Switzerland Takeover Guide
Contact
Lorenzo Olgiati and Oliver Triebold
Schellenberg Wittmer
Contents Page
INTRODUCTION 1
GENERAL LEGAL BACKGROUND 1
SCOPE OF APPLICATION OF TAKEOVER REGULATIONS 1
THE TAKEOVER BOARD AND THE FEDERAL BANKING COMMISSION 1
ACTIVITIES OF THE BIDDER PRIOR TO LAUNCHING A TENDER OFFER 2
FIRST CONTACT 2
TRANSACTION AGREEMENTS 3
TENDER OFFER PROCEDURE 4
DUTIES OF THE BIDDER 9
DUTIES OF THE TARGET COMPANY 9
SPECIFIC TOPICS 11
CONDITIONS 12
MANDATORY TENDER OFFERS 13
COMPETING TENDER OFFERS 13
DEFENCE MEASURES 14
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INTRODUCTION
This guide gives an overview of the law dealing with public tender offers in Switzerland of shares in Swiss companies whose equity securities are, in whole or in part, listed on a stock exchange in Switzerland.
This guide deals with the Swiss rules on public takeovers as at 31 December 2007. This guide does not constitute legal advice. Anyone involved in public takeover action should seek specialist advice.
GENERAL LEGAL BACKGROUND
The rules and procedures ("Takeover Regulations") applicable to tender offers are laid down in the Swiss Stock Exchange Act ("SESTA") and in several ordinances issued by the Swiss government, that is the Federal Council, the Swiss Federal Banking Commission ("FBC") and the Takeover Board ("TOB").
SCOPE OF APPLICATION OF TAKEOVER REGULATIONS
The Takeover Regulations apply to voluntary and mandatory public tender offers ("Tender Offers") for equity securities (including conversion and option rights relating to such equity securities) of a Swiss corporation ("Target Company") that has at least one class of equity securities listed on a Swiss stock exchange (the most important one being the SWX Swiss Exchange, "SWX"). The Takeover Regulations also apply to public offers by a Swiss corporation listed on the SWX to repurchase its own equity securities (including conversion or option rights relating thereto).
Pursuant to the SESTA, anyone who holds shares representing more than 33.33% of the voting rights of a Swiss corporation listed on the SWX, whether or not such rights may be exercised, must submit a Tender Offer for all listed equity securities in such company ("Mandatory Offer"). The articles of incorporation of listed Swiss corporations may provide for a higher threshold of up to 49% (opting up) or may declare the mandatory Tender Offer obligations to be inapplicable at all (opting out).
Non-public share purchases are not subject to the Takeover Regulations unless the threshold for submitting a Mandatory Offer is exceeded.
As a general rule, the Takeover Regulations do not apply to contacts with the Target Company or its advisors which occur prior to the publication of a pre-announcement ("Pre-announcement") or, as the case may be, an offer prospectus ("Prospectus").
THE TAKEOVER BOARD AND THE FEDERAL BANKING COMMISSION
The TOB ensures compliance with the Takeover Regulations which are designed to ensure fairness, equal treatment and transparency in Tender Offers and enable the holders of equity securities of a Target Company to make an informed decision on whether or not to accept the Tender Offer. The Takeover Regulations also ensure that neither the board of directors ("Board") of the Target Company nor any other party, such as a competing bidder, can frustrate a Tender Offer.
Whenever a Tender Offer is made, the TOB appoints a committee for review of the offer documentation. The TOB (that is the committee) determines whether the Tender Offer is in compliance with the Takeover Regulations. In this connection, the TOB may require
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the disclosure of all necessary documents and information on the one hand from a bidder ("Bidder") of a Tender Offer and persons acting in concert with the Bidder ("Concert Parties") and on the other hand from the Target Company.
There is no requirement to submit the offer documentation to the TOB prior to their publication. The Bidder may, however, submit the draft of the Pre-announcement and/or the draft Prospectus to the TOB for a preliminary review, and the TOB may make an advance ruling on such documentation prior to publication.
After its review of the offer documentation, the TOB issues a recommendation to the interested parties, stating in particular whether the applicable regulations have been followed. The recommendation is usually published.
Compliance with the takeover rules set by the SESTA and its implementing ordinances is also ensured by the Federal Banking Commission, which may issue binding administrative orders if the TOB’s recommendations are not complied with.
Anyone who shows a legitimate interest may request the TOB to express its view on the interpretation of the Takeover Regulations.
ACTIVITIES OF THE BIDDER PRIOR TO LAUNCHING A TENDER OFFER
Desktop Due Diligence on Legal Aspects
Before contacting a possible Target Company, Bidders generally evaluate all publicly available information on the Target Company. This typically includes a review of information on the Target Company’s group structure, stock exchange filings, significant shareholders, articles of association, corporate governance policy and minutes of the general assembly.
Acquiring Shares and Options for Shares in the Target Company
Building a significant position in a Target Company prior to launching a formal Tender Offer is permitted and has lately become more common. This is often done through a combination of shares and call options. Under the disclosure rules of the SESTA, a shareholder has to disclose its shareholdings if it acquires shares and/or “financial instruments” (including conversion rights, share acquisition and share sale rights) of a company incorporated and listed in Switzerland and thereby attains or exceeds certain thresholds. The first disclosure threshold is at 3%. To ascertain whether a threshold is reached a Bidder's positions in shares and derivative transactions such as call options must be aggregated.
The Mandatory Offer obligation is triggered whenever a shareholder or group of shareholders directly or indirectly acquires equity securities in a listed Swiss company and thereby exceeds the threshold of 33.33% of the voting rights of the Target Company.
FIRST CONTACT
Letter of Intent
A Bidder intending to make a Tender Offer may first approach the Board of the Target Company or its advisers. Alternatively, the Bidder may directly disclose its intentions to the public, that is, publish a Tender Offer without having informed the Target Company beforehand.
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Contacts with a potential Target Company prior to launching a formal Tender Offer are frequent. Such discussions may either be initiated by a non-binding letter of intent (“LOI”) to the Board of the Target Company or by informal discussions, most of the time followed by a LOI.
The LOI typically includes the strategic considerations of the Bidder, a statement of the approximate price of the Tender Offer ("Offer Price"), due diligence aspects as well as confidentiality and exclusivity/non-solicitation clauses.
The Board of the Target Company has no duty to enter into discussions about an Offer and/or to agree to a due diligence unless this is in the best interest of the Target Company and its shareholders.
Due Diligence
In a friendly takeover environment, the Bidder and the Target Company typically agree on the scope of the due diligence to be carried out by the Bidder. The Board of the Target Company should carefully select the information provided to avoid unwanted disclosure to another Bidder in a competing Tender Offer.
Confidentiality
If the Board of the Target Company decides to enter into discussions, it must ensure confidentiality both externally, by respective agreement with the Bidder (including its advisors) and internally, to avoid an obligation to immediately disclose (ad hoc publicity) under the SWX listing rules. Confidentiality is of utmost importance. If there is an information leak, the SWX listing rules require immediate disclosure of the existence of such takeover discussions.
Exclusivity and Non-solicitation
Non-solicitation clauses are standard in LOIs, since there is no statutory duty of the Board of the Target Company to solicit other Tender Offers. However, strict exclusivity clauses imposing a duty upon the Board of the Target Company not to consider a third party’s Tender Offer at all may violate the Target Company’s and/or its shareholders’ interests. Therefore, the exclusivity clause should at least preserve the right of the Target Company to respond to unsolicited approaches made by third parties with regard to any competing Tender Offer or similar transaction.
TRANSACTION AGREEMENTS
Regulatory Impact
In Switzerland, Tender Offers have in recent times increasingly been backed up by transaction agreements between the Bidder and the Target Company and/or its major shareholders.
The Takeover Regulations are also applicable to transaction agreements concluded prior to the publication of the Tender Offer or the Pre-announcement.
Agreement with the Target Company
By signing a transaction agreement, the Bidder secures support for the Tender Offer from the Board of the Target Company, and the Board is assured the submission of a serious Tender Offer of interest to the Target Company and its shareholders.
A transaction agreement with the Target Company must respect the allocation of competences between the Board of the Target Company and its shareholders and may
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not impair the shareholders' decision-making authority. Thus, transaction agreements should contain an “exit clause” in the event of a better competing Tender Offer.
Break fees are admissible if they serve to compensate the Bidder for reasonable costs incurred, but problematic if they have a punitive character.
Agreements with Major Shareholders
When entering into agreements with major shareholders, the Bidder should be aware of the possibility that such agreements may not be enforceable if there is a competing Tender Offer. Generally, agreements with major shareholders provide for:
an irrevocable duty of the major shareholder to accept the Tender Offer of the Bidder; or
a purchase of the shares conditional upon the success of the Tender Offer; or
an unconditional purchase of the shares shortly prior to the publication of the Pre- announcement or the Tender Offer.
While the un-conditional purchase would not constitute a hindrance, the two other alternatives may frustrate other potential Bidders, and are therefore unenforceable in case of a competing Tender Offer.
TENDER OFFER PROCEDURE
Pre-announcement or Prospectus
The Bidder may reveal its intentions through direct publication of a Prospectus or, prior to that, in the form of a Pre-announcement followed by a Prospectus.In the vast majority of recently launched Tender Offers, the Bidders made use of the Pre-announcement.
It is advisable for the Bidder to submit a draft of the Pre-announcement or a draft Prospectus for review to the TOB prior to publication. In this way, the Bidder may avoid having to publish an addendum to the Pre-announcement or the Prospectus in case the TOB does not consider them to be in compliance with the law.
Publication of Pre-announcement
Contents
The Pre-announcement must provide the key information on the Tender Offer, in particular the following:
Corporate name and registered office of the Bidder;
corporate name and registered office of the Target Company;
the equity securities that are the object of the Tender Offer;
the Offer Price;
the tentative timetable for the publication and acceptance of the Tender Offer;
the conditions (if any) of the Tender Offer.
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Publication
The Pre-announcement must be published in Swiss newspapers in German and French, and at least on one electronic online information exchange system.
Effects
One of the main objectives of a Pre-announcement is to fix the date for the calculation of the minimum Offer Price and the date as of which the Board of the Target Company is restricted from implementing defence measures against a Tender Offer.
The Pre-announcement also triggers the duty of the Bidder, Concert Parties and significant shareholders of the Target Company to disclose transactions in shares in the Target Company.
The Tender Offer must be launched through publication of the Prospectus within six weeks after publication of the Pre-announcement. The TOB may extend this time limit, especially if the Bidder needs an authorisation from a public authority, such as an antitrust authority.
Determination of the Offer Price – Best Price Rule
Tender Offers may be made as cash or exchange Tender Offers or a combination thereof.
Whenever a Tender Offer is launched for all the shares of the Target Company (or for a number of shares which would represent, together with the shares already held by the Bidder and the Concert Parties, more than 33.33% of the voting rights of the Target Company), the price determination rules for Mandatory Offers apply. The Offer must then be made at no less than the stock exchange price (average opening prices for the 60 exchange trading days before the publication of the Prospectus or the Pre- announcement, respectively). In addition, if the Bidder has purchased shares of the Target Company prior to the Tender Offer, the minimum price must be no less than 75% of the highest price paid by the Bidder (including any of its affiliates and other Concert Parties) in the twelve preceding months.
If, during the Offer Period and within a period of six months after expiration of the additional acceptance period, the Bidder (including any of its affiliates and other Concert Parties), acquires additional shares of the Target Company at a price which exceeds the Offer Price, it is obliged to offer that better price to all shareholders (best price rule).
Publication of Prospectus
Contents
The information in the Prospectus must be correct and complete, that is, it must contain all information necessary for the shareholders in the Target Company to make an informed decision. The Prospectus shall give the following information:
information on the Bidder and Concert Parties (for example, information on equity securities in the Target Company purchased by the Bidder during the twelve preceding months, stating the highest purchase price);
information on the financing of the Tender Offer (including a declaration from the review body confirming that the necessary funds are available);
information on the subject matter of the Tender Offer and on the Offer Price (for example, the maximum number of securities to be purchased in case of a partial Tender Offer);
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information on the Target Company (including the Bidder’s intentions as to the future of the Target Company’s business, information on any agreements between the Bidder and the Target Company, its bodies or its shareholders and a confirmation that the Bidder has not received directly or indirectly from the Target Company any non-public information that is likely to have a significant influence on the decision of the shareholders of the Target Company).
The Bidder may make a Tender Offer conditional. As a rule, the Bidder may only impose conditions precedent that it cannot itself influence to a significant extent (for example, the condition that a reasonable minimum percentage of shares be obtained as a result of the Tender Offer is allowed). The scope of permitted conditions is more restricted if the Bidder is subject to a Mandatory Offer obligation. Permitted conditions are, for example, the entry of the Bidder in the share register with voting rights, regulatory approvals and the absence of a material adverse change affecting the Target Company.
Prior to its publication, the Prospectus is scrutinised by an independent review body appointed by the Bidder. Only licensed securities dealers and approved auditors of securities dealers may act as review bodies. The review body must ascertain whether the Prospectus conforms to the SESTA and its implementing ordinances.
The Bidder must file the Prospectus with the TOB no later than the date of publication. The TOB reviews the Prospectus and issues its recommendation generally within a few days but not later than the end of the statutory cooling period of ten exchange trading days. If the TOB is of the view that the Prospectus is not in compliance with the Takeover Regulations, the Bidder must publish an addendum to the Prospectus.
Offer Period and Acceptance of Tender Offer
Cooling Period
A Tender Offer usually may not be accepted for ten exchange trading days following its publication. During this cooling period, the Board of the Target Company must prepare a report ("Board Report") to its shareholders, and the TOB examines the Tender Offer and issues a recommendation. Prior to its publication, if the Bidder submitted its Tender Offer to the TOB at the same time as the Board Report, the TOB usually relieves the Bidder of the cooling period.
Offer Period
In general, the Tender Offer must remain open during an offer period ("Offer Period") of no less than 20 and no more than 40 exchange trading days.
At the end of the Offer Period, the Bidder has to publish the interim result of the Tender Offer and to state whether the conditions of the Tender Offer have been satisfied or waived. If the Tender Offer has become unconditional, the Bidder must extend the Tender Offer period for another ten exchange trading days (additional acceptance period).
Thereafter, the final result is published by the Bidder.
Settlement
As a rule, the settlement date of the Tender Offer must be no later than ten exchange trading days after the end of the additional acceptance period.
Squeeze-out and Delisting
Subsequent to the completion of a Tender Offer, the Bidder has the following squeeze- out and de-listing alternatives, depending on the outcome of the Tender Offer:
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Squeeze-out according to Article 33 SESTA
If the Bidder holds more than 98% of the voting rights of the Target Company, it may, within three months after the end of the additional acceptance period, request the competent court to cancel the outstanding equity securities of the Target Company. Upon approval of the court, the Target Company can re-issue such equity securities and allot them to the Bidder against payment of the Offer Price in favour of the holders of the equity securities which have been cancelled.
Squeeze-out merger according to the Swiss Federal Merger Act
If the Bidder has acquired 90% or more of the voting rights of the Target Company, it may consider initiating a squeeze-out merger according to the Federal Merger Act. In this merger procedure, the Bidder forces the remaining minority shareholders out of the Target Company against payment of an adequate cash consideration. Such cash consideration in practice often is, but does not necessarily need to be, identical to the Offer Price.
De-listing
It is within the competence of the Board of the Target Company to apply for a de-listing from the SWX, but after a successful Tender Offer, de-listing is de facto a decision of the Bidder. The SWX has to formally approve such a de-listing decision, but there is no requirement that the free-float of the shares of the Target Company has fallen below a certain minimum level.
Chart
The following chart shows the usual timetable of a Tender Offer (not including possible exemptions, extensions, competing tender offers etc.) in exchange trading days ("TD"):
Date Responsible Action
X Bidder Pre-announcement of Tender Offer (including price) in electronic media (not mandatory)
X + 2 TD Bidder Publication of Pre-announcement in newspapers
Review Body Examination of the Prospectus by review body / report
Bidder Submission of the Prospectus to the TOB
TOB Confirmation that the Tender Offer is in line with SESTA (recommendation)
X + a maximum of 6 weeks Bidder Publication of Tender Offer (Prospectus)
Latest day for filing of Prospectus with TOB
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Publication date Start of cooling period (10 TD) (if not waived by TOB)
10 TD after publication date Start of offer period: minimum 20 TD and maximum 40 TD
15 TD after publication date Board of Target Company Latest day for publication of Board report (if not already contained in Prospectus)
20 to 40 TD after start of offer End of offer period period
1 TD after end of offer period Bidder Announcement of estimated interim result
4 TD after end of offer period Bidder Publication of interim result
Notification by Bidder whether the Tender Offer is successful (fulfilment / waiver of conditions)
Start of additional offer period (10 TD)
10 TD after publication of End of additional offer period interim result
1 TD after end of additional Bidder Announcement of estimated final offer period result
4 TD after end of additional Bidder Publication of final result offer period
10 TD after end of additional Bidder Settlement of Tender Offer offer period
Within 3 months after end of Bidder Filing of squeeze-out action with additional offer period competent court; takes generally 3 to 5 months
After squeeze-out proceeding Target Company Request for a de-listing with admission board of SWX
Publication of de-listing in newspapers
De-listing after squeeze-out proceeding may be as early as 5 TD after publication
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DUTIES OF THE BIDDER
Launch of a Tender Offer
The Bidder may reveal its intentions through direct publication of a Prospectus or, prior to that, in the form of a Pre-announcement. Public communications of the Bidder regarding a (possible) Tender Offer prior to the publication of a Pre-announcement or a Prospectus do not qualify as informal Pre-announcement but such a qualification cannot be excluded in exceptional cases.
Publication of Prospectus
The primary obligation of the Bidder is the publication of a Prospectus that is correct and complete.
Equal Treatment of Shareholders
The Bidder is obliged to extend the Tender Offer to the holders of all classes of listed equity securities of the Target Company and to grant equal treatment to all securities included in the Tender Offer (including unlisted equity securities targeted in the Tender Offer).
Equal treatment means, in particular, that a reasonable relationship is maintained between the Offer Prices of the various classes of equity securities and that the Prospectus explains briefly how the Offer Price among the various classes of equity security was determined.
Co-operation with TOB
The TOB may request Bidders and Target Companies to provide it with all information and documents necessary to enable the TOB to ensure compliance with the Takeover Regulations.
Reporting Obligations
From the moment a Tender Offer is announced until the end of the statutory extension of the acceptance period, the Bidder, the Concert Parties and the shareholders holding more than 5% of the voting rights of the Target Company must report all acquisitions and sales of equity securities in the Target Company and, as the case may be, in the company whose securities are offered in an exchange offer.
Impact on Concert Parties
The obligations of the Bidder relating to transparency, equal treatment of shareholders, fairness and reporting of transactions also apply to all Concert Parties of the Bidder (including the Target Company if the Bidder and the Target Company have agreed on the offering and the terms and conditions of the Tender Offer).
DUTIES OF THE TARGET COMPANY
Report of the Board of the Target Company
A tender offer may be friendly, that is, launched with the consent of the Board of the Target Company. It may also be launched without such support (unfriendly or hostile). In either case, the Board of the Target Company must issue a Board Report to the shareholders stating its position on the offer. In preparing the Board Report, the Board
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may seek independent advice and particularly base its assessment on a fairness opinion rendered by an independent valuation expert.
In case of a friendly Tender Offer, the Board Report is typically published in the Prospectus. Furthermore, a publication in the electronic media is required.
Contents of the Board Report
The Board Report has to be correct and complete and must contain all information necessary to allow all shareholders of the Target Company to make an informed decision as to the acceptance or refusal of the Tender Offer. This means in particular the following:
objective examination of the Tender Offer, in particular as to whether the intended takeover is advantageous for the Target Company, the shareholders at large and other stakeholders and whether the Offer Price seems appropriate and fair;
disclosure of the intentions of the members of the Board of the Target Company and the senior management regarding the equity securities in the Target Company held by them;
disclosure of the intentions of substantial shareholders (that is, shareholders owning more than 5% of the Target Company’s voting rights), to the extent that the Board of the Target Company has knowledge thereof; the Board of the Target Company has a duty to contact such shareholders and ask their intentions;
disclosure of the conflicts of interest of the members of the Board of the Target Company and of the senior management, for example, information regarding relationships with the Bidder as well as information as to the measures taken due to such conflicts, for example, abstention / fairness opinion;
publication of any information relevant to the shareholders of the Target Company even if this information could be delayed under the ad-hoc publicity rules, that is, Article 72 of the SWX listing rules;
indication of defence measures, if such are planned;
issuance of a recommendation or rejection or mere enumeration of the advantages and disadvantages (without recommendation) of the Tender Offer, each time with comprehensible analysis of the substantial considerations.
Information required to be included in the Board Report may be omitted if the auditors of the Target Company certify to the TOB that this is justified by a clearly overriding interest of the Target Company in keeping the information confidential.
Interim Financial Report
Based on the practice of the TOB, the Board of the Target Company is obliged to issue an interim financial report if more than six months have passed from the accounting date of the last published annual or interim report of the Target Company until the end of the Offer Period.
Publication of the Board Report
The Board Report may be published either in the Prospectus or separately no later than 15 exchange trading days after publication of the Prospectus in at least the same two newspapers in which the Prospectus was published and on at least one online system publishing stock exchange information. If the public announcement only contains a
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summary of the Board Report, the full Board Report must be available in hard copy free of charge no later than the date of publication.
Duty to Update the Board Report
Pursuant to Article 33 of the Ordinance of the TOB on Public Takeover Offers ("TOO"), the Board of the Target Company has to publish a new Board Report with every modification of the Tender Offer. This Board Report can be brief and be published together with the modified Tender Offer.
Further, there is a duty to update the Board Report with respect to (new) information which, because of its relevance for the decision of the shareholders of the Target Company, should have been published in the initial Board Report had it been known at that moment.
Sanctions
If the Board of the Target Company fails to issue a Board Report or to publish the Board Report, or if the Board Report is incorrect or incomplete, the responsible members of the Board of the Target Company may be fined. Furthermore, the Board of the Target Company may be liable for damages under general principles of corporate law if it is held to be in breach of its statutory duties in connection with the preparation or publication of the Board Report.
Reaction to Competing Offers
As a rule, the Board is obliged to grant equal treatment to all Bidders, in particular with respect to the disclosure of information on the Target Company. This rule is subject to two important limitations:
first, the Board of the Target Company may recommend that the shareholders accept one Tender Offer and reject the other(s);
secondly, the Board of the Target Company may afford one Bidder preferential treatment if this is justified by an overriding interest of the Target Company and authorised by the TOB.
Disclosure of non-public Information to the Bidder
Subject to the equal treatment obligations of the Target Company in Competing Offer situations as outlined above, the Board of the Target Company is under no duty to provide any non-public information about the Target Company to the Bidder, save for information relevant to influence the stock price which must be disclosed in the Board Report.
SPECIFIC TOPICS
Ad hoc Publicity Rules
The SWX Listing Rules provide for an ad hoc publicity requirement. An issuer must inform the market of any price-sensitive facts within the realm of its activities, not being within the public’s knowledge. Facts qualify as price-sensitive when they are capable of triggering a significant price change.
According to the SWX Admission Board, occurrences which usually require immediate disclosure include:
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mergers, takeovers, substantial acquisitions or dispositions, or major organisational changes;
material changes in the issuer’s earnings;
board decisions proposing a suspension of, or drastic reduction in, dividend payments, illiquidity or suspension of payments;
important changes in the normal course of the issuer’s business; and
changes in the board of directors, senior corporate management or auditors.
The issuer has to disclose price-sensitive facts as soon as it becomes aware of their existence. The release may only be deferred if such facts are based on a plan or decision of the issuer, and if disclosure would prejudice the issuer’s legitimate interests. In this case, the issuer must make sure that the information is kept confidential.
Disclosure Rules
Under the disclosure rules of the SESTA, a shareholder has to disclose its shareholdings if it acquires shares, share acquisition or share sales rights of a company incorporated and listed in Switzerland and thereby attains or exceeds the percentages of 3, 5, 10, 15, 20, 25, 33.33, 50 or 66.66% of that company’s voting rights.
This disclosure obligation also applies to beneficial owners indirectly acquiring stakes in Swiss companies listed in Switzerland, and to shareholders acting in concert. Furthermore, certain financial instruments relating to derivative transactions (such as the granting, the acquisition or the disposal of put options, call options and conversion rights) must also be disclosed if the statutory thresholds are reached or exceeded. Disclosure must be made irrespective of whether or not the terms of such derivative transactions provide for or allow physical settlement.
To ascertain whether a threshold is reached a Bidder's positions in shares and in other financial instruments relating to derivative transactions must be aggregated.
CONDITIONS
Conditions Precedent
Tender Offers must not be subject to conditions precedent which the Bidder has decisive control over or which are virtually unrealisable. A practice established by the TOB as to the permissibility of certain types of conditions has developed over time. Among the most common are the following:
the condition that at least 66.67% of all issued shares of the Target Company be tendered to the Bidder is generally accepted by the TOB. However, a condition requiring that, for example, 90% of all issued shares must be tendered would not be permissible unless the Bidder already held a substantial number of shares of the Target Company prior to the Tender Offer;
conditions like the registration of the Bidder in the Target Company’s share ledger and the election of new board members of the Target Company appointed by the Bidder are common and accepted by the TOB;
conditions that the Target Company’s assets and/or earnings not be adversely affected by 5% or more of turnover and 10% or more of consolidated equity, EBIT or EBITDA (“MAC Clauses”) are generally allowed by the TOB;
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furthermore, it is generally permitted to require that the competent competition authorities have given all approvals and/or have granted all clearances without requiring either of the parties involved to meet any conditions, requirements, or to fulfil obligations having a financial impact comparable to MAC Clauses.
Conditions Subsequent
With the approval of the TOB, the settlement of the Offer may be subject to conditions subsequent. Generally, all the conditions set forth above, with the exception of the MAC Clauses, are acceptable as conditions subsequent.
Mandatory Tender Offers
Mandatory Tender Offers cannot be subject to conditions, except in specific cases, such as where official authorisation is required, or a transfer restriction or a restriction on exercise of voting rights is provided for in the articles of incorporation of the Target Company.
MANDATORY TENDER OFFERS
The Mandatory Offer obligation is triggered whenever a shareholder or group of shareholders directly or indirectly acquires equity securities in a listed Swiss company and thereby exceeds the threshold of 33.33% of the voting rights of the company. If a Tender Offer includes equity securities whose acquisition would entail the obligation to make a Mandatory Offer, the Tender Offer must apply to all (and not only part) of the listed equity securities of the Target Company, and the minimum price requirements for Mandatory Offers apply to such a Tender Offer.
COMPETING TENDER OFFERS
Where a competing Tender Offer ("Competing Offer") is launched, the Takeover Regulations aim to ensure the Target Company’s shareholders are free to choose which Tender Offer they prefer, and to guarantee the equal treatment of all Bidders by creating an auction environment.
Based on the principle of equal treatment of Bidders, the Board of the Target Company must provide the same information and grant the same access to a data room to all Bidders, regardless of whether they are friendly or hostile. The Offer Period for all Tender Offers is co-ordinated by the TOB so that the Target Company’s shareholders are not forced to decide on the initial Offer prior to the expiration of the Offer Period of any Competing Offer.
Once a Competing Offer is made, the initial Bidder may revoke the initial Tender Offer until five exchange trading days before the lapse of the Offer Period for the Competing Offer, if the Competing Offer is equal to, or more favourable than, the initial Tender Offer, taking into account all the terms of the Tender Offers (and not only the Offer Price). The initial Bidder may also revise its Tender Offer, in particular by increasing the Offer Price.
The Board of the Target Company is allowed – but under no obligation – to seek a friendly Bidder (white knight).
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DEFENCE MEASURES
Measures taken by the Board of the Target Company
Pursuant to Article 29 SESTA, without shareholders approval, the Board of the Target Company is restricted in its ability to implement defence measures against a Tender Offer from the date of publication of a Pre-announcement or a Prospectus until the publication of the final result of the Tender Offer. Prior thereto, defence measures are permitted even if the Board of the Target Company knows that a Tender Offer is imminent. While the Board of the Target Company may continue to take the position that the Tender Offer is not attractive, it must not take measures that alter the Target Company’s assets or liabilities to any significant extent. An alteration of 10% or more of the balance sheet total is deemed to be significant. Based on Articles 35 and 36 TOO, the following actions are illegal:
the sale or acquisition by the Target Company of business or intangible assets worth more than 10% of its assets (based on the last consolidated annual or interim accounts);
the sale or encumbrance of such parts of the Target Company’s business or intangible assets that have been designated by the Bidder as being among the principal objects of the Tender Offer (crown jewels);
“golden parachute” agreements with members of the Board of the Target Company or senior management involving unusually high compensation;
the issue of new shares, convertible debt or warrants without granting the existing shareholders a pre-emptive right (as an exemption to this rule, the Board of the Target Company may be authorised in advance by the shareholders to effect such an issue);
off-balance sheet transactions that entail significant risks or obligations;
any other defence measures that constitute a manifest violation of Swiss corporate law.
Shareholders Resolutions on Defence Measures
The Takeover Regulations do not restrict the competencies of the Target Company’s shareholders meeting which may decide upon defensive measures even after publication of a Pre-announcement or Tender Offer. Shareholders resolutions on defence measures are permitted as long as they do not manifestly violate applicable corporate law.
The shareholders resolution authorising the Board of the Target Company to implement defence measures may be passed before or after publication of a Tender Offer. Accordingly, the shareholders may authorise the Board of the Target Company in anticipation of a potential Tender Offer to take up any of the defence measures mentioned above.
Reporting Obligations
The Target Company must report to the TOB any defence measures taken after the launch of a Tender Offer. The TOB may state, in its recommendation on the Tender Offer, that a defence measure adopted by a Target Company constitutes a violation of applicable corporate law. Moreover, the shareholders of the Target Company may petition the courts of civil law to enjoin the Target Company from implementing such a defence measure.
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Defence Measures contained in the Articles of Incorporation
The Target Company’s articles of incorporation can provide for defence measures. The shareholders' meeting is at all times allowed to resolve with the applicable quorum on the implementation of such provisions in the company’s articles of incorporation. Certain resolutions, including some of the resolutions mentioned below, require a majority of two thirds.
The following provisions in the articles can work as defence measures:
share transfer restrictions, for example limitation of voting rights per shareholder;
qualified quorum for the cancellation of certain provisions of the articles, for example share transfer restrictions;
shares with enhanced voting rights;
provisions requiring a certain percentage of voting rights represented in the shareholders' meeting in order to pass resolutions;
a provision putting only a certain number of board members up for re-election in a given year (staggered board);
authorised or conditional share capital with exclusion of pre-emptive rights which the Board of the Target Company may use in the event of a Tender Offer.
In practice, however, the effect of such defensive measures is tempered to a substantial extent, in that the Bidder regularly makes its public takeover bid contingent upon prior repeal of the defensive provisions in the articles of incorporation and upon gaining control of the Board of the Target Company.
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