Squeeze-out of minority shareholders in listed companies Luc Defferrard, Partner, Urs Gnos, Partner, and Thomas Meister, Partner,Walder Wyss & Partners Ltd. Basically, under Swiss law, there are two possibilities of squeezing-out minority shareholders in a Swiss listed company domiciled in Switzerland upon completion of a public tender or exchange offer: a squeeze-out of the minority shareholders pursuant to Art. 33 of the Federal Act on Stock Exchanges and Securities Trading (SESTA) or a squeeze-out merger pursuant to Art. 8(2) of the Swiss Merger Act (SMA). In 2009, the following Swiss target companies listed in allocated to the offeror. Switzerland have been confronted to a squeeze-out The squeeze-out procedure requires the offeror procedure of minority shareholders pursuant to Art. 33 to file a claim against the target company at the SESTA: Jelmoli Holding AG, Canon (Switzerland) AG, competent court (Art. 33(1) SESTA). LO Holding Lausanne-Ouchy SA, Métraux Services SA The offeror can petition the court to cancel the and Quadrant AG. Other Swiss target companies listed outstanding minority equity securities of the target in Switzerland, such as BB Medtech AG, Harwanne company within three months following the end of Compagnie de participations industrielles et financières the tender offer period. Such equity securities must SA and Athris Holding AG, have been or may be be re-issued by the target company and allotted to confronted to (possible) squeeze-out mergers pursuant the offeror either against payment of the offer price to Art. 8(2) MA. or against delivery of the offered shares, each for the This article intends to give an overview of both benefit of the holders of the cancelled securities squeeze-out proceedings from a legal and tax (Art. 33(2) SESTA). perspective and some recommendation on when The court will inform the public and the remaining either proceeding should be used. shareholders that they may participate in the proceedings. Squeeze-out pursuant to Art. 33 The predominant view of legal doctrine suggests SESTA that the shares of the target company do not necessary A public tender offer to purchase or exchange equity have to be or remain listed at the time the minority securities is subject to the SESTA if it is made publicly shareholders are squeezed out. However, certain to the holders of equity securities of Swiss companies scholars propose that the shares of the target company whose equity securities are, in whole or in part, listed must still be listed on the stock exchange at the time on an exchange in Switzerland (Art. 2(e) SESTA).An the court judgment, with respect to the squeeze-out of offer is deemed to be made publicly if the offer is the minority shareholders, becomes final. addressed to the holders of the equity securities by The SESTA contains no provisions with respect to means of readily accessible media carriers such as a (voluntary or mandatory) delisting of issuers. newspapers and the like.While creeping tender offers Applicable regulations are contained in the Listing are generally believed not to constitute a public Rules (LR) and the “Directive for the Delisting of offering, standing in the market activities needs to be Securities” (Directive) issued by the SIX Swiss carefully analysed as it may tend to be construed as Exchange (SIX). public offering activities. Pursuant to Art. 58 LR, the regulatory board of the Art. 33 SESTA provides an offeror with the right to SIX (Regulatory Board) may delist securities on the squeeze-out the remaining minority shareholders of basis of a justified request by the issuer. In principle, the target company after a public tender offer this request can be submitted at any time and outside resulting in the holding of more than 98% of the a take-over situation. In its assessment of the delisting voting rights in the target company. request, the Regulatory Board considers market’s, In order to determine whether the threshold of issuer's and shareholders' interests, it being 98% is exceeded, the shares with suspended voting understood that a delisting request following a rights, i.e., treasury shares of the target company, and takeover of the issuer is usually deemed to constitute shares held by the offeror or in concert with third a valid reason for the delisting request. parties at the time of the squeeze-out request are The delisting has to be announced at least three 1 months before the last trading day.The Regulatory incorporate a legal company serving as acquisition Board may grant exceptions to this rule if the delisting vehicle. is the result of a takeover in which the intention to Initially, the board of directors of both the delist has already been published in the offer acquisition vehicle and the target company must enter 1 prospectus. Pursuant to Art. 23 of the Ordinance of into a written merger agreement (Art. 12 SMA). One the Takeover Board on Public Takeover Offers (TOO), of the essential elements of a merger agreement an offer prospectus must contain the basic intentions providing for a squeeze-out is the amount of of the offeror with respect to the target company, compensation to the minority shareholders of the including, as the case may be, the intention to have the target company, which in a squeeze-out merger can target delisted upon completion of the offer. It is consist of either cash or shares in the offeror (so- market practice to include such delisting intention in called triangular squeeze-out merger). the offer prospectus. In such case, a period of one Based on the merger agreement, the boards of month upon the delisting announcement in the offer directors of both merging companies must prepare, prospectus is usually deemed appropriate. Accordingly, either individually or jointly, a merger report for the the delisting publication period may run in parallel to attention of the shareholders (Art. 14 SMA).The the offering period to the effect that a delisting may merger report must inter alia explain and substantiate occur within a few days following the end of the offer the purpose and the consequences of the merger, in period and the publication of the results. particular, the principal motivations for the merger and If at the time of delisting, the free float of securities the business and other consequences for the merging outstanding is higher than 5%, the issuer will be companies, as well as the amount of the responsible to maintain or procure the maintenance compensation to the minority shareholders and the of an ‘over the counter’ market for such securities for reasons why only compensation is provided instead of a period of up to six months (Art. 5 Directive). participation or membership rights. Market practice of the Regulatory Board recognises The merger agreement, the merger report and the shorter periods. merger balance sheet must be reviewed by an Swiss corporate law does not provide for statutory admitted audit expert that has to provide a written provisions as to which corporate body should resolve report on the findings of the audit.The audit report on a delisting request, i.e., board of directors vs. must confirm that the cash compensation for the shareholders' resolution. Based on general principles minority shareholders is reasonable (Art. 15 SMA). of corporate law, it is established practice that the During a period of 30 days prior to the board of directors is the responsible corporate body shareholders’ meeting, each merging company must to resolve on a delisting. allow the shareholders to inspect the main merger Although the board of directors is not subject to documents at its registered office (Art. 16 SMA). specific obligations under SESTA, a listing provides The merger agreement must be approved by at shareholders with certain additional rights such as least 90% of the shareholders of the acquired extended information, reporting or disclosure company, i.e., the target company (Art. 18(5) SMA). It requirements or minimum guarantees with respect is disputed in legal doctrine whether the 90% quorum to public tender offers. Some legal scholars suggest is calculated based on the number of voting rights or that these rights as accrued shareholders’ rights the number of shareholders.The SMA does not settle (wohlerworbene Rechte). As a consequence, a delisting the issue of whether the number of voting rights may be construed as a violation of accrued represented at the shareholders’ meeting or the total shareholders rights that may trigger issues of number of votes is relevant. For the time-being, the directors’ liability. Register of Commerce of the Canton of Zurich accepts resolutions taken, (i) by 90% of all existing Squeeze-out merger pursuant to shareholders; or (ii) by 90% of all voting rights. Art. 8(2) SMA The merger resolution, i.e., the resolution of the The SMA provides mechanics for a compulsory shareholders approving the merger agreement, needs to squeeze-out of minority shareholders, when the buyer be incorporated in a notarised deed (Art. 20(1) SMA). (or rather the offeror) holds more than 90%.The SMA The board of directors of the merging companies does not explicitly require any objective reason for the are obliged to promptly register the approved merger squeeze-out merger. However, some legal scholars with the Register of Commerce, and the merger argue that a squeeze-out merger without any becomes effective (completion) upon its registration. economical or organisational reason constitutes an Upon registration, all assets and liabilities of the abuse of rights by the majority shareholder. acquired company will be transferred to the surviving For purposes of the merger, the offeror needs to company by operation of law.The acquired company 2 is dissolved and cancelled from the Register of costs of proceedings must be assumed by the Commerce (Art.