12 Mar 2019 The mandatory public takeover and exemptions under Swiss law
The concept of a mandatory public takeover for a Swiss listed company is necessary in order to ensure that minority shareholders’ interests are duly and adequately protected. In this respect, a balance of interests must be established between the interests of the minority shareholders and the company itself. This newsletter will briefly develop the concept of mandatory public takeovers and the existing exemptions that are available to shareholders who would otherwise be obliged to make such a takeover.
1. DEFINITION AND PURPOSE OF THE REGULATION
A public takeover offer (“PTO”) is defined in Article 2(i) of the Financial Market Infrastructure Act of 19 June 2015 (“FMIA”) as “an offer to purchase or exchange shares, participation certificates, profit-sharing certificates or other participation rights (equity securities) which are made publicly to the holders of shares or other equity securities”. In certain circumstances (described below), a PTO is mandatory under Swiss law.
The principle under the regulation of a mandatory PTO is the protection of the minority shareholders. Indeed, when an investor (the “Bidder”) purchases more and more shares of a listed company and consequently, acquires more and more power in that company by accumulating voting rights, the minority shareholders risk being stranded in a structure dominated by a new group that they did not choose.
To avoid this situation, the PTO regulation will allow the minority shareholder to sell their holding to the Bidder and leave the company.
2. MANDATORY PTO
According to Article 135 FMIA, “anyone who directly, indirectly or acting in concert with third parties acquires equity securities which, added to the equity securities already owned, exceed the threshold of 33⅓% of the voting rights of a target company, whether exercisable or not, must make an offer to acquire all listed equity securities of the company.”
Price of the offer
Regarding the price of the offer, the law also provides that it must be at least as high as the highest of the following two amounts:
(a) the stock exchange price; or
(b) the highest price that the offeror has paid for equity securities of the target company in the preceding 12 months.
By this provision, the minority shareholders cannot only leave the company but can do so at a guaranteed, minimum price.
The law provides different exemptions from having to make a mandatory PTO: the opting out and up clauses, as well as specific types of exemptions, as mentioned below:
a) Opting out and opting up
According to Article 125 (3) FMIA companies may, prior to their equity securities being admitted to official listing on a stock exchange, state in their articles of incorporation that an offeror shall not be bound by the obligation to make a public takeover offer. Moreover, a company may also, at any time, adopt a provision in accordance with 125 (3) FMIA in its articles of incorporation, provided that this does not prejudice the interests of shareholders. This possibility is called “opting out” and as explained above, allows companies to avoid a mandatory PTO.
Contrary to the above-mentioned opting out possibility, an “opting up” allows companies to raise the 33⅓% threshold to 49% of voting rights in its articles of incorporation. According, below 49% no mandatory PTO has to be undertaken.
In both cases, the companies have to register opting out and opting up in their articles of incorporation, which requires a decision of the shareholders’ meeting.
“As of right” exemption
The duty to make an offer does not apply if the voting rights have been acquired as a result of a donation, succession or partition of an estate, matrimonial property law or execution proceedings.
The Bidder has no obligation to proceed to a PTO but their only duty is to disclose to the relevant authority, i.e. the Takeover Board in one of the following two cases:
- the threshold (33⅓% or 49%) is exceeded during a restructuring resulting from a share capital reduction and prompt capital increase for the purpose of offsetting a loss; or
- banks or securities dealers under the Federal Act on Stock Exchanges and Securities Trading (“SESTA”), acting independently or as a syndicate, acquire equity securities as part of an issue and undertake to sell the portion of equity securities exceeding the threshold (33⅓% or 49%) within three months of exceeding the threshold and the sale actually takes place within this period.
Finally, in the below circumstances, the protection of the minority shareholders must give way to the Bidder’s interest not to proceed to a PTO:
- where the transfer of voting rights occurs within a group organised pursuant to an agreement or otherwise. In such a case, only the group as such shall be subject to the duty to make an offer;
- where the threshold is exceeded as a result of a decrease in the total number of voting rights of the company;
- where the threshold is exceeded only temporarily. In principle, the threshold should not be exceeded for more than three months to benefit from this exemption;
- where the securities have been acquired without consideration or on exercise of pre-emptive rights pursuant to a share capital increase; or
- where the securities have been acquired for restructuring purposes. When a company is in financial difficulty, a PTO could be in contradiction with the financial restructuring of the company. Accordingly, the interests of the minority shareholders might often be better preserved by renouncing a PTO in favour of the financial restructuring.
Process of Applying for an Exemption
The Bidder must, if relying on one of the above exemptions, apply to the Swiss Takeover Board to obtain an exemption from having to make a PTO. The Takeover Board will make its decision after the formal request has been filed by the Bidder.
Although the request can be made once the threshold has been exceeded by the Bidder, it is always advisable to do so beforehand to risk the consequences of a negative decision from the Takeover Board.
The principle of a mandatory PTO is a useful and necessary tool to protect minority shareholders and give them the possibility to leave a company. However, Swiss takeover law, through the above-listed exceptions, does allow those shareholders’ rights to give way to other interests.
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 CR CO II-Bahar, art. 135 LIFM N1.
 Article 2 (i) FMIA.
 Article 135 (ii) FMIA.
 CR CO II-Bahar, art. 135 LIFM N133.
 Article 1335 (i) FMIA.
 Article 698 (i) of the Swiss Code of Obligations (“CO”).
 Article 136 (2) FMIA.
 Article 40 (1) (a) FINMA Financial Market Infrastructure Ordinance (« FMIO-FINMA »).
 Article 40 (I) (b) FMIO FINMA.
 CR CO II-Bahar, art. 136 LIFM N20.
 CR CO II-Bahar, art. 136 LIFM N38.
 CR CO II-Bahar, art. 136 LIFM N29.
 CR CO II-Bahar, art. 136 LIFM N19.