The past twelve months saw some significant developments in Swiss takeover law. Notably, the Takeover Board clarified the requirements for restructuring exceptions and examined cases involving the risk of a takeover obligation as a result of capital increases. Additionally, it addressed acting in concert scenarios and a special situation in which a competition law clearance condition is allowed without the necessity that conditions imposed by the authorities constitute a material adverse change. Important rulings were made on no-shop provisions in transaction agreements and on various remuneration questions, such as bonus payments, retention agreements, accelerated vesting, lifting of lock-ups and the like. These decisions reinforce the Takeover Board’s evolving stance on ensuring fair practices and transparency in corporate takeovers.

 By Matthias Courvoisier (Reference: CapLaw-2024-38)

The last twelve months were relatively active, resulting in several noteworthy developments:

Restructuring Exception: In the GAM Holding AG matter decided on 19 April 2024, the Takeover Board had the opportunity to summarize the requirements for a restructuring exception under Article 136(1)(e) FinMIA (TOB decision 871/01 of 19 April 2024, in the matter of GAM Holding AG, para. 8 et seqq.). The first requirement is the need for restructuring, described as a weakness of the applicant threatening its existence or entailing the risk of not being able to continue as a going concern. There is no need for an underbalance, over-indebtedness, or insolvency. The second requirement is that the measure to be taken is suitable for the restructuring, meaning that the restructuring measures selected must be reasonably likely to ensure the continued existence of the applicant in the normal course of events. Any measure that serves to remedy an inherent weakness in an economically distressed company that threatens its existence and restores its earning power is considered suitable. However, there is no requirement for a guarantee of the long-term success of the restructuring measure. If it is shown that the continuation of business operations is at risk, it is generally assumed that the measures taken by the general meeting to improve the current financial situation are appropriate. The third condition is the requirement of subsidiarity, meaning it is necessary in the specific situation that finding an investor without an exemption would be almost impossible. This requires a relatively broad examination of various financing options, preferably with the help of an investment bank or another suitable financial advisor. The Takeover Board is entitled to impose conditions and obligations, mainly the obligation to sell off part of the shares after some time. However, it appears that the Takeover Board becomes reluctant to impose such conditions or obligations if the investor clearly states that they will not invest if such conditions or obligations are imposed.

Opting-out: There were two interesting decisions dealing with opting-out. In the first matter (TOB decision 863/01 of 14 February 2024, in the matter of Swiss Steel Holding AG, para. 20 et seqq.), Swiss Steel wanted to introduce an opting-out provision in its articles of incorporation that would have stipulated that shareholders who exceed the offer threshold in the course of a specific capital increase do not have to submit a mandatory offer. The TOB concluded that all three major shareholders should not be allowed to vote on this matter together with the minority. The main reason given was that (at least) one of the three major shareholders, as explained by the company in its application, would have to provide the financing. As a result, all of them had an interest in the opting-out clause. It is irrelevant that those large shareholders who do not exceed the threshold have no interest in the opting-out provision, as the provision favors each of the large shareholders. In the second matter (TOB decision 843/01 of 3 May 2023, in the matter of Von Roll Holding AG), Altana AG requested the determination of the validity of the opting-out provision in the articles of association of Von Roll Holding AG. Von Roll Holding AG had stipulated in its articles of association that purchasers of shares are exempt from the obligation to make a public takeover offer. Altana AG intended to acquire 100% of the outstanding shares of Von Roll Holding AG under certain conditions. The Takeover Board concluded that the opting-out clause was legally valid. In particular, the Takeover Board noted that the general meeting that decided on the introduction of the opting-out took place before 11 October 2012, and that it was therefore sufficient that information about the general nature of the opting-out provision was only provided at that meeting. Today, this would not be sufficient anymore.

Absence and Exemption from the Duty to Make an Offer: There are again two relevant decisions concerning this topic. The first decision (TOB decision 869/01 of 25 March 2024, in the matter of Meyer Burger Technology Ltd, para. 7, 15) dealt with the problem in the capital increase that the number of shares entered in the commercial register is relevant for calculating the 33 1/3% threshold, but new shares are issued in the event of a capital increase and are created before the number of existing shares has been registered in the commercial register. This can lead to a shareholder exceeding the 33 1/3% threshold in the short term. This can be dealt with in an exception request. However, it is also possible that the resolution on the issue of the new shares provides that the newly issued shares only become entitled to vote and receive dividends once the capital increase has been entered in the commercial register. In this case, in the opinion of the Takeover Board, the voting rights only arise originally with the entry in the commercial register and thus parallel to the increase in the total number of shares in the commercial register. In the same decision, the Takeover Board decided that commitment letters that only relate to the acquisition of shares by the respective investor in the context of the capital increase and provide for lock-up and standstill undertakings do not constitute acting in concert because these agreements do not objectively enable joint control of the company concerned by these investors. Therefore, there was no formation of a group of shareholders subject to a mandatory offer duty.

In the second matter (TOB decision 858/01 of 1 November 2023, in the matter of VT5 Acquisition Company AG), the Takeover Board had to deal with a request regarding the non-existence of an obligation to make an offer and, in case of a rejection of this request, the granting of an exemption from the obligation to make an offer in the context of the planned corporate takeover known as the De-SPAC transaction with the R&S Group. The Takeover Board found that the signing of commitment letters by shareholders of VT5 holding more that the threshold of 33 1/3% leads to the formation of a group subject to an obligation to make an offer. The main reason was that not only investment and lock-up commitments were necessary but also the obligation to not divest within the De-SPAC and further duties. There is nevertheless a certain development in the practice of the takeover board from the VT5 decision to the Meyer Burger decision cited above. The Takeover Board ultimately granted an exemption from the obligation to make an offer on the grounds that a De-SPAC is a special structure and that the De-SPAC granted exit rights for shareholders in the context of the mandatory buyback offer, which corresponds to the usual protective mechanisms in the event of a change of control.

Acting in Concert: In the first (TOB decision 872/01 of 30 May 2024, in the matter of Lalique Group AG, para. 7) of two relevant decisions dealing with the topic, the bidder concluded non-tender agreements with other significant shareholders. Since there was no further coordination among those shareholders regarding the offer, the TOB decided that this alone does not constitute acting in concert. 

In the second decision (TOB decision 864/01 of 12 February 2024, in the matter of Aluflexpack AG, para. 44 et seq.), the TOB held that the usual obligations of sellers between signing and closing of a purchase agreement between major shareholders and the offeror do not lead to acting in concert between the shareholders and the offeror. This even holds true if there is an obligation of these shareholders to elect certain persons to the board of directors (see TOB decision 864/02 of 27 March 2024, in the matter of Aluflexpack AG, para. 11).

Competition Condition: Normally, an offer condition requiring competition law clearance must provide that it is satisfied if measures required by the competition authorities do not exceed the thresholds accepted for MAC conditions. The TOB has allowed an exception to this rule if the offer is made by a portfolio company of a fund, but the measure would affect persons who are not held by this fund but, for example, by sister funds. The reason for this decision is that otherwise there could be a breach of fiduciary duties towards the other funds (TOB Decision 864/01 of 12 February 2024, in the matter of Aluflexpack AG, para. 18).

No-shop Provisions in Transaction Agreements: The provision in the transaction agreement stipulated that the target company may only negotiate with or provide information to third parties if their offer is likely to be more favorable for the shareholders. The Takeover Board considered this to be too narrow and therefore inadmissible under takeover laws because the board of directors can also give preference to an offer in the interests of other stakeholders (TOB decision 864/02 of 27 March 2024, in the matter of Aluflexpack AG, para. 36).

Remunerations: There were a number of decisions (TOB decision 864/02 of 27 March 2024, in the matter of Aluflexpack AG; TOB decision 846/02 of 4 August 2023, in the matter of Von Roll Holding AG; TOB decision 849/02 of 15 August 2023, in the matter of Schaffner Holding AG; TOB decision 849/04 of 6 November 2023, in the matter of Schaffner Holding AG) dealing with remuneration questions in the context of takeovers and notably the best price rule and the minimum price rule. In essence, the following was clarified:

1. Payments of Bonuses Before the Offer: The Takeover Board decided that payments do not violate the best price rule if they are made prior to the conclusion of a potential purchase agreement between the main shareholder and the offeror and prior to the publication of a pre-announcement or a prospectus for a possible offer.

2. Retention Agreements and Additional Work Compensation Agreements: The Takeover Board decided that the best price rule and the minimum price rule do not apply to retention agreements and additional work compensation agreements entered into before the start of the offer (but after the offeror contacted the company) and which were not dependent on the offer.

3. Accelerated Vesting: Accelerated vesting in a share plan is not subject to the best price rule because it is not an acquisition of equity securities of the target company.

4. Determination of the Achievement Level in a Share Plan: The determination of achievement level was considered by the Takeover Board to not be subject to the best price rule for the same reason.

5. Settlement in Cash Instead of Shares: According to the Takeover Board, such settlement is not subject to the best price rule either for the same reason.

6. Settlement of a Phantom Option Plan: The Takeover Board was of the opinion that the best price rule does not apply because there is no acquisition of equity securities or derivatives.

7. Removal of a Lock-up Period for Certain Shares: The TOB decided that the best price rule does not apply because no acquisition of equity securities or derivatives takes place.

These decisions are remarkable to the extent they are justified by the fact that there is no purchase and sale of equity securities. That is of course the case; however, it is hard to understand why for example a change in terms of an option could never be regarded as subject to the minimum or the best price rule. A change in terms can always be construed as an exchange of one option against the other or a sale of old and purchase of new options. Nevertheless, the above decisions are certainly correct in their outcome, particularly because all of the transactions were apparently done at arm’s length terms.

Matthias Courvoisier (matthias.courvoisier@bakermckenzie.com)