In the case of MCH Group AG, the Swiss Takeover Board and FINMA refined their practice regarding the consent of the majority of the minority shareholders to the introduction of an opting out/up by clarifying who is considered to be a minority shareholder and which quorum is used to determine the voting result.

By Dr. Dieter Dubs / Fabienne Perlini-Frehner (Reference: CapLaw-2021-36)

1) Legal basis

a) The obligation to make an offer and its exclusion

According to art. 135(1) FMIA, a person who acquires equity securities directly, indirectly or acting in concert with third parties and thereby, together with the equity securities he/she already owns, exceeds the threshold of 33 1/3% of the voting rights of a target company, whether exercisable or not, is obliged to make an offer for all listed equity securities of the target company.

The central regulatory content of art. 135 FMIA is the protection of the minority shareholders (see dispatch (Botschaft) of 24 February 1993 on a Federal Act on Stock Exchanges and Securities Trading (“DISPATCH SESTA“), Federal Gazette (“FG“) 1993 I 1369 et seqq., 1389). According to the legislator’s conception, the protection of minority shareholders should be realised by means of an obligation to make an offer once a shareholder reaches the threshold of 33 1/3% of the voting rights (DISPATCH SESTA FG 1993, 1417; Takeover Board (“TOB“) Order 594/01 of 5 March 2015 in the matter of Sika AG; rec. 1.2.1). The obligation to make an offer, “gives minority shareholders the opportunity to protect themselves against the control of their company by a new group of shareholders, which could bring about significant changes in corporate policy” (original text in German) (DISPATCH SESTA FG 1993, 1417). Minority shareholders should thus be given the opportunity to exit their investment (exit right) in the event of a change in control, i.e. in the event that a (new) majority shareholder or a group of shareholders takes control of the company (DISPATCH SESTA FG 1993, 1417).

The FMIA allows companies to exclude the obligation to make an offer by including a respective provision in their articles of association. From a material point of view, the FMIA distinguished between an initial (art. 125(3) FMIA) and a subsequent (art. 125(4) FMIA) opting up/opting out.

The exclusion of the obligation to make an offer requires that an opting out clause be included in the articles of association. The inclusion of an opting out clause prior to the equity securities of a company being admitted to official listing on a stock exchange is governed by art. 125(3) FMIA. After the listing, a company may at any time include an opting out clause “in its articles of incorporation, provided that this does not prejudice the interests of shareholders within the meaning of Article 706 CO” (art. 125(4) FMIA).

The FMIA also allows companies to raise the threshold relevant for an offer obligation from 33 1/3% to 49% of the voting rights in their articles of association. In this case, one speaks of an opting up clause pursuant to art. 135(1), last sentence, of the FMIA. Art. 125(3) and (4) FMIA apply by analogy to opting up cases. 

An opting out or opting up clause, respectively, is effective at the time it is entered in the commercial register as an amendment to the articles of association. Consequently, the entry in the commercial register must be made before the threshold is exceeded.

In the context of the history of the SESTA, the obligation to make an offer was a controversial legal institution (cf. in particular the information on the parliamentary deliberations in TOB Order 610/01 of 21 July 2015 in the matter of Schindler Holding AG, N 11). It was argued against the obligation to make an offer that such an obligation would impermissibly reduce the value of majority shareholdings by obliging controlling major shareholders to share a possible control premium with the other shareholders. It was also said that as a result of the obligation to make an offer, public takeover offers would not be made, which would also violate the interests of minority shareholders (see also the decision of the Takeover Committee of the Swiss Financial Market Supervisory Authority FINMA of 4 May 2015 in the matter of Sika AG, N 37). In the legislative process, the opting out was the compromise without which the general obligation to make an offer pursuant to art. 32 SESTA would not have existed (see also Rudolf Tschäni/Hans-Jakob Diem/Tino Gaberthüel, Öffentliche Kaufangebote, 4th edition, Zurich 2020, N 75). 

b) Opting out/up before listing (art. 125(3) FMIA) 

Pursuant to art. 125(3) FMIA, companies may, prior to their equity securities being admitted to official listing on a stock exchange, stipulate through the inclusion of a corresponding clause in their articles of association that an acquirer is not obliged to make a public takeover offer if he/she/it reaches or exceeds the threshold of 33 1/3% of the voting rights or a higher threshold according to the articles of association. An opting out/up introduced prior to their listing of the equity securities will not be examined by the TOB for its validity – with reservation of grounds for nullity. In this case, the resolution introducing the opting out/up and amending the articles of association can only be challenged in accordance with the rules of company law (art. 706 and art. 706a CO).

The spin-off of a (target) company from a listed company constitutes a special case. In this case, the opting out/up clause in the articles of association of the spun-off (target) company is only unconditionally valid if the listed company already had a legally effective opting out/up clause in its articles of association (TOB Order 556/02 of 2 February 2014 in the matter of Walter Meier AG/WM Technologie AG, rec. 5).

Presumably, the same applies in case of a merger: if a transferring listed company without an opting out/up clause is merged into a receiving listed company with an opting out/up, it can be assumed that the receiving company must confirm the already formally existing opting out/up by passing a new resolution at the shareholders’ meeting which resolves on the merger and that this resolution must fulfil the requirements for effectiveness of a subsequently introduced opting out/up.

c) Opting out/up after listing (art. 125(4) FMIA)

Art. 125(4) FMIA stipulates that a company may at any time – i.e. after the listing of its equity securities – include an opting out clause in its articles of association. According to the wording of the law, the prerequisite for a subsequent opting out is that this “does not prejudice the interests of shareholders within the meaning of Article 706 CO“. According to the practice of the Swiss Takeover Board (“TOB“), the same requirement also applies to a subsequently introduced opting up clause (TOB Order 590/01 of 20 February 2015 in the matter of Leclanché S.A., rec. 1). 

2) Modalities and use cases of opting outs/ups

a) Types of opting out/up 

A general opting out generally excludes the obligation to make an offer (and thus the application of the minimum price rules according to takeover law). The effect of a general opting up, by which the threshold triggering the obligation to make an offer is increased, is analogous. 

In contrast, an opting out/up can also be formally or materially (transaction-related) selective, so that only a certain shareholder or group of shareholders is exempted from the obligation to make an offer. Formally selective means that the “favoured” shareholders are explicitly named in the statutory exemption clause. 

After in practice, for a long time a numerus clausus of statutory forms of exemption from the obligation to make an offer applied – i.e. only a general opting out or up was declared permissible (on the inadmissibility of a formally selective opting out (at that time still referred to as “partial” opting out) see the decision of the Takeover Chamber of the Swiss Federal Banking Commission of 23 June 2000 in the matter of Esec Holding AG) – in 2015, with TOB Order 600/01 of 22 April 2015 in the matter of Kaba Holding AG, there was a change in practice. Since the issuance of this order, formally selective opting out clauses are (again) permissible. 

b) Use cases of opting out/up

An opting out/up – in practice now regularly a selective opting out/up – comes into consideration in particular for the following transactions: 

– In the context of the acquisition of a company, the (target) company settles the purchase price with shares. This exchange of shares results in the owner respectively shareholder of the shares of the (target) company acquired in this way exceeding the threshold triggering the obligation to make an offer. 

– In the context of a capital increase, a new or existing shareholder exceeds the threshold triggering the obligation to make an offer because, for example, such shareholder materially acts as underwriter respectively acquires all shares not acquired by shareholders via exercise of subscription rights. 

– In the context of a reorganisation, either an equity-adding shareholder and/ or banks exceed the threshold triggering the obligation to make an offer as a result of a dept equity swap. 

– A shareholder makes a partial offer and exceeds the threshold triggering the obligation to make an offer, but does not want to launch a full offer (whether the TOB would accept such a condition in an offer is untested).

c) Examples of statutory opting outs/ups

The practice of the TOB allows companies and shareholders a wide scope in the formulation of an opting out/up, so that tailor-made exemptions from the obligation to make an offer are possible, as the following two examples show: 

Example dormakaba Holding AG 

The extraordinary shareholders’ meeting of Kaba Holding AG of 22 May 2015 approved the inclusion of the following formally selective opting out into the articles of association. After adjustments due to changes in the law, the corresponding clause in the articles of association reads as follows:

1. Articles of Incorporation dated 20 October 2020

§ 5a – Opting Out

In the following cases, Familie Mankel Industriebeteiligungs GmbH + Co. KGaA and Mankel Family Office GmbH as well as their respective direct or indirect quota holders – individually or together with shareholders of the Company with whom they entered into a pool agreement (Shareholder Pool) in connection with the combination of KABA Group with DORMA Group – are exempted from the obligation to make an offer pursuant to Article 135 para. 1 of the Swiss Federal Act on Financial Market Infrastructures and Market Conduct in Securities and Derivatives Trading of June 19, 2015: 

(a) Combination of KABA Group with DORMA Group pursuant to the transaction agreement dated April 29, 2015 between Familie Mankel Industriebeteiligungs GmbH + Co. KGaA and Mankel Family Office GmbH on the one hand and the Company on the other hand; 

(b) Transactions in shares of the Company between parties of the Shareholder Pool and/or with third parties that result in changes of the majorities within the Shareholder Pool, changes in the composition of the Shareholder Pool or changes in the direct overall participation of the parties to the Shareholder Pool in the Company, as long as such a direct overall participation does not exceed 33 1/3% of the voting rights in the Company; 

(c) Dissolution of the Shareholder Pool; 

(d) Consummation of the transfer agreement described in § 36 of the Articles of Incorporation.

Example MCH Group AG

The extraordinary shareholders’ meeting of MCH Group AG of 3 August 2020 decided to include the following formally selective opting up in the articles of association (text from articles of association; German text is identical to the text from the minutes of extraordinary shareholders’ meeting of 3 August 2020):

2. Articles of Association dated 21 December 2020

§ 5a

In the event and to the extent that Lupa Systems LLC, New York, USA (Lupa) and/or its beneficial owner – alone or together with persons controlling Lupa, under common control like Lupa or acting in concert with Lupa – (i) through subscription or acquisition of registered shares of the Company in the context of the capital increase to be carried out in 2020, and/or (ii) through acquisitions or acting in concert after the capital increase carried out in 2020, exceeds the threshold of 33 1/3% but not the threshold of 49% of the voting rights of the Company, Lupa as well as persons controlling Lupa, are under common control like Lupa or act in concert with Lupa are exempt from the obligation to make a public takeover offer pursuant to article 135 of the Federal Act on Financial Market Infrastructures and Market Conduct in Securities and Derivatives Trading of June 19, 2015 (FinfraG).

These examples prove that according to the practice of the authorities, it is also permissible to make future facts subject to an exemption in a corresponding statutory provision.

d) Limits: No statutory modifications of the obligation to make an offer through corresponding opting-out/up provisions

The obligation to make an offer and the possible exemptions from the obligation to make an offer by way of opting out or up clauses are to be regarded as a conclusive, self-contained system of takeover law. According to previous practice, selective opting out/up clauses are permissible within a limited scope of application. However, (target) companies cannot formulate individual takeover rules in their articles of association which go beyond this practice. Statutory offer obligations that deviate from the system prescribed by the law and the ordinances are not possible. Corresponding provisions in the articles of association are null and void. The following statutory provision proposed by Schindler Holding AG serves as an example: an acquirer of 50% or more of the share capital is only entered in the share register as a shareholder with voting rights if he/she has previously launched a public takeover offer with an offer price which must be at least equal to the market price and at most 10% below the maximum price paid in previous months. The TOB has declared such modifications of the legal obligation to make an offer null and void (Order 610/01 of 21 July 2015 in the matter of Schindler Holding AG, rec. 3 et seq.).

3) Examination of the validity of a subsequent opting out/up 

The legal basis for the subsequent statutory exemption from the obligation to make an offer through an opting out/up provision is art. 125(4) FMIA. Such a waiver of the obligation to make an offer is permissible “provided that this does not prejudice the interests of shareholders within the meaning of Article 706 CO“. According to this wording of the law, the purpose of the opting out/up is to ensure that individual shareholders are not deprived of their rights in an unjustified manner or treated unequally; in terms of company law, this concerns the application of art. 706(2)(2) and (3) CO.

a) Examination under stock corporation law

The resolution on the introduction of an opting out/up can be challenged by the shareholders by civil action in accordance with the contestation rules under company law. If the resolution to introduce the opting out/up is not challenged, the opting out/up is valid under company law. The same applies if any legal challenge is rejected by the court. 

b) Examination of effectiveness under takeover law by the Swiss
Takeover Board

The practice of the TOB considers the legal reference to art. 706 CO in art. 125(4) FMIA to be an additional requirement for validity under takeover law. Thus, the TOB also considers this reference as the basis for its competence to review the validity of a subsequent opting out/up under takeover law. In its Order 594/01 of 5 March 2015 in the matter of Sika AG, the TOB in N 13 states the following regarding this reference to company law: “This reference to art. 706 CO is considered to be an additional (stock exchange law) validity requirement, and thus the basis for the Swiss Takeover Board’s competence to review the validity of a subsequent opting out.” (original text in German)

In accordance with current practice (see in particular Order 594/01 of 5 March 2015 in the matter of Sika AG, rec. 1.2; Order 518/01 of 11 October 2012 in the matter of Advanced Digital Broadcast Holdings SA; Order 539/01 of 24 June 2013 in the matter of Logan Capital AG, rec. 3), the TOB examines the effectiveness of a subsequently introduced opting out/up under takeover law as follows: A subsequent opting out/up is effective under takeover law (since Order 686/01 of 20 March 2018 in the matter of Addex Therapeutics SA, N 2 et seq., this is the established practice) if 

1. the shareholders are informed transparently about the introduction of the opting out/up and its consequences; 

2. the majority of the votes represented at the shareholders’ meeting and the majority of the minority shareholders agree to the opting out/up; and 

3. the interests of the minority shareholders are not prejudiced within the meaning of art. 125(4) FMIA and art. 706 CO, whereby this is presumed if the two aforementioned conditions are met; only in case of special and exceptional circumstances, the TOB substantively examines art. 706 CO and may – in deviation from the voting result of the majority of the minority shareholders – determine that the interests of the minority shareholders are prejudiced and that the opting out/up is invalid. 

If the first and second of these conditions are met, according to the practice there is a factual presumption that the opting out/up does not prejudice the interests of the minority shareholders within the meaning of art. 125 para. 4 FMIA in conjunction with art. 706 CO, “although this presumption may be overturned in the event of special and exceptional circumstances” (original text in German) (Order 686/01 of 20 March 2018 in the matter of Addex Therapeutics SA, N 2 et seq.). 

It is unclear whether the third requirement also applies in the case of a general opting out/up; this is because an unequal treatment of shareholders can only exist as a result of the selectivity of the exemption from the obligation to make an offer. It is therefore conceivable that only in the case of formally selective opting outs/ups, there is this additional effectiveness requirement of the test that the unequal treatment of shareholders is justified by the relevant corporate interest.

4) The takeover law requirements for effectiveness in detail 

a) Transparency requirement

From a formal point of view, the transparency requirement requests that the information required to meet this requirement be disclosed both in the invitation to the shareholders’ meeting and at the shareholders’ meeting itself immediately prior to the relevant resolution being taken. The purpose of the transparency requirement is to inform the shareholders so that each shareholder can cast an undistorted, free and conscious vote regarding the introduction of the opting-out/up. From a material point of view, the information fulfils the transparency requirement if the actual intentions of the applicant requesting or benefiting from the introduction of the opting out/up and his/her intentions as a controlling shareholder are disclosed. In addition, the general consequences of the introduction of the opting out/up as well as the concrete effects must be described. In particular, the transparency requirement also requires that shareholders are informed about specifically planned projects and negotiated transactions with investors (see TOB Order 590/01 of 20 February 2015 in the matter of Leclanché S.A., rec. 1.1 and TOB Order 539/01 of 24 June 2013 in the matter of Logan Capital AG, rec. 1.1). 

The TOB regularly describes this transparency requirement as follows (quote from Order 539/01 of 24 June 2013 in the matter of Logan Capital AG, rec. 7; see also Order 518/01 of 11 October 2012 in the matter of Advanced Digital Broadcast Holdings SA, rec. 5; Order 600/01 of 22 April 2015 in the matter of Kaba Holding AG, N 4): “An opting up materially satisfies the requirement of transparency if the actual intentions of the applicant requesting the introduction of the opting up as well as the intentions of the controlling shareholder are specified. In addition, the general consequences of the introduction of the opting up as well as the concrete effects at the company under discussion must be specified. The applicant shall provide information on the reasons for his/her proposal, the intended transaction and the resulting change of control. The board of directors shall explain the general and concrete consequences of the opting up for the company and clarify that an opting up – unless it is formally selective – can be invoked by all current and future shareholders in the event of a change of control. This information and consequences in case of an introduction of an opting up shall already be communicated to the shareholders with the invitation to the shareholders’ meeting.” (original text in German)

b) Consent of the majority of minority shareholders

If the transparency requirement is fulfilled, the TOB examines whether the “interests of the minority shareholders are prejudiced” insofar in a procedural manner as a “special meeting” of the minority shareholders is required and their consent to the introduction of the opting out/up establishes the presumption of correctness. An opting out/up is only valid under takeover law if (a) the majority of the votes represented at the shareholders’ meeting or the ordinary quorum applicable at the company for amendments to the articles of association and (b) the majority of the minority shareholders at the shareholders’ meeting approve the proposal. 

If the majority of minority shareholders votes against the introduction of an opting out/up, it is presumed that the interests of the minority shareholders are prejudiced, even if the majority of the votes represented at the shareholders’ meeting approves the proposal. According to the practice of the TOB, in order to determine the voting result of the minority shareholders, it is sufficient to count the votes cast separately and to determine the result of the resolution separately in this respect (special assessment); consequently, an actual special vote is not necessary. 

For this special assessment of the “majority of the minority shareholders”, it is necessary to establish who is considered to be a minority shareholder and which quorum is used to determine the voting result. The TOB and FINMA have clarified these legal issues in the case of MCH Group AG and refined their practice.

i. Voting entitlement in the special assessment under takeover law

With regard to this “special vote” of the minority shareholders, it is necessary that the voting entitlement of the shareholders is defined. In the recent practice of the TOB, the delimitation of those entitled to vote in the “special vote” is regularly made as follows: A minority shareholder who is entitled to vote is “a person who neither directly nor indirectly or acting in concert holds a share of 33 1/3% of the voting rights in the target company nor has applied to the board of directors for the introduction of opting out” (original text in German) (Order 601/01 of 22 April 2015 in the matter of Kaba Holding AG, N 7; see also Order 686/01 of 20 April 2018 in the matter of Addex Therapeutics SA, N 8).

In the case of MCH Group AG, both the TOB and FINMA stated that the votes of a shareholder with a participation of more than 33 1/3% may not be counted in the special meeting, even if this controlling shareholder is not favoured by a selective opting out/up. This is because the counting of such votes “would have the consequence that with his voting power, the controlling shareholder could (also) dominate the vote of the majority of the minority and thus, where applicable, decide over the heads of the minority shareholders on the introduction of such a selective opting out/up and the associated allocation of the preferential treatment to a third party. This would, however, not be compatible with the protective concept of the requirement of the majority of the minority” (original text in German) (Order 765/02 of 20 August 2020 in the matter of MCH Group AG, N 41). This understanding was supported by FINMA, but mainly on the grounds that without the consent of the controlling shareholder, the transaction or capital increase as agreed (and the selective opting up was an element of the transaction) would not have occurred, and by not taking into account the votes of the controlling shareholders, “there is ultimately an appropriate balance of power in terms of the protection of the minority shareholders: The minority shareholders are given a collective veto on the veto right of the controlling shareholder, which ensures that the decision is supported not only by the controlling shareholder, but also by the minority shareholders” (Order of the Takeover and State Liability Committee of the Swiss Financial Market Supervisory Authority FINMA in the matter of MCH Group AG, N 49). 

The decision criteria for the voting entitlement are thus, as a result, formal aspects of the introduction of an opting out/up: the applicant, who will regularly also be the beneficiary of the exemption from the obligation to make an offer brought about by the opting out/up, the other beneficiaries as well as the “controlling” shareholders are not entitled to vote.

ii. Quorum for determining the result of the special assessment

In the case of MCH Group AG, it was disputed on what basis the result of the special vote of the minority shareholders was to be determined, i.e. whether the quorum rule according to the articles of association – absolute majority of the votes cast – was to be applied or whether the result was to be determined independently of the rules laid down in the articles of association. The TOB determined that “for establishing the approval of the majority of the minority […] the majority of the votes of the minority shareholders represented at the shareholders’ meeting is to be used” and that “with regard to the evaluation of the votes in the special count, the ordinary simple majority quorum relevant according to company law does not apply” (original text in German) (Order 765/02 of 20 August 2020 in the matter of MCH Group AG, N 52). The FINMA supports this view and stated, inter alia: “The TOB is materially competent to determine the requirements for the validity of a subsequent opting up under takeover law pursuant to art. 125(4) FMIA (art. 126(3) FMIA). Accordingly, the TOB is authorised not only to provide for the additional takeover law requirements of transparency and the consent of the “majority of the minority”, but also to determine the voting modalities with regard to the latter, as it has done by referring to the votes represented. It follows from this that it does not have to follow either the dispositive character of art. 703 CO or the statutory provisions of the MCH Group.” (original text in German) (Order of the Takeover and State Liability Committee of the Swiss Financial Market Supervisory Authority FINMA in the matter of MCH Group AG, N 59).

c) No disadvantage for minority shareholders

If the shareholders are informed transparently about the introduction of the opting out/up and the “majority of the minority” decides in favour of the introduction of the opting out/up, the TOB examines whether the introduction of the opting out/up results in the interests of the minority shareholders being prejudiced. This practice is intended to prevent circumventions of the protection of minorities under stock exchange law (exit right in the event of a change of control). 

The presumption of correctness, which is established in case of an “approval of the majority of the minority” – i.e. in the second resolution of the “double resolution” or counting of votes, respectively – can be overturned if special and exceptional circumstances exist. The TOB thus reserves the right to conduct a substantive examination of art. 706 CO despite the actual presumption of the correctness of the decision of the shareholders’ meeting. However, according to the practice of the TOB, the actual presumption of correctness is generally accepted in the case of such approval; because according to this practice, “the decision of the shareholders at the shareholders’ meeting shall not be interfered with without good cause” (original text in German) (Order 539/01 of 24 June 2013 in the matter of Logan Capital AG, N 15). 

An opting out/up may be permissible if the interests of the shareholders are not prejudiced in the sense of art. 706 CO. According to art. 706(2)(2) and (3) CO, a resolution of a shareholders’ meeting may not remove rights of shareholders in an improper manner or give rise to the unequal treatment or disadvantaging of shareholders in a manner that is not justified by the company’s purpose. “A removal in an improper manner exists, for example, if the majority exercises its voting power against the company’s purpose in order to pursuit non-corporate goals. This is the case when shareholders’ rights have been restricted or removed not to promote the company’s interests, but to pursue the majority’s personal goals. An unjustified unequal treatment or disadvantage exists if these is not justified by the company’s interests” (original text in German) (Order 440/01 of 4 June 2010 in the matter of COS Computer Systems AG, rec. 2.1; Order 437/01 of 4 March 2010 in the matter of CI Com SA, rec. 2.1, with further references).

Dr. Dieter Dubs (dieter.dubs@baerkarrer.ch)
Fabienne Perlini-Frehner (fabienne.perlini@baerkarrer.ch)