Public in Switzerland – Review 2013 September 30, 2014

Public Takeovers in Switzerland – Review 2013 This Bulletin looks at selected themes and issues that have arisen be- tween January 1, 2013 and March 31, 2014 as a result of Swiss transactions, decisions of the Swiss Takeover Board (TB), the Swiss Fi- nancial Market Supervisory Authority (FINMA) and the Federal Adminis- trative Tribunal (FAT)*.

Table of Contents

Overview...... 1 Cost Coverage ...... 16 New Takeover Rules ...... 2 Withdrawal of Offer...... 16 Scope of Application ...... 2 Review Body ...... 16 Potential Offer | "Put up or Shut up" ...... 3 Rights of Qualified Shareholders ...... 17 Preliminary Announcement ...... 3 Repurchase of Own Shares ...... 17 Mandatory Offer...... 3 Squeeze-out ...... 22 Competing Offers...... 8 Amendment of Offer ...... 10 Overview Acting in Concert ...... 10 The year 2013 was a relatively calm year. Minimum Price Rule...... 12 Best Price Rule ...... 14  6 takeover offers were announced (including Conditions...... 14 2 mandatory and 4 voluntary offers, while Equal Treatment ...... 14 one offer was unfriendly; all offers were cash Defense Measures...... 15 offers); Board Report ...... 15  14 share buy-back programs were submitted Type of Consideration...... 16 to the TB (of which 11 were exempted via

* This Bulletin is the eighth prepared by the author on this topic. See Public Takeovers in Switzerland – Review 2005, dated March 16, 2006; Public Takeo- vers in Switzerland – Review 2006, dated September 13, 2007; Public Takeovers in Switzerland – Review 2007, dated June 17, 2008; Public Takeovers in Switzerland – Review 2008, dated October 21, 2009; Public Takeovers in Switzerland - Review 2009, dated July 16, 2010; Public Takeovers in Switzerland – Review 2010, dated June 30, 2011; Public Takeovers in Switzerland – Review 2011, dated October 22, 2012; Public Takeovers in Switzerland - Review 2012, dated November 19, 2013, all available at www.homburger.ch. Public Takeovers in Switzerland – Review 2013 2 | 23 September 30, 2014

the reporting procedure and 3 were ex- The decision of the TB of September 23, 2013 in empted via a decision of the TB); and the matter International Minerals Corporation2  10 other procedures, 4 of which were an (IMZ) was the first decision applying the new ex- exemption from and 6 of them were about tended scope of application of the Swiss takeover the non-application of the mandatory offer, rules. IMZ is a Canadian company listed both on were initiated. the Toronto Exchange and on the SIX Swiss Exchange. Hochschild is a UK company. IMZ held In total, the TB rendered 23 decisions in 2013. 40% and Hochschild held 60% of the share capital of Minera, a company incorporated in Peru. IMZ New Takeover Rules and Hochschild had agreed that the latter would Major amendments to the takeover laws, including take over all shares held by IMZ in Minera. In order the takeover ordinances, as well as the rules re- to perform this combination, IMZ spun-off all its garding the notification of major shareholders en- assets except for the 40% stake in Minera and tered into force on May 1, 2013. The revision ex- subsequently Hochschild took over all the shares tends the scope of application of share ownership of IMZ via a Plan of Arrangement under Canadian disclosure rules and takeover rules to foreign com- laws. In concreto, the shareholders of IMZ ap- panies with a principal listing in Switzerland, abol- proved the Plan by a double qualified majority and ishes the possibility to pay a by the competent court in Canada approved the Plan, stating that the offer price may not be lower than implementing hereby a transaction similar to a the highest price paid for securities of the target mandatory exchange offer (quasi-merger). during the twelve months preceding the offer, limits the possibility of cash purchases in connection with According to art. 53 SESTO, the equity securities exchange offers, changes the framework for share of a company not domiciled in Switzerland are buy-backs, tightens the sanctions system and ad- mainly listed in Switzerland when the company dresses a number of procedural questions. In ad- must fulfill at least the same duties and mainte- dition, the revision brought new rules and proce- nance of a listing on a in Switzer- dures governing insider dealing and market ma- land as a company domiciled in Switzerland. The nipulation. Both aspects of the revision have been SIX Swiss Exchange publishes which equity secu- addressed by a special Homburger Bulletin1. rities of companies not domiciled in Switzerland are mainly listed. As IMZ was simultaneously listed Scope of Application on the Toronto Stock Exchange and on the SIX "Foreign Company with Main Listing in Swit- Swiss Exchange, the TB was competent in this zerland". According to art. 22 para. 1 SESTA, transaction. Swiss takeover rules apply to public offers for in- vestments in target companies (i) domiciled in "Listed Securities". In the Victoria-Jungfrau Col- Switzerland whose equity securities are in whole or lection takeover, the takeover offer launched by in part listed in Switzerland; and (ii) not domiciled AEVIS Holding AG on October 24, 2013 was made in Switzerland whose equity securities are in whole while the target had already received the blessing or in part mainly listed in Switzerland. for its delisting by the SIX Swiss Exchange and the BX Berne eXchange, which was deemed effective November 29, 2013 (last trading day). The TB held that a delisting during a takeover procedure does not preclude the Swiss takeover rules to be appli- 1 See Homburger Bulletin dated May 3, 2013 on the Revision of Swiss Insider Trading and Market Manipulation Rules and Homburger Bulletin dated June 10, 2013 on New Takeover Law – Abolition of Control Premi- 2 Decision 547|01 of the TB dated September 23, 2013 in the matter um and Other Changes to Takeover and Disclosure Rules. International Minerals Corporation. Public Takeovers in Switzerland – Review 2013 3 | 23 September 30, 2014 cable to the transaction, including up to the lapse court appeal6. Against this background, the TB of the best price rule period, i.e. six months after came to the conclusion in the IMZ case that a Plan the end of the additional acceptance period3. of Arrangement under Canadian law is not a take- over offer: the approval by a qualified majority of In the WM Technologie case, TB reaffirmed its the shareholders' meeting made this corporate practice of the applicability of the takeover laws to action mandatory also for dissenting shareholders; non-listed companies per analogiam, if the take- the dissenting right did not allow dissenting share- over offer relates to non-listed shares of a newly holders to refuse individually to tender the shares, formed target company, which was spun-off from a but only to have the exchange ratio appraised by a 4 listed company. Greentec AG was planning to judge. acquire a business division of Walter Meier AG, which is a listed company, by way of a public take- Potential Offer | “Put up or Shut up” over of Walter Meier 's newly formed non-listed During the period under review, no material deci- subsidiary WM Technologie AG, to which certain sion was rendered relating to potential offer or the subsidiaries of Walter Meier have been contributed "put up or shut up" rule. and be spun-off from Walter Meier prior to the takeover. Although technically a takeover of a non- Preliminary Announcement listed company, the TB considered the takeover During the period under review, no material deci- offer for the non-listed WM Technologie to be in sion was rendered relating to the preliminary an- substance an offer for part of the listed Walter nouncement. Meier and, consequently, found the legislation on public takeovers applicable (in casue, however, the Mandatory Offer minimum price rule of Art. 32 para. 4 SESTA was General. Pursuant to art. 32 para. 1 SESTA, any- not applicable since the target had an opting-out in one who, directly, indirectly or acting in concert its articles of incorporation). with third parties, acquires equity securities, and, as a result of such acquisition, holds equity securi- "Takeover Offer". Swiss takeover rules are only ties of a listed Swiss company exceeding the 1 applicable if a public takeover offer is made (art. 22 threshold of 33 /3% of the voting rights of such para. 1 SESTA). This means that the holders of company, must submit an offer for all listed equity equity securities must be (publicly) invited to ten- securities of such company. der their securities in the offer. Further, such hold- ers must have a choice to accept or refuse the No Mandatory Offer in Case of Opting-out. offer5. The TB has several times in the past distin- Flashback: The ADB Holdings Case. In the ADB guished between such a takeover offer and corpo- Holdings case of 20127, the TB settled its practice rate restructurings which are approved by the with respect to the opting-out as follows: shareholders' meeting of the company and hence are mandatory for each shareholder subject to a

3 Decision 550|01 of the TB dated November 7, 2013 in the matter 6 Recommendation 372|01 of the TB dated June 6, 2008 in the matter Victoria-Jungfrau Collection AG, No. 2. Hiestand Holding AG, c.1.1., in which the TB stated that a statutory 4 Decision 556/2 of the TB dated February 24, 2014 in the matter of WM merger is not similar to a takeover offer even though the shareholders of Technologie AG, No. 2 confirming the practice established in Recom- the target end up with shares of the acquirer. mendation 188/01 of the TB dated March 31, 2004 in the matter Clair 7 Decision 518|01 of the TB dated October 11, 2012 in the matter Ad- Finanz AG, c.1.3.5. vanced Digital Broadcast Holdings SA. A more detailed review can be 5 Decision 547|01 of the TB dated September 23, 2013 in the matter found in CapLaw 5|2011 (Frank Gerhard, Takeover Board Opts-Out International Minerals Corporation, c.2. See also Decision 13/02 of the From Opting-Out, p. 11ss) and CapLaw 5|2012 (Frank Gerhard, Takeo- TB dated July 20, 1998 in the matter SGS Société générale de surveil- ver Board Opts-in Again Into the Opting-Out and Revives the Selective lance SA, c.1 Opting-Out, p. 15ss). Public Takeovers in Switzerland – Review 2013 4 | 23 September 30, 2014

— First, the TB will examine itself whether the cert, would be "conflicted" and shall hence introduction of an opting-out causes to the be excluded from the relevant votes. shareholders a prejudice which is not justi- fied by the company interest (art. 22 para. — Fourth, in all possible scenarios, the intro- 3 SESTA in connection with art. 706 CO). duction of the opting-out must be preceded by a transparent procedure. Shareholders — Second, when reviewing the resolution of must be duly informed about the situation, the shareholders against the background about the intentions of the "controlling" of art. 706 CO, the TB will look at the result shareholder(s), if any, and of the share- of the overall vote and at the result of the holder(s) requesting the introduction of the overall vote without the votes of the “con- opting-out, including about the envisaged flicted” shareholder(s) (and the share- transaction and the change of control holder(s) acting in concert). If the other which would be triggered, as well as about shareholders, i.e., the "minority" share- the general consequences of the adoption holders, have also approved the opting- of the opting-out (i.e. permanent and erga out, the TB will assume de facto that the omnes validity). This information must be opting-out is in the interest of the "minority" disclosed in the invitation to the general shareholders and of the company, pro- meeting. If needed, the board shall request vided that in very exceptional cases, such from each "controlling" shareholder and clause could still be invalid and provided from the shareholder(s) requesting such in- that any annulment after a challenge ac- troduction their intention with respect to cording to art. 706 CO remains reserved. any transaction that would benefit from If, however, the “minority” shareholders such opting-out. have not approved the opting-out, the TB would assume that the opting-out is neither — Finally, in an obiter dictum, the TB also in the interest of the "minority" sharehold- considered that the practice of the FBC in 8 ers nor in the interest of the company, pro- the ESEC Holding case denying any va- vided that in exceptional cases (but we be- lidity to opting-out clauses that are formally lieve probably less exceptional than when selective, i.e., which benefit a specific both majorities are in favor of the introduc- transaction | shareholder(s) clearly and ful- tion of the opting-out), such clause could ly disclosed at the shareholders’ meeting, still be valid, e.g. in case of a recapitaliza- shall be revisited. Indeed, the impact of tion of the company by the entry of a new such a clause – duly adopted by the "ma- investor and provided that any confirmation jority of the minority" by an informed deci- of the validity of the opting-out after a chal- sion – is of lesser importance than a gen- lenge according to art. 706 CO remains re- eral opting-out, since "minority" sharehold- served. ers (and not the board of directors) waive their right to obtain an offer price comply- — Third, when determining who are the "mi- ing at least with the minimum price rule on- nority" shareholders whose votes will be ly in connection with a specific transaction looked at, the TB stated that any share- and | or in favor of one or several share- 1 holder holding more than 33 /3% of the vot- holder(s) that are duly known. They do not ing rights (i.e., a "controlling" shareholder) waive their rights for a mandatory offer in and any shareholder who requested the in- any change of control transaction. troduction of the opting-out, in both cases including the shareholder(s) acting in con- 8 Recommendation 0018|02 of the TB dated June 6, 2000 in the matter ESEC Holding AG. Public Takeovers in Switzerland – Review 2013 5 | 23 September 30, 2014

Transparent Information. In the Perfect Holding on the introduction of the opting-out according to case9, the TB had to examine to what extent the the ADB Holdings practice of the TB. new opting out practice applies to opting-out | up that were voted several years ago. In 2007, the In practice, Perfect Holding had no other choice company – previously named 4M Technologies than to call again an extraordinary shareholders’ Holding SA - had introduced in its articles of in- meeting and fully inform the shareholders. In such corporation an opting-out selective in substance, extraordinary meeting, the opting-out was finally which had been declared void by the TB towards accepted by the majority of the minority. the shareholders’ group (group Grey) who had filed the request with the TB10. In 2013, those In another case12, the TB confirmed the validity of same shareholders filed again a request with the the opting-out after having carefully examined the TB and asked that any new investor be exempted information provided to the shareholders in the to launch a mandatory offer due to the opting-out invitation to the general meeting. The case is in- clause introduced in 2007. Again, the TB applied teresting because it was the first example of an its new practice established in the ADB Holdings invitation to a general meeting to provide details SA case to the facts of 2007 and refused again to about the reasons why the introduction of an opt- acknowledge the validity of the opting-out intro- ing-out was in the interest of the company. duced in 2007 towards any shareholder who would exceed the mandatory offer threshold. No Mandatory Offer in Case of a Donation. Ac- cording to art. 32 para. 3 SESTA, the obligation to The shareholders who had proposed the introduc- make an offer shall not apply if the voting rights tion of the opting-out did not participate in its vote have been acquired as a result of a donation, suc- at the shareholders’ meeting and the opting-out cession or partition of an estate, matrimonial was approved with 98.59% of the minority share- property law or execution proceedings. holders. This meant that the first prong of the test was fulfilled; however, the minutes of the share- This rule has been applied by the TB in the Loeb holders’ meeting revealed that the information Holding case13. Loeb Holding AG has two catego- provided to the shareholders before the vote only ries of shares (A and B) and non-voting shares. mentioned that the opting-out would be introduced The latter were listed on the SIX Swiss Exchange. in order to enable the current group of major The main shareholder in Loeb Holding is Fralo shareholders to increase its participation (which Holding AG (Fralo), which holds 86.92% of the they did, based on the restructuring exemption to votes in Loeb Holding. Fralo in turn has three the mandatory offer) and it was not mentioned that shareholders, all of the Loeb family, with different the opting-out had a permanent and erga omnes voting rights. The father held 0.06%, the son application, in particular if the then group of major 29.2% and the daughter 70.92% of Fralo. They shareholders would have sold its participation to a had however joint control through a shareholders’ third party11. Hence, the information provided in agreement, through the combination of board rep- the invitation to the general meeting was not suffi- resentation and voting rights14. In connection with cient enough for the shareholders to vote validly the estate planning within the Loeb family all three shareholders decided that the Loeb Holding

9 Decision 531|01 of the TB dated April 26, 2013 in the matter Perfect 12 Decision 539|01 of the TB dated June 24, 2013 in the matter Logan Holding SA. Capital AG. 10 Recommendation 321|01 dated May 22, 2007 in the matter 4M Tech- 13 Decision 553|01 of the TB dated December 18, 2013 in the matter nologies Holding SA. Loeb Holding AG. 11 Decision 531|01 of the TB dated April 26, 2013 in the matter Perfect 14 Decision 553|01 of the TB dated December 18, 2013 in the matter Holding SA, c.2. Loeb Holding AG, c.2.1. Public Takeovers in Switzerland – Review 2013 6 | 23 September 30, 2014 shares held by Fralo shall be distributed in kind to group which would be subject to the mandatory the son and the daughter so that Fralo (and indi- offer16. rectly the father) would no longer hold voting rights in Loeb Holding and the daughter would In the matter Repower, Alpiq AG intended to sell hold and control exclusively 79.33% of the voting its 24.6% participation in Repower. The exit was rights therein. This transaction was actually the however made through a controlled process in last of a series of transaction during the last which the two other main shareholders disclosed twelve years the purpose of which was to pro- as a group with Alpiq (i.e. canton of Graubünden gressively transfer control over Loeb Holding from for 46% and Axpo Trading AG for 21.4%) would the father, to a joint control among the father and first exercise their right of first refusal pro rata and his children and, finally, to an exclusive control by purchase the Alpiq shares (transitional structure) the daughter. The TB held that the daughter would and then, in the short to medium term, find an ap- indeed control exclusively Loeb Holding after the propriate strategic investor and enter into a similar planned transaction and hence this change of shareholder agreement with the new investor as control would trigger a mandatory offer. However, the one entered into with Alpiq (target structure). art. 32 para. 3 SESTA specifically provides that no mandatory offer ex lege shall be triggered if the Repower filed for confirmation with the TB that no voting rights where acquired amongst other by a obligation to make an offer was triggered neither donation. This shall enable the continuation of for the shareholders’ group nor for its members family held businesses. The dividend in kind is a individually by both the transitional structure and donation and hence the mandatory offer is inap- the target structure. plicable, as it was in fact inapplicable to all previ- ous transactions aiming at transferring progres- TB held that the exit of Alpiq would lead to a sig- sively the control to the daughter. Also additional nificantly different situation at the level of the purchases of shares by the daughter shall not shareholder group, as each member of the group trigger a mandatory offer since she already con- had a veto right as to the strategy of the group. trols Loeb Holding on her own. This would how- Hence, if a party leaves the group, this could lead ever not be true if she were to pass below the to a change of strategy, namely a strategy that mandatory threshold and then exceed it again15. was vetoed by this party in the past, which could have a significant effect on the company and the No Mandatory Offer in Group Internal Restruc- minority shareholders. The remaining sharehold- turing. The TB confirmed its well-established ers formed hence a new group, subject to the practice that in case of a change in the controlling mandatory offer. group of shareholders - due to the accession of a new member to the group, a transfer of shares However, the TB granted an exemption to the between group members or a modification to the shareholders’ group based on art. 32 para. 2 lit. a terms of a shareholders’ agreement among the SESTA based on the exemption of transfers within group members - it must be assessed whether a group, because the allocation of powers be- such change leads to a significantly different situa- tween the members of the group stayed identical tion within the group and, thereby, creates a new 16 Decision 521|01 of the TB dated November 13, 2012 in the matter Repower AG, c.1. Such an exemption was granted previously by the TB in decision 446|01 of the TB dated June 30, 2010 in the matter Advanced Digital Broadcast Holdings SA, c.2, decision 405|01 of the TB dated March 6, 2009 in the matter Art & Fragrance AG, c. 6, confirmed by decision 423|01 of the TB dated July 24, 2009 in the matter EFG Interna- 15 Decision 553|01 of the TB dated December 18, 2013 in the matter tional AG; see also recommendation 394|01 of the TB dated December Loeb Holding AG, No. 13ss. 3, 2008 in the matter Orascom Development Holding AG, c.3. Public Takeovers in Switzerland – Review 2013 7 | 23 September 30, 2014 and the group was existing for a long period. This measure no investor would be willing to invest.20 exemption can also be granted if the composition In this not necessary that the of the group does not correspond to its original measure guarantees a long term success of the composition, which was the case here17. The TB target; rather, such measures shall be, according did not grant the request of the applicant entirely, to the ordinary course of business and with a suf- because it did not exempt the group from the ficient probability of success, adequate in order to mandatory offer for the target structure, even as- maintain the existence of the target. In this case, suming that such strategic investor would enter the target intended to raise CHF 300m through a into the same shareholders’ agreement as Alpiq: capital increase. However, this measure was not this exemption from the mandatory offer can only necessary according to the TB: indeed, the auditor be granted once the identity of the new investor confirmed the going concern status of the com- and its exact shareholding is known18. This oc- pany until at least the end of the financial year curred actually five months later when Axpo Hold- 2013 both in their report with respect to the finan- ing AG, parent of Axpo Trading AG, purchased cial statements 2012 and in a special report es- the remaining shares and entered into the share- tablished upon request by the board of the target. holders’ agreement. The TB granted then the ex- Also the board of the target confirmed that subject emption, based on the same reasoning as the in to an adjustment of the credit conditions the li- the previous decision19. quidity of the company was certain until 2015. Furthermore, the principle of subsidiarity applica- Exemption from Mandatory Offer for Recapi- ble to the exemption for recapitalization purpose is talization (Sanierung) Purposes. In justified not fulfilled in this case since the target has itself cases, the TB may grant an exemption from the been looking for new investors and taken meas- obligation to make a takeover offer. In the matter ures to improve the financial condition of the com- Schmolz + Bickenbach, the TB reaffirmed its prac- pany. Under all these circumstances, the TB re- tice of granting such an exemption in cases where fused to grant to the investors the exemption from the equity securities have been acquired for re- the mandatory offer for recapitalization purposes. capitalization purposes (see art. 32 para. 2 lit. e SESTA). The TB stated that the purpose of the In the Leclanché case21, the TB forced the target exemption from the obligation to make an offer in applicant to modify the agenda of its general case of an acquisition of shares for recapitaliza- meeting. Indeed, Leclanché SA had proposed a tion is to favour a rescue transaction in situations recapitalization package to its shareholder which where investors are willing to support a company met the criteria of the TB for the grant of an ex- with financial problems. In such a case, the inter- emption from the takeover offer for recapitalization est of the company in recapitalizing itself and con- purposes. However, Leclanché had linked the tinuing its business prevails over the interest of vote on this recapitalization package to the posi- the minority shareholders in a mandatory offer. tive vote on the introduction of an opting-out, Consequently, the TB will grant an exemption if which would have lifted the mandatory offer for the the applicant can provide evidence that the company for ever and in all circumstances. The planned recapitalization measure is necessary TB stated that by conditioning both elements on and appropriate to secure the continuity of the the agenda, the board was putting the sharehold- company in a situation in which without such ers in a dilemma: if they want to accept the re- capitalization package they would waive their right

17 Decision 521|01 of the TB dated November 13, 2012 in the matter Repower AG, c.2. 20 Decision 535|01 of the TB dated May 24, 2013 in the matter of 18 Idem, c.3. Schmolz + Bickenbach AG, No. 4ss. 19 Decision 521|02 of the TB dated March 27, 2013 in the matter Re- 21 Decision 544|01 of the TB dated August 13, 2013 in the matter of power AG, c.2. Leclanché SA, Bruellan Group and Precept Group. Public Takeovers in Switzerland – Review 2013 8 | 23 September 30, 2014 to exit at a minimum price in a future change of senting rights, of the company, fairness control. The TB argued this was an undue restric- opinion and board report) was sufficient to guar- tion of the shareholders’ rights and was further- antee an exit at fair conditions. Finally, the consid- more unnecessary since the granting of the ex- eration offered to the IMZ shareholders was com- emption for recapitalization purpose was sufficient pliant with the minimum price rule according to to rescue the company22. It therefore only granted art. 32 para. 4 SESTA. Hence, the TB granted an the exemption subject to the withdrawal of the exemption from the mandatory offer. conditioning of the two agenda items. Competing Offers Exemption from Mandatory Offer for Justified General. According to art. 30 para. 1 SESTA, if Reasons. In the International Mineral Corporation competing offers are made for equity securities of (IMZ) case23, the shareholders of IMZ – a Cana- the same target, the shareholders of the target dian company listed on the SIX Swiss Exchange – must be free to choose which offer they accept. exchanged shares of Minera, a Peruvian company, Hence, the regulation on competing offers aims at against shares of Hochschild – a UK company - fostering auctions and competing offers and at through a mandatory Plan of Arrangement under creating a level playing field for competing of- Canadian law. The Plan of Arrangement was not fers24. Indeed, the recipients of the offers must, considered by the TB as a takeover offer, because irrespective of the order of their publication, be of its compulsory nature; however, it led to a able to choose freely between the various offers change of control in IMZ which was deemed to (art. 48 para. 4 TOO). This has three material become a wholly owned subsidiary of the acquirer. consequences: Prior to the transaction, IMZ had asked the TB to grant an exemption from the mandatory offer since — First, the target shareholders have with- the Plan of Arrangement led to the compulsory drawal rights: following publication of a transfer of all shares of IMZ to Hochschild. competing offer, the recipients may revoke their acceptance declarations of the initial The TB applied the discretion left by art. 32 para. 2 offer at any time up to its expiry and accept SESTA, which states only example of cases which the competing offer instead (art. 51 para. 2 enable the TB to grant an exemption from the TOO). mandatory offer. Hence, the TB applied the gen- — Second, the timetables of the competing eral rule according to which it may grant an ex- offers are automatically aligned and the re- emption from the obligation to make an offer for spective acceptance periods run in parallel important reasons in "other justified cases" (art. 39 (art. 51 para. 1 TOO). SESTO-FINMA) and analyzed whether the Yukon — Third, from the perspective of the bidder, Business Corporation Act which governed the Plan the target must treat bidders equally. In par- of Arrangement offered the same protection to the ticular, it shall provide them all with the minority shareholders as the Swiss takeover laws. same information. For instance, if the target The fact that the Plan was subject to approval by company grants (or has granted) the right to the shareholders' meeting with a double qualified perform a due diligence to one of the bid- majority and by the competent court, the fact that ders, it has to grant the same right to all the company issued an information circular to its bidder(s). An unequal treatment of bidders shareholders (with explanations regarding dis- is possible only with the prior consent of the

22 Idem, No. 14-16. 24 See Ruling of the Federal Court 133 II 232, cons. 3.1.2. Decision 23 Decision 547|01 of the TB dated September 23, 2013 in the matter 477|04 of the TB dated August 2, 2011 in the matter Absolute Private International Minerals Corporation. Equity AG, c.3. Public Takeovers in Switzerland – Review 2013 9 | 23 September 30, 2014

TB if the target demonstrates that it has an conflict which would take into consideration the overriding interest (art. 49 TOO). interest of the recipients of the offer and the overall principles of takeover rules26. The TB decided to The Victoria Jungfrau Case. During the period extend the offer period by an additional ten-day under review, the multiple offers made for Victoria- period as of the publication of the completed offer Jungfrau Collection AG25 (VJC) contributed to de- prospectus and to request the board of the target velop the practice of the TB on the competing of- to issue a new report. The TB came to the conclu- fers. The auction started with an offer made by sion that AEVIS was entitled to purchase blocks of AEVIS Holding SA on October 24, 2013 for shares in the target at a price higher than the offer CHF 250 per VJC share. Swiss Private Hotel AG price. However, the TB pointed out that the appli- (SPH) launched a competing offer on December cation of the best price rule in connection with 23, 2013 for CHF 277 per VJC share. Both offers competing offers could be used to circumvent the were refused by the board of directors of the tar- five-day deadline of art. 52 para. 1 TOO. Such get who had committed a indi- circumvention was not apparent here, but the TB cating a valuation range of CHF 300 to CHF 325. would particularly pay attention to this in the future. On January 21, 2014, AEVIS signed a transaction agreement with the target and increased its – now Withdrawal Rights by Recipients of Competing recommended - offer to CHF 305 per share on Offers. Following publication of a competing offer, January 23, 2014. On January 30, 2014, SPH in- the recipients may revoke their acceptance decla- creased its offer to CHF 310 per share. Two trad- rations of the initial offer at any time up to its expiry ing days before the end of the extend offer period, and accept the competing offer instead (art. 51 AEVIS purchased a block of share representing para. 2 TOO). While the economics underlying this 15.6% of the share capital of the target for rule are clear when the competing offer is higher CHF 310 per share and hence increased its offer, than the initial offer, the question arises whether according to the best price rule (art. 10 TOO), of- this withdrawal right is also available when the fer to CHF 310 per share as well. After this pur- competing offer is equal to or lower than the initial chase, AEVIS held 29.1% in VJC. offer. This was the case in the VCJ case, where AEVIS increased its offer to CHF 310 per share, Amendment of Competing Offer and Best Price matching thereby exactly the offer presented by Rule. The last increase of its offer by AEVIS in the SPH. Could the shareholders who had already takeover battle for VJC occurred two days before accepted the offer of SPH at CHF 310 per share the expiration of the offer and showed a conflict withdraw their acceptance and accept AEVIS’ offer between the best price rule (art. 10 TOO), which instead? Conversely, could the shareholders who obliges the bidder to extend to all recipients of the had accepted AEVIS offer for CHF 305 per share offer an increased offer, and art. 52 para. 1 TOO, and hence benefit from an increased offer at which allows for the increase of a public offer until CHF 310 switch to the SPH offer at CHF 310 a the fifth trading day before the expiration of the share as well? offer at the latest. SPH had requested that the pur- chase of the 15.6% block shall be annulled be- The TB obliged AEVIS to mention this double cause it breaches the five-day rule set out in withdrawal right in its amended prospectus27. In- art. 52 para. 1 TOO. deed, the withdrawal rights merely assume the publication of a competing offer, irrespective of The TB considered both rules as being of equal rank and hence had to find a solution to bridge this 26 Decision 550|07 of the TB dated February 11, 2014 in the matter Victoria-Jungfrau Collection AG, c. 6ss. 27 Decision 550|08 of the TB dated February 11, 2014 in the matter 25 The TB rendered eight decisions in connection with this takeover offer. Victoria-Jungfrau Collection AG. Public Takeovers in Switzerland – Review 2013 10 | 23 September 30, 2014 such a competing offer being more favourable or However, for the purpose of the triggering of the not to the shareholders having already accepted mandatory offer, it is decisive whether the coordi- the first offer. This could be the case if the com- nated action is performed "in view of the control of peting offer is lower in price but subject to less the target" pursuant to art. 31 SESTO-FINMA. conditions precedent and hence more likely to suc- ceed. All parties acting in concert with the bidder have to abide by certain rules: (i) those governing trans- Amendment of Offer parency (art. 23 TOO) principally mean that they During the period under review, no material deci- have to be listed in the prospectus as acting in sion was rendered relating to the amendment of concert with the bidder; (ii) the rules governing the offer. equal treatment, and in particular the best price rule (art. 10 TOO), require that if they buy shares Acting in Concert at a higher price than the bid price, the bidder has General. Pursuant to art. 32 para. 1 SESTA, any- to increase the price offered; (iii) the rules gov- one who, directly, indirectly or acting in concert erning fairness require that all parties "acting in with third parties, acquires equity securities, and, concert" have to behave fairly within the meaning as a result of such acquisition, holds equity secu- of art. 1 TOO; (iv) the rules governing the obliga- rities of a Swiss listed company exceeding the tion to give notice of any transaction (chapter 8 1 threshold of 33 /3% of the voting rights of such TOO) oblige them to disclose every transaction company, must submit an offer for all listed equity which they make involving shares of the target securities of such company. In connection with the company from the publication of the offer until the mandatory offer, the definition of "acting in con- end of the supplementary acceptance period cert" is set forth in art. 31 SESTO-FINMA which (art. 38 para. 1 and 2 TOO). states that art. 10 para. 1 and 2 SESTO-FINMA (which states the general rule of acting in concert Transaction Agreement with Target. If the bid- for mere disclosure purpose) applies by analogy der enters into a transaction agreement with the to acquirers of shares of the target. According to target, they will act in concert as of this date at the art. 11 para. 1 TOO in connection with art. 10 latest. However, if the agreement with between para. 1 and 2 SESTO-FINMA, and pursuant to the the target and the bidder is not about price, condi- practice of the TB, a third party who coordinates tions and modalities of the offer and does not with the bidder in view of a takeover offer and its oblige the board of the target to support the offer, terms, or who has reached an agreement (in writ- but only settles a dispute between the target and ing or otherwise) with the bidder regarding the the bidder, such parties will not be acting in con- takeover offer or its terms, is considered to be cert according to art. 31 SESTO-FINMA.28. acting in concert with such bidder as of the date of such agreement. In particular, such a coordination Group of Companies. As for groups of compa- of conduct exists, inter alia, in the event of (i) legal nies (including their controlling shareholder[s]), relationships for the acquisition or sale of equity they are deemed to act in concert if control de- securities, (ii) legal relationships regarding the ex- rives from (i) the majority of the capital or of the ercise of voting rights (shareholders’ voting voting rights or (ii) in any other way (art. 10 para. 2 agreement), or (iii) the constitution by individuals lit. c SESTO-FINMA). In other words, a bidder is and | or legal entities of a group of companies or deemed to act in concert with all members of the other type of firm controlled through possession of group of companies to which he belongs as well the majority of voting rights or capital or in any other way (see art. 10 para. 2 SESTO-FINMA). 28 Decision 540|01 of the TB dated July 25, 2013 in the matter Schmolz + Bickenbach AG, No. 19. Public Takeovers in Switzerland – Review 2013 11 | 23 September 30, 2014 as with the controlling shareholder(s) of such a Action by a Representative. According to art. 11 group. This control can emanate from the majority para. 2 TOO, the representative of the bidder shall of the shares or voting rights (more than 50%) or not be presumed to be acting in concert or in an "in any other way", which means that even a organised group with the bidder. Such represen- shareholding of less than 50% can be considered tative can not only be a representative stricto as controlling for other reasons. sensu, but also an advisor (attorney, bank, etc) or corporate body of the bidder. The TB would look In the takeover for Schmolz + Bickenbach by Ve- into the matter in order to potentially reverse the netos Holding AG, the TB had to assess whether presumption only if such purchases had a direct the limited partners (Kommanditäre) of the Ger- influence on the success of the offer. man Kommanditgesellschaft Schmolz + Bicken- bach GmbH & CO KG (S+B KG) formed a group In the takeover for Schmolz + Bickenbach by Ve- with the Kommanditgesellschaft itself29. netos, the TB assessed that purchases of target shares made prior to the offer by a senior officer The TB first examined whether one of the limited of the bidder had no influence on the success of partners did control solely the S+B KG according the offer and hence was not sufficient to reverse to art. 10 para. 1 lit. c SESTO-FINMA. Since none the presumption of art. 11 para. 2 TOO. of the limited partners owned more than 50% of the voting rights, the TB excluded the control Pledge Agreement in Favor of Financing through "possession of the majority of voting rights Banks. In the matter Sulzer and OC Oerlikon or capital". Further, the TB examined whether the Corporation, the TB made certain interesting limited partner exercised control "in any other statements regarding acting in concert with se- way" as set forth in art. 10 para. 1 lit. c in fine, e.g. cured bank financing. In order to secure its group through an arrangement among the limited part- financing, Renova offered as a to the ners. Again, the TB gave a negative answer: ex- bank syndicate 27.26% of the shares of Sulzer AG cept for the limited partnership agreement, which and 41.76% of the shares of OC Oerlikon Corpo- did not contain any provision about voting rights or ration AG. The TB held that until an enforcement exercise of control, no arrangement existed be- event would occur, a pledge agreement was not tween the limited partners. Rather, they held be- transferring the ownership and the voting rights of tween 4% and 35% of S+B KG and came from the underlying shares to the banks. There is no four different families, which is not enough to be possibility for the banks to control the company deemed a group. Also the structure of the S+B KG and hence the banks would not form a group ac- did not allow for a control by the limited partners cording to art. 10 para. 1 and 2 lit. b SESTO- over the KG: the corporate body competent to FINMA. designate the general manager of the general partner of the KG (which was S+B Beteiligungs Undertaking to Subscribe and Lock-up Agree- GmbH) was a committee of five limited partners, ment towards Bank. In connection which were designated according to a key set with the of Bosshard Holding, the is- forth in the partnership agreement. Furthermore, suer and its major shareholders (which formed a history showed that decisions were not always group and which held 56% of the voting rights of taken with unanimous vote. the issuer) agreed in advance that they would ex- ercise their pre-emptive rights and would enter into a lock-up agreement with the underwriting bank.

29 Decision 540|01 of the TB dated July 25, 2013 in the matter Schmolz + Bickenbach AG, No. 12. Public Takeovers in Switzerland – Review 2013 12 | 23 September 30, 2014

The TB held that agreements entered in connec- The TB came to the conclusion that the minimum tion with a capital increase (subscription under- price rule is complied with if during the 12 months taking and underwriting agreement) are not suffi- preceding the offer, the bidder has subscribed for cient for its parties to form a group "in view of the new shares at a higher price than the offer price. control of the target" pursuant to art. 31 SESTO- Indeed, the minimum price rule is mainly driven by FINMA, but are only agreements facilitating the the obligation to treat all shareholders equally. By capital increase without provisions with regard to subscribing shares, the bidder has not granted an exercising control of the issuer30. advantage to a specific shareholder but has con- tributed to an increase of the equity of the target Minimum Price Rule which benefits to all shareholders pro rata. This General. Any public takeover offer made for a holds also true if the bidder has subscribed for number of equity securities that would result in the additional shares beyond its pro rata portion. bidder holding a number of equity securities of the However, the TB stated that it would look differ- target that would trigger the mandatory offer rule ently at such a case if the capital increase was 1 (i.e., 33 /3% of the voting rights of the target, structured so as to privilege a specific share- whether exercisable or not, except where the tar- holder, which was not the case in the capital in- get's articles of association contain an opting-up crease conducted by Tornos Holding32. or opting-out provision) must comply with strict minimum price rules. Pursuant to art. 32 para. 4 "Other Material Benefits" as Consideration. SESTA, the price offered shall be at least as high Art. 41 para. 4 SESTO-FINMA states that if the as the higher of the following two amounts: (i) the bidder rendered other substantial services or stock exchange price (which shall be at least the benefits in connection with a prior acquisition volume-weighted average price of all on-exchange (e.g., granting of assurances or material benefits), transactions executed during the sixty (60) trading the price of the prior acquisition must be adjusted days (VWAP) prior to publication of the offer or the to reflect the value of these services. pre- announcement); and (ii) the highest price that the bidder has paid for equity securities of the tar- On the face of it, the takeover for Schmolz + Bick- get in the preceding twelve months (even if this enbach was hinting certain issues with the rule on purchase was only completed after the offer's "other material benefits". Indeed, the takeover of- launch, see below under Best Price Rule). fer launched by Venetos was made at CHF 2.85 per share, even though the main shareholder of Share Subscription As a Prior Purchase? In the the target, Schmolz + Bickenbach GmbH & Co KG takeover offer for Tornos Holding by Walter Fust31, (S+B KG) had sold prior to the launch of the offer the TB had to qualify a share subscription made a stake representing 25.29% of the shares of the during the twelve months prior to the launch of the target at a price of CHF 2.40 per share. This price takeover offer. Indeed, the offer price was CHF was not only lacking a so called "control pre- 4.70 per share and 5 months prior to the launch of mium", which was still possible until May 1, 2013, the takeover offer, Walter Fust had subscribed for but was also lower than both the stock exchange new shares in a capital increase by the target for price and the price offered by other interested CHF 7 per share. parties since S+B KG had organized an auction to dispose of its shares. The lower price was justified for S+B KG because Venetos committed in a shareholders’ agreement with S+B KG to keep a 30 Decision 528|01 of the TB dated February 28, 2013 in the matter Bosshard Holding AG, c.1. 31 Decision 551|01 of the TB dated November 25, 2013 in the matter 32 Decision 551|01 of the TB dated November 25, 2013 in the matter Tornos Holding SA. Tornos Holding SA, No. 15ss. Public Takeovers in Switzerland – Review 2013 13 | 23 September 30, 2014 representative of S+B KG in the board of the tar- each supposedly material benefit to either party, get and they were convinced of the long term even if there is no straightforward valuation model value creation by a group like Venetos / Renova, at hand. which had already proved its long term value crea- tion skills in Oerlikon and Sulzer; this last ar- The Review Body had to review and value sepa- gument was of importance because S+B KG kept rately and in details the contractual and extra- a stake of 15.17% in the target. contractual benefits that Venetos / Renova had granted to S+B KG, namely two loans granted by The target did oppose this view before the TB and Renova to S+B KG for more than EUR 10m. The claimed that the TB should look at so-called "other contemplated shareholders’ agreement regarding material benefits" that Venetos had provided to the sale of the commercial real estate was never "S+B KG", such as certain transaction that had entered into and the waiver of the liability claim by been foreseen in an earlier draft of the sharehold- the target against its former Chairmen could not ers’ agreement (sale of a commercial real estate be proven. The different valuation methods did in Germany), a dividend guarantee for approx. lead to a value that was inferior to the CHF 0.45 CHF 5m for the years 2014-2016. Also, a poten- per share which would have been tolerated under tial commitment by the bidder to cause the target the minimum price rule34. to discontinue a liability claim against its former Chairman should also be considered as an "other The shareholder Gebuka SA, which held 6% of material benefit". the voting rights of the target and had applied for being a party in the procedure, appealed before In order to determine the facts, the TB applied the the FINMA. It argued that the TB failed to its du- method foreseen in art. 41 para. 5 SESTO- ties by simply relying on the documents and in- FINMA, as confirmed in the seminal Quadrant formation provided by the bidder. The FINMA re- case which was put to an end with the decision of minded the important technical discretion left to the TB dated December 13, 201233 after a three the TB and confirmed the latter’s decision35. In- years procedural battle. The existence and valua- deed, as long as the Review Body’s calculations tion of "other material benefits" must first be as- and explanations are "transparent, plausible and sessed by the bidder; such assessment must then retraceable", the TB has no obligation to request be reviewed by the Review Body (art. 25 SESTA). additional elements of evidence, even though the This means that the TB may rely on the facts es- TB could do so36, and is not obliged to put in place tablished by such Review Body which has a wide a control of flow of funds among the bidder and discretion when establishing the valuation. How- S+B KG for a period of two years after the settle- ever, this statutory delegation is not unlimited and ment of the takeover offer as requested by the the regulator must verify that the Review Body’s target and Gebuka. Interestingly, the FINMA men- assessment is thorough and comprehensive, in tioned that the price is not necessarily the only particular, with respect to the valuation of the criterion when selling shares, all the more when "other material benefits" in the sense of art. 41 the seller remains as a shareholder with the com- para. 4 SESTO-FINMA, the Review Body’s cal- culations and explanations must be "transparent, plausible and retraceable". This means that the Review Body must carefully assess and value 34 Decision 540|01 of the TB dated July 25, 2013 in the matter Schmolz + Bickenbach AG, No. 31. 33 Decision 410|05 dated December 13, 2012 in the matter Quadrant AG. 35 Decision of the FINMA dated August 22, 2013 in the matter Schmolz + The matter went up to the Swiss Federal Administrative Court, see Bickenbach AG, c. B.1.1.b) and c). Decision B-5272|2009 dated November 30, 2010 in the matter public 36 Art. 12 of the Federal Act on the Administrative Procedure dated by Aquamit B.V. to the shareholder of Quadrant AG. December 20, 1968. Public Takeovers in Switzerland – Review 2013 14 | 23 September 30, 2014 pany and commits in the future to jointly vote with material change threshold; indeed, a material ad- the acquirer37. verse change affecting an antitrust approval does not make the closing of the mandatory offer im- Best Price Rule possible, but only potentially more expensive or During the period under review, no material deci- more complicated40. sion was rendered relating to the best price rule. Dividend Distribution as Condition Precedent? Conditions In the WM Technologie41 case, the TB accepted Conditions in Mandatory Offers. Unless im- the conditions that the intended spin-off be com- portant reasons can be demonstrated, a manda- pleted, i.e. that the shares of the target be distrib- tory offer may not be subject to conditions (art. 36 uted to the shareholders of its parent. The TB para. 1 SESTO-FINMA). based its decision on its well established practice that an exchange offer may be made subject to In the takeover for Schmolz + Bickenbach, the TB the condition precedent that the bidder's share had to review for the first time whether a condition capital increase necessary for purposes of the prohibiting the shareholders’ meeting of the target exchange offer be registered in the commercial to take a decision lead to a material change of the register and that such registration would not be 42 substance of the target was also permissible in a hindered by a possible registry ban. mandatory offer. The review was made against the wording of art. 36 para. 2 lit. c SESTO-FINMA, Equal Treatment which provides that if the bidder wants that the Takeover Coupled with a Repurchase by the specifically designated economic substance of the Target. The Fortimo Group takeover43 was pecu- target should not be changed, such condition is liar to the extent that the bidder (Forty Plus AG) also acceptable in a mandatory offer. However, had launched a takeover offer for all the shares of this wording must be interpreted narrowly and Fortimo Group AG, and the target itself, in agree- therefore a condition providing for a general ment with the bidder, had itself launched a repur- threshold (as proposed by Venetos) as opposed chase offer. The aim of the combined offers was to the specific definition of so-called “crown jew- the going private of Fortimo Group. The TB ana- els” was not an acceptable condition in a manda- lyzed whether the shareholders who would accept tory offer38. the takeover offer would be treated equally with the shareholders who would tender in the share repur- Further, in the same matter, the TB confirmed that chase. The price offered was identical (CHF 136 a condition prohibiting the shareholders’ meeting per share) and the prospectus mentioned that any of the target to introduce a restriction to the payment by the target for shares tendered in the transmissibility or to the voting rights is acceptable repurchase would not have a dilutive effect for the in a mandatory offer as well39. price to be paid to the shareholders tendering in the takeover offer. Further, both offers were open In accordance with established practice, the TB to all shareholders; however, the repurchase was confirmed that the closing of a mandatory offer only open to 5.37% of the Fortimo Group shares; may be subject to antitrust approval. However, in such case, a pro rata shortening of the tender such antitrust approval may not be qualified by a 40 Idem, No. 50. 41 Decision 556/2 of the TB dated February 24, 2014 in the matter of WM 37 Decision of the FINMA dated August 22, 2013 in the matter Schmolz + Technologie AG, No. 17. Bickenbach AG, No. 70. 42 Decision 416/01 of the TB dated July 13, 2009 in the matter Jelmoli 38 Decision 540|01 of the TB dated July 25, 2013 in the matter Schmolz + Holding AG, c.7.10. Bickenbach AG, No. 46. 43 Decision530|01 of the TB dated April 9, 2013 in the matter Fortimo 39 Idem, No. 47. Group AG. Public Takeovers in Switzerland – Review 2013 15 | 23 September 30, 2014 would be made. The fact that two shareholders of was admissible under art. 29 para. 2 SESTA. the target, who were also shareholders of the bid- However, the fees to be paid to the underwriting der and were acting in concert with the bidder and banks in connection with such capital increase the target, intended to tender in the share repur- amounted to CHF 28m, which corresponded chase for tax reason was not considered as a roughly to 10% of the amount to be raised. The problem with respect to the principle of equal bidder Venetos argued that this payment was treatment, as it was foreseen that such tender tantamount to a defensive measure that clearly would only be accepted if the public shareholders violates provisions of company law and shall be would not fill out the volume announced of the regarded as an inadmissible measures as defined share repurchase. Finally, both offers were subject in art. 29 para. 3 SESTA in connection with art. 37 to the same unique condition and to the same tim- TOO. Indeed, it is not in the interest of the com- ing, and both offers were announced and disclosed pany and breaches art. 717 CO. The TB held that in the same offer document; also the offer docu- despite the fact that the costs were higher than ment explained why the parallel structure had be the usual 2% to 3% of the amount raised, the risk chosen by the parties (benefit for legal entities taken in the specific situation by the banks was domiciled to tender into the share repurchase be- considerably higher. Also, the general meeting cause they could benefit from the participation was informed about the cost when deciding the exemption). The fact that different tax conse- capital increase. Hence, this could not qualify as a quences were triggered by the two offers was un- clear violation of the provisions of company law44. problematic due to the pro rata acceptance. Board Report Defense Measures Conflict of Interests. Due to the importance of From the moment an offer is published until the the board report, board independence is essential. result is announced, the board of directors of the Therefore, the report must state whether members target shall not enter into any legal transactions of the board of directors are in any way conflicted which would have the effect of altering significantly (art. 32 para. 1 TOO). According to art. 32 para. 2 the assets or liabilities of the company. Decisions TOO, the board report must in particular state taken by the general meeting of shareholders are whether any member of the board of directors: not subject to this restriction and may be imple- mented irrespective of whether they were adopted a. has entered into an agreement with, or has before or after publication of the offer (art. 29 para. any other ties with, the bidder; 2 SESTA). A catalogue of such measures is set b. was elected on the proposal of the bidder; forth in art. 36 para. 2 TOO. Furthermore, art. 29 c. is to be re-elected; para. 3 SESTA orders the TB to issue rules con- d. is a company officer or employee of the bid- cerning any measures which are directed, in an der or of a company that has significant busi- improper manner, at frustrating an offer or pre- ness relations with the bidder; venting it from being successful. The TB did this in art. 37 TOO which provides that defensive e. exercises his or her mandate according to measures that clearly violate provisions of com- the instructions of the bidder. pany law shall be regarded as inadmissible. The board report shall also disclose, on an individ- ual basis, the financial consequences of the take- In the takeover offer for Schmolz + Bickenbach, over offer on the current target board members the target had invited the shareholders’ meeting to and senior officers, including information on the resolve upon an ordinary capital increase. Such a resolution, taken by the shareholders’ meeting, 44 Decision 540|01 of the TB dated July 25, 2013 in the matter Schmolz + Bickenbach AG, No. 64. Public Takeovers in Switzerland – Review 2013 16 | 23 September 30, 2014 financial consequences of employee options, irre- report had to be re-issued by the target board spective whether they have been repurchased by once established. the bidder, purchased by the bidder or declared invalid, as well as on information on severance Fairness Opinion. A common method employed payments, in particular on their amount. In the to neutralise any conflicts of interest of target event of any conflict of interests, the report shall board members is to appoint an independent fi- indicate the measures taken by the target in order nancial adviser and require the delivery of a fair- to prevent the conflict of interests from disadvan- ness opinion. Such fairness opinion shall form an taging the recipients of the offer (art. 32 para. 4 integral part of the board report. The basis for the TOO). Neither SESTA nor TOO state which meas- valuation, the methods of valuation and the ap- ure has to be taken. In its practice, TB deems that plied parameters must be disclosed in a trans- the following measures are appropriate: Abstention parent, plausible and understandable way47. from voting or formation of an independent com- When the provider of the fairness opinion uses the mittee, or delivery of a fairness opinion. (DCF) method, it shall also disclose the key values applied, e.g., order status, For any target board member that has been turnover, EBITDA, EBIT, capital expenditures) in elected with the votes of the bidder, there is a pre- its opinion48. sumption that such board member is conflicted. However, the target board may provide evidence Type of Consideration that such board members are, in fact, independ- During the period under review, no material deci- ent. This should be possible, for example, if the sion was rendered relating to the type of consid- target board member is neither a member of the eration. board or employee of the bidder (or a person act- ing in concert) nor has entered into a mandate Cost Coverage agreement or entertains business relations with During the period under review, no material deci- the bidder (or a person acting in concert) or oth- sion was rendered relating to the cost coverage. erwise acts upon instruction of the bidder, and neither is a corporate body of a company enter- Withdrawal of Offer taining important business relationships with the During the period under review, no material deci- bidder (or a person acting in concert)45. Conflicted sion was rendered relating to the withdrawal of an board members may not participate in the prepa- takeover offer. ration of the board report or vote thereupon. Review Body Target Not Yet Existing When Takeover Offer During the period under review, no material deci- Launched.. In the WM Technologie46 case, the sion was rendered relating to the Review Body. target – a subsidiary to be created and to be spun- off – was not yet incorporated at the time the Rights of Qualified Shareholders49 board report had to be issued. Hence, the board During the period under review, no material deci- report was prepared by its incorporator, i.e. by the sion was rendered relating to the rights of qualified board of its parent. The TB ordered that the board shareholders. Since May 1, 2013, however, a

47 Decision 550|02 of the TB dated December 3, 2013 in the matter 45 Decision 556/2 of the TB dated February 24, 2014 in the matter of WM Victoria-Jungfrau Collection AG SA, No.2. Technologie AG, No. 2. In this case, the board of the target WM Tech- 48 Decision 550|02 of the TB dated December 3, 2013 in the matter nologie AG was similar to the board of its parent Walter Meier AG before Victoria-Jungfrau Collection AG SA, No.15. the spin-off. 49 See, in general, Flavio Romerio | Frank Gerhard, Harwanne – Erster 46 Decision 556/2 of the TB dated February 24, 2014 in the matter of WM Testfall für die neue Verfahrensordnung im Übernahmerecht, in: GesKR Technologie AG, No. 17. 3|2009, pp. 355-362. Public Takeovers in Switzerland – Review 2013 17 | 23 September 30, 2014 qualified shareholder must hold 3% (instead of The TB is responsible for the interpretation and 2%) or more of the voting rights of the target, application of Articles 22 to 33d SESTA. In con- whether exercisable or not, in order to be a party trast, compliance with the rules on market abuse in the proceedings before the TB. is supervised not by the TB, but by FINMA.

Repurchase of Own Shares With respect to share buy-backs outside the safe General. Fixed-price public offers by an issuer harbor, the new FINMA Circular 2013/08 on Mar- (bidder) to purchase its own listed equity securities ket Conduct Rules of 29 August 2013 will play an are public offers within the meaning of art. 2 let. e important role. While the FINMA Circular is not a SESTA. Public offers also include public buyback binding legal act, it sets out FINMA’s interpretation programmes executed by issuing put options or at of the prohibition of insider trading and market market prices. Such transactions (collectively: manipulation. For example, it should be noted that buyback programmes) are governed by the provi- FINMA’s view is extensive as to the scope of pos- sions of Chapter 5 of SESTA, the SESTO-FINMA, sible "insider" information, which according to the SESTO-FINMA and the TOO. FINMA also includes outside information not known to the company and its insiders and which In a far-reaching revision of the SESTA, which has no impact on its intrinsic value (e.g. an ana- entered into force on May 1, 2013, the prohibitions lyst’s view or third party’s intention). So far, of insider trading and market manipulation were FINMA has not been willing to entertain the possi- moved from the Criminal Code into the SESTA. bility of no-action letters or to determine the per- As the scope of the prohibitions is very broad, the missibility of intended transactions under the new SESTO has been amended to include certain safe regime, but has not excluded the implementation harbor exemptions. Art. 55 let. b to let. d of of such procedures in the future. SESTO specify for publicly announced buyback programs which behaviour is accepted and con- Buy-Back for Less Than 10% of the Share Cap- stitutes neither insider trading (art. 33 let. e ital: TB Reporting Procedure (Meldeverfahren). SESTA) nor market manipulation (art. 33 let. f As with the previous regime, the reporting proce- SESTA) even if the behavior would otherwise fall dure is applicable if the proposed share buy-back under the scope of the prohibitions. Enforcement fulfils certain requirements which have largely of these prohibitions and supervision of compli- remained the same under the new regime (TB ance with the safe harbor rules lies in the hands of Circular No. 1 paras. 8–15): FINMA. – The volume of the buy-back does not affect By and large these safe harbor rules mirror some more than 10% of the share capital and the of the rules developed by the TB for share buy- voting rights (as per commercial register) (TB back and set out in the old TB Circular Nr. 1 dated Circular No. 1 para. 11, art. 55b ciph. 1 let. b February 26, 2010. Hence, the TB consequently and ciph. 2 let. b SESTO). amended Circular Nr. 1 with the goal of eliminat- ing duplications and enacted a new Circular Nr. 1 In the Absolute Invest50 case, the TB had dated June 27, 2013. Today, the regulatory granted an exemption from the takeover rules framework of buy-backs is spread across the TB for a 10% repurchase program on the second Circular Nr.1, art. 33e – 33f SESTA, art. 55b – 55d trading line; however, the volume bought SESTO, as well as the related FINMA Circular back finally amounted to 19.99% of all issued 2013|08 on Market Conduct Rules, and enforced by different authorities. 50 Decision 522|01 of the TB dated January 4, 2013 in the matter Abso- lute Invest AG, c.2. Public Takeovers in Switzerland – Review 2013 18 | 23 September 30, 2014

shares because Absolute Invest had repur- gram and subsequent cancellation. The TB chased an additional 10% from one single considered as irrelevant the fact that Abso- shareholder (the Frey group) separately on lute had an opting-out in its articles of asso- the first trading line through a broker. Abso- ciation because the mere fact of exceeding lute communicated that this repurchase was the mandatory offer threshold leads to a sig- conducted “outside the buyback program and nificant concentration of the voting rights in for other purposes”, i.e. not for cancellation one single shareholder. Interestingly, the TB as those shares repurchased on the second did not hint that a buy-back leading to a ma- trading line. However, these shares were fi- terial change of control would be prohibited, nally also resolved to be cancelled at the ex- but rather indicated that the exemption from traordinary shareholders’ meeting that took the takeover rules for such a buy-back would place one month after the repurchase (in No- be available provided appropriate disclosure vember 2012). Absolute argued before the was made. TB that the 10% block repurchased from the Frey group was intended to be used as a – The total volume of the buy-back may not consideration in a potential merger. The TB exceed 20% of the free-float. It is worth not- however held that this possibility was only ing that TB Circular No. 1 uses its own defini- theoretical as evidenced by the proposal of tion of free-float which is as follows: the free- the board of directors of Absolute to cancel float does not include equity securities of over these shares only a few days after the repur- 5% held by an investor directly, indirectly or chase from the Frey group. Hence, the TB in concert with third parties. The reference concluded that Absolute breached the 10% date for this calculation is the day on which volume limitation and the prohibition of pur- the application is submitted to the TB. The chases outside the buy-back program for the free float must be calculated separately for same purpose as the one indicated for the each category of equity securities covered by buy-back program. the buy-back program (TB Circular No 1, para. 2). Accordingly, the buy-back volume of – The cancellation of the equity securities ac- companies with significant shareholder quired in the course of the buy-back program groups holding more than 5% in the shares may not lead to a significant change of con- may be limited. trol with the issuer, in particular by exceeding the thresholds of 331/3% or 50% of the voting – The implementation of the buy-back program rights. Any planned cancellation of equity se- may not lead to the issuer falling below the curities already held is to be considered in a minimum thresholds required for listing ac- similar manner. cording to the rules of the relevant stock ex- change (e.g., 25% for a listing according to In the Absolute Invest51 case, the TB held the main standard on the SIX Swiss Ex- that the company had failed to disclose in the change. The definition of the free float ac- reporting form a possible change of control of cording to the rules of the SIX is actually dif- Absolute because its shareholder Alpine Se- ferent from the criterion of the free float lect, if not participating in the buy-back pro- ("shares held by the public") which is used by 1 gram, would cross the threshold of 33 /3% of the SIX when assessing if an IPO candidate all shares issued upon completion of the pro- fulfils all the listing conditions. In the latter case, all blocks of more than 5% do not count

51 towards the free float, whereas in the first Decision 522|01 of the TB dated January 4, 2013 in the matter Abso- lute Invest AG, c.2.3. Public Takeovers in Switzerland – Review 2013 19 | 23 September 30, 2014

case blocks of more than 5% which are held – The buy-back notice must state the purposes by asset managers, fiduciaries, investment of the buy-back precisely and completely (TB funds or pensions funds do count towards the Circular No. 1, para. 8). calculation of free float. – The buy-back program must extend to all If the proposed buy-back program complies with categories of listed equity securities of the is- all requirements of chapters 1 – 4 of TB Circular suer (TB Circular No. 1, para. 9). If the buy- No.1, the issuer may use the reporting procedure back program is executed through stock ex- and report the program to the TB (see TB Circular change purchases, the issuer must place si- No. 1, para. 31– 34). Such reporting takes place multaneous bids for all categories of listed by submitting the form provided by the TB at least equity securities (TB Circular No. 1, para. five trading days before the planned publication 22). date of the buy-back notice. If the conditions for the exemption under the reporting procedure are – The issuer must ensure an adequate relation- deemed satisfied, the TB confirms within three ship of the prices offered for different catego- trading days that it has taken note of the buy-back ries of equity securities (TB Circular No. 1, program and that no formal decision by the TB is para. 14). This provision will mainly be of rel- required. evance in connection with a buy-back through a tender offer or the issuance of put Buy-Back for More Than 10% of the Share Cap- options. In case of purchases over the stock ital. If a buy-back program does not qualify for the exchange, as a rule, the market price and the reporting procedure, e.g., because it covers more 5% limitation on a premium over the market than 10% of the capital or of the voting rights, the price (see below) ensure such adequate rela- issuer may, based on art. 4 para. 2 TOO, submit a tionship. regular exemption application to the TB (TB Circu- lar No.1, paras. 35 – 39) in addition to the appli- – The issuer may not purchase equity securi- cable form, wherein the issuer explains the rea- ties for the purposes announced other than sons for the deviation from the requirements set through the buy-back program (TB Circular out in the TB Circular. The application must be No. 1, para. 15). Conversely, the bidder may submitted no later than 20 trading days prior to the not purchase shares outside of the buy-back launch of the buy-back program. The TB then program for the same purpose as the pur- decides whether or not the buy-back program has pose stated in the buy-back offer documenta- to comply with any or all of the regular rules gov- tion. However, unlike many other jurisdic- erning public offers for shares. The buy-back pro- tions, securities purchased for other purposes gram may be launched no earlier than 10 trading than those announced under the buy-back days after the publication of the TB’s formal deci- program can be purchased outside the buy- sion back program, but must be reported every fifth trading day. Sales of securities to which General Rules Applicable to Buy-Back Pro- the buy-back program applies shall also be grams Based on the Reporting Procedure. In reported every fifth trading day. Chapter 8 of addition to the general eligibility requirements for TOO shall otherwise apply. the reporting procedure, a buyback program which has been cleared through the reporting procedure must satisfy additional requirements, in particular with regard to the principle of equal treatment: Public Takeovers in Switzerland – Review 2013 20 | 23 September 30, 2014

In the Absolute Invest52 case, the TB held that was still unused at the time of the Frey group this aspect of equal treatment was violated in transaction. two manners. First, the bidder Absolute Invest repurchased from one of its shareholders (the In light of the above, the TB imposed a duty Frey group) shares outside of the buy-back on Absolute to conduct its upcoming buy-back program conducted on the second trading program in the form of a fixed price offer or by line, communicating that such repurchase was way of issuance of put options and the mini- conducted “for other purpose”. However, mum price for such offer must be the price to shortly after this repurchase, those shares the Frey group. were finally resolved to be cancelled at the November 2012 extraordinary shareholders’ Special Provisions for Fixed Price Offers and meeting and hence the purpose was identical Issuance of Put Options. Fixed price-offers and to the purpose of the buy-back program. Ab- buy-back programs implemented through the is- solute argued before the TB that these shares suance of put options may not be conditional and repurchased from the Frey group were in- must provide for an offer period of at least 10 trad- tended to be used as a consideration in a po- ing days (TB Circular No. 1, para. 16 and 17, art. tential merger. The TB however held that this 55 para. 2 let. a SESTO). Additional requirements possibility was only theoretical as evidenced apply, in particular, with regard to the principle of by the proposal of the board of directors of equal treatment (TB Circular No. 1, para. 18 – 20): Absolute to cancel these shares only a few days after the repurchase from the Frey – If the issuer is unable to satisfy all accep- group. Hence, the TB concluded that Absolute tance declarations, it must satisfy them on a breached the prohibition of purchases outside pro rata basis. the buy-back program for the same purpose as the one indicated for the buy-back pro- – If during the period of a buy-back program gram. Second, the bidder had allowed one of the issuer acquires equity securities at a price its shareholders (the Frey group) to sell its en- exceeding the offer price, it must offer the tire shareholding. Absolute had argued that higher price to all accepting shareholders the buy-back of this stake was in the interest (best price rule). of the company and all other shareholders, since the Frey group wanted to discontinue its If during the period of the buy-back program, investment and such a repurchase would the bidder acquires securities at a price that avoid a potentially sharp decrease in the exceeds the offer price, it must offer this price share price of the company on the stock ex- to all offerees. The best price rule only applies change. The TB held, despite this argument in connection with buy-backs through a tender which was not considered as convincing, that offer or through the issuance of put options. If Absolute had “neglected the other sharehold- a buy-back is effected by way of a separate ers” in their right to sell their shares in the buy- trading line, the price offered on the separate back program – even so it was evidenced that trading line may not exceed the last price of- not all existing shareholders wanted to tender fered on the regular trading line or the last in the buy-back, since a "slot" of 3% of all price offered prior to that by more than 5%. If shares (equivalent to 30% of the program) the rules of the stock exchange on which the securities are listed permit off-exchange trans- actions (block trades), the relevant price may

52 not exceed the last price paid on the ex- Decision 522|01 of the TB dated January 4, 2013 in the matter Abso- lute Invest AG, c.2. Public Takeovers in Switzerland – Review 2013 21 | 23 September 30, 2014

change or the price last offered on the ex- the permitted buy-back volume may result to change by a person or entity other than the be insignificant. In such case, the issuer has bidder. no other choice but to obtain an exemption from the TB pursuant to art. 55b para. 3 The issuer must publish the buy-backs made at SESTO. As such exemption cannot be ob- the latest on the day following the expiry of the tained in the reporting procedure, the issuer buy-back program (art. 55b para. 2 let. d SESTO). has to obtain formal approval from the TB. No later than 3 trading days after the expiry of the buy-back program the issuer must submit a con- The TB used this competence in the buy- firmation to the TB regarding its compliance with back program of Castle Alternative Invest, the applicable requirements (TB Circular No. 1, who had applied for an increase up to 50% of para. 14 – 15, 18 – 19) as well the required re- the daily volume. Finally, the TB agreed to in- porting (para. 27). crease the limit to 37.5% of the daily volume: the volume during the 30 days prior to the Special Provisions for Buy-Back at Market publication of the buy-back (13,433 shares) Price. The most common form of buy-back pro- was considerably lower than the volume dur- grams is the buy-back over the stock exchange, ing the 12 months prior to the publication of i.e. “at market prices”, usually using a second the buy-back (19,306). The TB also stated trading line (for withholding tax reasons). Buy- that this would not hinder Castle to exceed back programs at market prices may not last such upper limit, but in this case the repur- longer than 3 years (TB Circular No. 1, para. 21 chase would no longer be covered by the and article 55b para. 1 let. a SESTO). The TB Cir- safe harbour rules and FINMA may look into cular No.1 (para. 22 – 26) and the SESTO (art. it in application of the general rule fo art. 33f 55b SESTO) impose the following additional re- SESTA. quirements: – The offer price may not exceed the last inde- – If the buy-back program extends to several pendently achieved closing price on the regu- categories of equity securities, the issuer lar trading line or, if lower, the best currently must offer a bid price for each category at the available independent offer price on the regu- same time (TB Circular No. 1, para. 22). lar trading line (art. 55b para. 1 let. d SESTO). – The scope of buy-backs on the regular trad- ing line may not exceed 25% per day of the – Each purchase at market price must be re- average daily volume traded during the 30 ported to the TB and the SIX Swiss Ex- days prior to the publication of the buy-back change and published on the issuer’s website program (art. 55b para. 1 let. c SESTO). The no later than on the 5th day following such TB defines the average daily volume traded purchase (TB Circular No. 1, para. 27 – 30, as the sum of transactions on the regular art. 55b para. 1 let. h SESTO). trading line both within and outside of the or- der book at the stock exchange divided by Black-Out Periods. The treatment of black-out the number of trading days in the 30 calendar periods, during which share buy-backs are inter- days before publication of the notice of buy- rupted, remains the same as under the previous back (TB Circular No. 1, para. 23a). This re- TB Circular No. 1, but is now regulated in the striction can be an obstacle for companies SESTO. Black-out periods are defined as (i) the whose shares have a low trading volume, as duration of a postponement of ad hoc publicity of price sensitive facts in accordance with the rules Public Takeovers in Switzerland – Review 2013 22 | 23 September 30, 2014 of the relevant stock exchange, (ii) the period of Circular No. 1, paras. 14 and 22) and scope of the 10 trading days prior the release of financial re- buy-back (TB Circular No. 1, para. 23 – 23a). Both sults and (iii) whenever the last published consoli- confirmations must be reported on the third trad- dated accounts date back more than nine months ing day after the expiry of the buy-back program (art. 55c para. 1 SESTO). Purchases are never- and at least once every year. theless permitted if they are delegated to a bank or securities dealer which executes purchases Reporting Requirements. The revised buy-back without the issuer’s further influence within the regime requires the issuer to publish information parameters set by the issuer or, if the issuer is on the purchase of equity securities within and itself a securities dealer, a trading unit protected outside of the buy-back program. The information by information barriers (art. 55c para. 2 SESTO). has to be reported to the stock exchange and If the issuer delegates purchases to a bank or se- published on the issuer’s website on the 5th trad- curities dealer, the investment parameters must ing day following the transaction at the latest (TB be defined before the publication of the buy-back Circular No. 1, para. 27 – 30, art. 55b para. 1 let. h program and may be adjusted once a month. If SESTO). The information must be available on the the parameters are defined or adjusted during a website for at least twelve months after the end of black-out period as defined in art. 55c para. 1 the buy-back program (TB Circular No. 1, para. SESTO, the buy-back may only be carried out af- 27a, art. 55b para. 1 let. g SESTO). ter a waiting period of 90 days (art. 55c para. 3 SESTO). A sale of equity securities during a buy-back pro- gram other than for purposes of an employee par- It should be noted that the SIX Swiss Exchange’s ticipation plan has to be reported to the stock ex- regulations and practice concerning ad hoc pub- change on the trading day following the transac- licity and the FINMA Circular 2013/08 on Market tion and published by the issuer on the 5th trading Conduct Rules are not aligned as regards the day. Such sale may per day not exceed 5% of the definitions and interpretations of significantly average daily trading volume on the regular trad- price-relevant fact and insider information. In par- ing line during the 30 days prior to publication of ticular, FINMA’s interpretation of insider informa- the buy-back program. tion has a significantly broader scope. Accord- ingly, in order to be on the safe side, a buy-back As a public buy-back program is deemed a public program which is not executed by delegation to a offer for shares, in principle, the issuer’s reporting bank or securities dealer in accordance with art. obligations under art. 20 SESTA are suspended 55c para. 2 SESTO may need to be interrupted for the duration of the program (art. 19 para. 1 even outside black-out periods pursuant to art. (SESTO-FINMA)). After closure of the program, a 55c para. 1 SESTO. reporting in accordance with art. 20 SESTA has to be made (art. 19 para. 2 SESTO-FINMA). It may, The issuer must submit a confirmation to the TB however, be advisable to continue reporting dur- attesting compliance of its buy-back program with ing the program, also under art. 20 SESTA, given the applicable requirements (TB Circular No. 1, the difficulty of correct application of this exemp- para. 15), as well as the required reporting (TB tion. Circular No. 1, para. 27). In addition, the bank or securities dealer appointed to conduct the buy- Squeeze-Out back program must issue a separate confirmation During the period under review, no material deci- to the TB regarding the satisfaction of the re- sion was rendered relating to the squeeze-out pro- quirements regarding the adequate offer price (TB cedure. Public Takeovers in Switzerland – Review 2013 23 | 23 September 30, 2014

Dr. Frank Gerhard Partner [email protected] T +41 43 222 15 30

Homburger AG Prime Tower Hardstrasse 201 | CH-8005 Zurich P.O. Box 314 | CH-8037 Zurich

T +41 43 222 10 00 F +41 43 222 15 00

Legal Note This Homburger Bulletin expresses general views of the authors at the date of the Bulletin, without considering the facts and circum- stances of any particular person or transaction. It does not consti- tute legal advice. As such, this Bulletin may not be relied upon by any person for any purpose, and any liability for the accuracy, correctness or fairness of the contents of this Homburger Bulletin is explicitly excluded.