer may repurchase on its balance sheet. The company on the main trading line, with a small shares on the main trading line if it re- can buy more than that if the shares premium paid to the sellers as com- quires shares for an employee partic- will be destroyed thereafter. To do so pensation for the deferred reimburse- ipation programme or, depending on management needs to seek AGM ment of the Swiss withholding tax and the volume, an equity-linked pro- approval. Buying back shares to de- underlying funding costs. The second gramme. For tax reasons, the shares stroy them thereafter can be a way of trading line provides the issuers with purchased on the main trading line returning capital instead of paying div- maximum flexibility on timing and vol- may not be cancelled but must be idend which might make sense for ume of their repurchases, but these transferred to an unrelated party with- a company from a tax perspective. programmes – depending on their vol- in a specified period of time (six years). Another reason for share buy- ume and the underlying liquidity of backs are employee participation the issuer’s stock – may take signifi- Corporate Law Requirements schemes. To serve option plans, re- cantly more time to complete than The board of directors of a Swiss ward and keep employees as well as other types of buy-backs. company is authorised to launch a align senior management’s interests share buy-back programme without to those of the other shareholders a An issuer may also repurchase prior approval of the shareholders’ company might need to purchase its shares by issuing put options to its meeting. The shareholders must ap- own shares in the market. shareholders for free. The put options prove, however, the cancellation of the are tradable and listed, typically for a shares and the reduction of the com- To serve the option element of period of 10 to 15 trading days. To pany’s share capital. Once approved by an equity-linked product (i.e. a con- ensure an orderly trading during the the shareholders, the reduction of the vertible bond) rather than creating entire exercise period, the put options share capital can be implemented af- new shares the company can make are issued at a premium of typically ter observing a two-month waiting pe- use of existing / treasury shares that it 15 to 30% over the market price on the riod, during which the company’s buys or already bought in the market. issue date. Compared to buy-backs on creditors may submit their claims.

152 Liquidity in The Market Aftermarket

“Under Swiss corporate law, share buy-backs are permitted to the extent a company has unrestricted capital surplus. Swiss law limits the total number of shares a company may own to 10 % of the total outstanding share capital.”

Under Swiss corporate law, The issuer may request, on a licly repurchase its own shares or issue share buy-backs are permitted to the form, an exemption where the pro- put options if (i) the issuer withholds extent a company has unrestricted gramme does not exceed (i) 10 % of price-sensitive information (e.g. during capital surplus. Swiss law limits the to- either the capital or voting rights of the negotiations of a material M&A tal number of shares a company may the issuer, and (ii) 20 % of the issu- transaction), (ii) during the 10 trading own to 10% of the total outstanding er’s free float. The issuer may submit days prior to the release of the finan- share capital. The 10% threshold may its request for such an exemption to cial results to the media and (iii) if be exceeded, however, if shares are re- the Swiss Takeover Board no later more than 9 months have elapsed purchased for subsequent cancellation. than five trading days prior to its since the reference date of the issuer’s public announcement. most recent published consolidated Regulatory Requirements financial statements. During these Share buy-backs are regulated If a buy-back is not eligible for an black-out periods, the issuer may by the Swiss Takeover Board (TOB) exemption, the issuer must submit a continue a previously launched pro- and the Swiss Financial Market Super- case-specific application to the Swiss gramme but only if the issuer appoint- visory Authority (FINMA). In a circular, Takeover Board. Such an application ed a bank or securities dealer inde- the TOB established simplified proce- is required for programmes in excess pendently to execute the buy-back dures for exempting buy-backs from of 10 % of the capital or voting rights programme. the provisions of the Swiss takeover of the issuer. rules. These exemptions are sufficiently broad to cover the large majority of An issuer may not publicly an- all buy-back programmes: nounce a buy-back programme, pub-

Liquidity in The Market 153 Aftermarket

Secondary Sales

by Dr. Andreas Casutt, volatility of the market, the timing and shareholder and the transaction Attorney-at-law, LL.M., Partner, the circumstances of the divestment. structure highly depends on Marco Häusermann, the individual circumstances. Attorney-at-law, LL.M., C.B.A., Partner Despite the fact that the termi- In respect of the price at which & Dr. Patrik R. Peyer, nology is not used consistently in the shares are sold, this third Attorney-at-law, LL.M., legal writing: alternative of a structured sec- Executive MBA, Partner, ondary sale differs from block- Niederer Kraft & Frey AG – Block-trade is used for the most trades and marketed offerings common way to sell a smaller in so far as it is more an M&A-like block of shares (i.e. up to 10 % transaction where the investor tructured sales of large blocks of of the equity / voting rights), has a strategic interest in the S shares listed on SIX Swiss Ex- where timing is of essence and, company and the selling share- change are most frequently motivat- therefore, mostly an accelerated holder may expect to receive ed (i) by the wish of one or several bookbuilding is used, where the a package / control premium. large shareholders either to monetise drafting of a sale documentation their investment in a listed company (e.g. information or placement Since the offering of the SIX or to divest for other reasons without memorandum) is not essential, Swiss Exchange Liquidnet Service in excessively suffering from the conse- where the transaction cost shall (2011) (in association with Liquidnet’s quences of an oversupply of the listed be kept reasonably small, and liquidity pool), SIX Swiss Exchange par- shares in the market and, therefore, where, hence, no or practically ticipants are enabled to execute large the probable loss created by falling no due diligence is made and block orders efficiently over a liquidity stock prices, or (ii) by situations where the company has only a minor platform. the capacity of the market would not involvement, if any. be able to absorb a large stake of – Marketed offering generally Key legal issues to be considered shares. In return, selling shareholders means that the seller envisages in connection with the above described are generally willing to sell at a slight a sale of a substantial block of transactions are: discount to the prevailing market price. shares (i.e. more than 10 % of the equity / voting rights) where – Right of due diligence regarding The type of secondary sale is a sale documentation is drafted, the company for new investor chosen (e.g. a block-trade, a marketed the marketing and bookbuilding – Safeguarding of company’s offering or an off-market one-to-one period is longer and the involve- interests sale of a share stake) by the involved ment of the company is usually – Equal treatment of all parties (i.e. the selling shareholder, more significant and low costs shareholders the investment bank(s), and, depend- are not decisive and – Insider trading rules and other ing on the situation, the company) and – One-to-one deal is where a large, market behaviour rules strongly depends on the size of the maybe even a controlling stake – Ad hoc publicity rules block of shares, the liquidity and the of shares is sold to a new anchor

154 Liquidity in The Market Aftermarket

– Disclosure / reporting Under Swiss law, there are three market, the shareholders will not of shareholdings different ways to effect a capital suffer damage and consequently, – Mandatory offer rules and issues increase, i.e. by way of an ordinary cannot successfully bring a claim. of acting in concert capital increase (ordentliche Kapital- When preparing a PIPE transac- erhöhung), a capital increase out of tion, a Swiss issuer must also assess Private Investment in Public Equity authorised capital (genehmigte Kapi- whether it needs to draw up a listing (PIPEs) talerhöhung) or a capital increase out prospectus or whether it can benefit The purpose of PIPE transac- of conditional capital (bedingte Kapi- from one of the few exemptions, e.g. tions is to raise new equity in a fast, talerhöhung), the latter two requiring a if a listing prospectus or an informa- confidential, secure, flexible and cost- basis in company’s articles of tion document deemed under the List- effective way by offering such new association (c.f. “Capital Raising”). ing Rules to be equivalent to a listing equity directly to a limited number of prospectus has already been pub- sophisticated investors (i.e. without a For a PIPE transaction, the au- lished with regard to the listing of the public offering). For Swiss companies thorised and the conditional capital securities in question within the last listed on SIX Swiss Exchange, the increase will be the preferred route 12 months. main hurdle effecting a PIPE transac- because no additional shareholder tion is the statutory pre-emptive rights vote is necessary which saves consid- Allowing PIPE-investors to do a (Bezugsrechte) of existing shareholders. erable time, the board of directors en- due diligence on the Swiss issuer rais- joys flexibility in determining the size es confidentiality issues that need to The withdrawal of the statutory of the capital increase and the issue be addressed in order to avoid con- pre-emptive rights of existing share- price, which considerably improves flicts with insider dealing, ad hoc pub- holders in an equity offering is a signif- the position of the company during licity and abusive market behaviour icant restraint of shareholder rights the negotiations with the investors rules and regulations. Therefore, a and, therefore, is subject to strict and also improves transaction cer- Swiss issuer will generally want to formal (e.g. qualified majority of share- tainty. Finally, the shareholders are, have confidentiality and standstill holder votes) and material require- in principle, not in a position to chal- agreements in place that mitigate ments: a withdrawal is generally lenge the withdrawal of the pre- such risks. Finally, all parties involved deemed permitted only if the with- emptive right by the board of direc- need to carefully monitor reporting drawal is justified by a (qualified) tors as long as the board remains duties relating to the disclosure of objective interest of the company, all within the competence granted by shareholdings as well as the manda- shareholders are treated equally and the shareholders’ meeting in the arti- tory public offer rules. the withdrawal sufficiently complies cles. The downside of the increased with the general principle of consider- flexibility given to the board is that the ate exercise of rights. Whether these directors always remain liable under requirements can be met must be care- Art. 754 CO. However, as long at the fully assessed when considering a PIPE issue price for the PIPE equity corre- transaction for a Swiss company. sponds to the market price in a liquid

Liquidity in The Market 155 Aftermarket

Capital Raisings of Public Companies in Switzerland

mid a continuing low interest which must be called at least 20 cal- by Dr. François M. Bianchi, A rate environment and relatively endar days in advance. The table (on Attorney-at-law, LL.M., Partner, low volatility despite ongoing geopo- the right) sets out the main features of Dr. Philippe Weber, litical instability, 2014 was a favoura- each type of capital increase. Attorney-at-law, LL.M., Partner ble year for new issuers accessing the & Daniel Bono, public equity markets in Switzerland. Swiss corporate law gives pre- Attorney-at-law, LL.M., Partner, Measured by volume, it has been the emptive rights to shareholders with Niederer Kraft & Frey AG best year for initial public offerings respect to any issuance of equity since the start of the financial crisis in or equity linked debt instruments. 2007. Swiss public companies also A company that raises capital must turned to the equity capital markets. therefore offer existing shareholders In 2014, a total of four SIX Swiss Ex- the opportunity to subscribe for new change listed companies tapped the shares or equity-linked instruments in equity capital markets through rights proportion to their shareholdings. offerings, several others through private placements. This article discuss- Pre-emptive rights can be ex- es the legal framework for capital cluded by shareholders with a major- raisings of public companies in Swit- ity of at least two-thirds of the votes zerland. and an absolute majority of the nominal value of the shares represented at Pre-Emptive Rights and Types of the shareholders’ meeting. In addition Capital to this supermajority, the CO requires Under the Swiss Code of Obli- a valid reason for the cancellation of gations (CO), new share capital can pre-emptive rights and adherence to be created by way of ordinary, au- the principles of equal treatment of thorised or conditional capital in- shareholders and considerate exercise crease. In addition, the amendments of rights. A valid reason to exclude of the Swiss banking rules to pre-emptive rights requires an objec- strengthen financial sector stability tive and justified interest of the com- (too big to fail) created new types of pany issuing the shares. Generally ac- capital for Swiss banks in the form of cepted as valid reasons are, for reserve capital (Vorratskapital), de- example, M&A transactions and em- signed to facilitate new share ployee participation, recapitalisation issuances, and conversion capital in financial distress or (under certain (Wandlungskapital), designed as a conditions) welcoming a new strate- source of capital for contingent cap- gic investor. ital securities (CoCos) that convert into shares upon certain regulatory Whereas in an ordinary capital capital triggers. increase the shareholders themselves exclude the pre-emptive rights, by All types of capital require, at creating authorised capital the share- some point in time, shareholders’ ap- holders delegate the decision to ex- proval at a shareholders’ meeting, clude pre-emptive rights to the board.

156 Liquidity in The Market Aftermarket

Main Features of Types of Capital under Swiss Corporate Law

ORDINARY CAPITAL AUTHORISED CAPITAL CONDITIONAL CAPITAL ART. 650 CO ART. 651 CO ART. 653 CO

SHAREHOLDERS‘ RESOLUTION Shareholders resolve on terms of Shareholders amend the articles Shareholders create unissued share capital increase and instruct board of association to include authorised capital for to increase capital. Fixing of issue price capital to authorise board to issue – Equity-linked debt (and in limited circumstances also the a maximum amount of shares. – Bonds with warrants or number of shares) may be delegated to – Employee stock options board. by amending the articles of association

New share capital will be created by operation of law upon conversion / exercise of options.

MAXIMUM VOLUME Unlimited Up to 50 % of existing share capital Up to 50 % of existing share capital

VALIDITY 3 months 2 years Unlimited from shareholders‘ resolution from shareholders‘ resolution

PRE-EMPTIVE RIGHTS √ √ √

EXCLUSION OF PRE-EMPTIVE RIGHTS Shareholders may exclude pre-emptive Shareholders may authorise board Shareholders may exclude pre-emptive / rights for valid reasons to exclude pre-emptive rights for subscription rights for stated valid stated valid reasons upon issuance reasons of the authorised shares

CONTRIBUTION IN KIND √ √ X

MAJORITY REQUIREMENTS Majority of votes represented Two-thirds of the votes and majority of Two-thirds of the votes and absolute at shareholders‘ meeting nominal value of shares represented at majority of nominal value of shares repre- the shareholders‘ meeting sented at the shareholders‘ meeting

ADVANTAGES / DISADVANTAGES + No size limitation + No shareholders‘ approval required - Limited purpose - Minimum 20-day period for at time of issuance of the shares + No shareholders‘ approval required convening necessary shareholders + Flexibility of the board to determine at time of issuance of the shares meeting timing, offer size and issue price + Flexibility of the board to determine - Board has less flexibility + Shareholders cannot challenge timing, offer size and issue price withdrawal of pre-emptive rights upon + Shareholders cannot challenge with- issuance if made within the authorisation drawal of pre-emptive rights upon issu- - Potential liability of the board when ance if made within the authorisation setting terms of issuance

Liquidity in The Market 157 Aftermarket

In a non-pre-emptive capital increase Structuring Considerations called at-market rights offerings have from authorised capital, the board no intrinsic value, there is typically no must, therefore, decide to exclude Rights Offerings and Non-Pre- trading of these rights. the pre-emptive rights on the basis of emptive Placements the authorised capital in the articles Most secondary equity offerings Timing Considerations of association that must authorise the in Switzerland are traditional rights of- There are no rules on how long board to do so and state a valid rea- ferings. Accelerated rights offerings, the rights offer period must last. Mar- son for such an exclusion. volume underwriting or rights offer- ket practice is for the rights offer peri- ings with backstop commitments are od to be between 5 and 10 SIX Swiss Because a cancellation of pre- uncommon. Exchange trading days. If a sharehold- emptive rights may constitute a ma- ers’ meeting is required to create the jor impairment of the existing share- Where execution speed and cer- new shares offered, the rights offer holders’ rights in the company, the tainty of funds are essential, Swiss period typically does not start until the board must also adhere to principles companies typically place shares necessary shareholder approvals have of equal treatment of shareholders sourced from authorised capital with been obtained. and considerate exercise of rights. institutional investors in a non-pre- Failure to do so may expose the board emptive placement by way of acceler- Under Swiss law, shares only to liability. ated bookbuilding. come into existence upon registration of the capital increase with the com- Prospectus Requirements Prospectus-Free Offerings petent commercial registry. This, in If shares are listed on SIX Swiss For rights offerings, where combination with the fact that SIX Exchange, the prospectus require- shares are listed on SIX Swiss Ex- Swiss Exchange requires the delivery ments of the SIX Swiss Exchange change, the SIX Swiss Exchange List- of a certified excerpt from the com- Listing Rules apply. In addition, Art. ing Rules require publication of a list- mercial registry evidencing registra- 652a of the CO requires an offering ing prospectus, which is not tion of the capital increase, before prospectus when new shares are of- substantially different to what is re- start of trading, makes it necessary to fered to the public in Switzerland and quired in an initial public offering. effect the share issuance (by way of also contains certain disclosure items There are, however, certain exemp- payment by the underwriters of the that must be included. tions that allow the listing of prospec- nominal amount of the new shares tus-free rights offerings, for example and filing of a public deed with the The SIX Swiss Exchange Listing if the shares offered in the rights offer- commercial registry) before pricing (in Rules are largely modelled after the ing account for less than 10% of the case of an at-market offering), start of EU Prospectus Directive, but are less shares (including conditional capital) SIX Swiss Exchange trading and clos- extensive and more flexible. The CO of the issuer already listed. These ex- ing (payment of offer price net of pre- disclosure requirements are not par- emptions, however, do not apply to paid nominal versus delivery) of the ticularly demanding and a SIX Swiss the requirement to publish a CO-com- offering. Banks have become com- Exchange Listing Rules compliant pliant offering prospectus. fortable with this standard practice al- prospectus generally contains the though it deviates from that in many minimum disclosure requirements of Discounted vs. At-Market other jurisdictions. the CO. Where new shares are offered at a discount to current market price, the The SIX Swiss Exchange Listing (nil paid) rights of the shareholders to Rules require that an approved pro- subscribe for the new shares are typ- spectus is published before shares ically tradable so that shareholders are admitted to trading on SIX Swiss that are unable or unwilling to exercise Exchange. The SIX Exchange Regu- their rights can realise some value as lation prospectus review and approv- a compensation for the dilution of al process takes 20 SIX Swiss their shareholdings. Exchange trading days. In practice the approval process is timed such Recently, issuers with a strong that SIX Swiss Exchange Regulatory equity story have been able to use the Board approval has been obtained positive market environment to con- before printing of the prospectus duct rights offerings without discount and the start of the subscription to the market price. Because the rights period. allocated to shareholders in these so-

158 Liquidity in The Market 159 Imprint

SIX Swiss Exchange AG University of St.Gallen Law Firms Selnaustrasse 30 Dufourstrasse 50 8021 Zurich 9000 St.Gallen www.six-swiss-exchange.com www.unisg.ch Baker & McKenzie Holbeinstrasse 30 Marco Estermann, Dr. Manuel Ammann, 8034 Zurich Head Issuer Relations Professor of Finance and Director Other offices: Arbresha Zeneli, of the Swiss Institute of Banking and Finance Geneva Assistant Issuer Relations Dustin Schütte, www.bakermckenzie.com Seraina Benz, Research Assistant at the Swiss Institute Relationship Manager of Banking and Finance Dr. Matthias Courvoisier, Andrea von Bartenwerffer, Attorney-at-law, MSc in Finance, Partner, Head Account Management, Issuer Relations Dr. Marcel Giger, Christian Ryf, Investment Banks Attorney-at-law, M.C.J., Partner Relationship Manager Theodor Härtsch, Valeria Ceccarelli, Attorney-at-law, Partner Head Origination, Issuer Relations Credit Suisse AG (page 71, from left to right) (page 13, from left to right) Giesshübelstrasse 62 8070 Zurich www.credit-suisse.com Bär & Karrer AG SIX Exchange Regulation Brandschenkestrasse 90 Selnaustrasse 30 Amanda Robinson, 8027 Zurich 8021 Zurich Director Equity Capital Markets Switzerland Other offices: www.six-exchange-regulation.com Mark Hammarskjold, Geneva, Lugano and Zug Head Equity Capital Markets Switzerland www.baerkarrer.ch Rodolfo Straub, (page 98, from left to right) Head SIX Exchange Regulation Michael Trippel, Marc Enseleit, Attorney-at-law, LL.M., Partner Head Listing Equity, SIX Exchange Regulation UBS AG Dr. Thomas U. Reutter, Therese Grunder, Europastrasse 1 Attorney-at-law, LL.M., Partner Co-Head Listing, SIX Exchange Regulation 8152 Opfikon Dr. Ralph Malacrida, (page 76, from left to right) www.ubs.com Attorney-at-law, LL.M., Partner Dr. Till Spillmann, Thorsten Pauli, Attorney-at-law, Partner Swiss Association for Location Managing Director and Head Equity (page 38, from left to right) Management (SVSM) Capital Markets Switzerland Stauffacherstrasse 16 Dr. Sebastian Harsch, 8004 Zurich Executive Director and Head Homburger AG www.svsm-standortmanagement.ch Transactions Legal Switzerland Prime Tower Daniel Wüest, Hardstrasse 201 Robert E. Gubler, Managing Director, 8005 Zurich Chairman of the Swiss Association Head Mid-Market Advisory Switzerland www.homburger.ch for Location Management (SVSM) (page 45, from left to right) Dr. Hansjürg Appenzeller, Attorney-at-law, M.C.J., Partner Dr. Frank Gerhard, Attorney-at-law, LL.M., Partner Dr. Flavio Romerio, Attorney-at-law, LL.M., Partner Dr. Dieter Gericke, Attorney-at-law, LL.M., Partner (page 64, from left to right)

160 Imprint Lenz & Staehelin Auditors Insurance Provider Bleicherweg 58 8027 Zurich Other offices: Ernst & Young AG Kessler & Co AG Lausanne, Geneva Maagplatz 1 Forchstrasse 95 www.lenzstaehelin.com 8005 Zurich P.O. Box www.ey.com/ch 8032 Zurich Hans-Jakob Diem, www.kessler.ch Attorney-at-law, LL.M., Partner Roger Müller, Dr. Patrick Schleiffer, Partner, Head IPO and Listing Services Pascal Schweingruber, Attorney-at-law, M.C.J., Partner Switzerland Executive Committee Member Matthias Wolf, Jvo Grundler, (page 57) Attorney-at-law, LL.M., Partner Managing Partner (page 117, from left to right) Dr. Georg Lutz, Partner, Head Transaction Tax IR Firms Robin Errico, Niederer Kraft & Frey AG Partner, Audit Bahnhofstrasse 13 (page 29, from left to right) Farner Consulting AG 8001 Zurich Oberstrasse 28 www.nkf.ch 8001 Zurich KPMG AG Other offices: Basel, Bern, Geneva, Thomas Brönnimann, Badenerstrasse 172 Lausanne and Lugano Attorney-at-law, LL.M., Partner 8026 Zurich www.farner.ch Daniel Bono, www.kpmg.ch Attorney-at-law, LL.M., Partner Maurus Staubli, Andrea Huber, Susanne Schreiber, Urs P. Knapp, Attorney-at-law, LL.M., Counsel Partner, Head M&A Tax Sophie Dres, Dr. Patrik R. Peyer, Stefan Kuhn, Dominic Thalmann, Attorney-at-law, LL.M., Executive MBA, Heaqd Corporate Tax Members of the Financial Communications Partner Thomas Wicki, Practice Group, Farner Consulting AG Dr. Philippe Weber, Director, International Accounting and Reporting (page 138, from left to right) Attorney-at-law, LL.M., Partner Therese Amstutz, Dr. Andreas Casutt, Director, Legal Farner Consulting Group is member of GIRAS Attorney-at-law, LL.M., Partner Susanne Haas, www.giras.ch Marco Häusermann, Director, Audit Attorney-at-law, LL.M., C.B.A., Partner Lukas Marty, (page 73, from left to right) Member of the Executive Committee IRF Communications AG (page 62, from left to right) Rämistrasse 4 P.O. Box 8024 Zurich PricewaterhouseCoopers AG www.irfcom.ch Birchstrasse 160 8050 Zurich Stefan Mathys, www.pwc.ch Partner Jürg Stähelin, Dr. Martin Frey, Partner Partner, Head Corporate Finance, Dr. iur. Michael Düringer, (page 25) Partner Daniel Piller, Partner Martin Meier-Pfister, Partner (page 90, from left to right)

Imprint 161 GIRAS Swiss Society of Investor Relations Agencies c/o Communicators Stauffacherstrasse 16 8004 Zürich www.giras.ch

Concept and Artwork

FatzerImbach AG Bahnhofstrasse 62 8001 Zurich www.fatzerimbach.ch

Fotography

Markus Bühler www.buehler-fotograf.ch

Publication Date: September 2015

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