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| Talacker 41, 8001 Zurich, Switzerland, Phone: +41 43 443 72 00, Fax +41 43 497 22 70, info@amcham.ch |
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| Site contribution |
| Date: |
April 2004 |
| Prepared by: |
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Summary |
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| As in the United States, each M&A transaction is different and must be structured in order to take into consideration the specific needs of the purchaser and the seller as well as the target business. From a legal perspective, the features of a M&A transaction depend mainly on the following |
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the legal form of the target business (share corporation, limited liability company, others?) |
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the purchaser (foreign or domestic?, public or private company?) |
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the seller(s) (foreign or domestic?, public or private M&A?) |
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the legal form for the transaction (asset deal, share deal, mixture of asset and share deal, statutory merger?) |
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tax considerations |
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| This site provides an overview of the law governing a transaction in Switzerland, the phases and the timing of a typical M&A transaction and information in connection with M&A of listed companies. |
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Applicable Law |
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Swiss conflict of laws rules permit the parties to a private M&A transaction with an international context to select the law applicable to the transaction agreement. However, if the target company is located in Switzerland, it is advisable to select Swiss law as the governing law. In this case, the provisions of the Swiss Code of Obligations (CO), in particular, the provisions on sale contracts will apply. Because the law permits to override most of the provisions of the CO, the parties can agree in the transaction agreement whatever they feel is appropriate. However, this freedom is limited to the transaction agreement itself.
Many other aspects of a Swiss M&A transaction are governed by Swiss law: A public takeover of a Swiss listed company is governed by the Swiss Stock Exchange and Securities Trading Act (SESTA) and its implementing ordinances. A statutory merger of twoSwiss companies is governed by the Swiss Merger Statute. When completing the acquisition of a Swiss company the applicable provision of Swiss company law must be taken into consideration. When closing an asset transfer with assets in Switzerland, the specific Swiss requirements for the transfer of these assets and liabilities must be observed.
Except for the public offer, the M&A transaction process itself is not supervised by a regulator, however, specific aspects of a M&A transaction, if applicable, are supervised by specific regulators such as the antitrust authority or mergers in a specific industry by the specific industry regulators (e.g. mergers of banks and insurance companies). |
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Phases of a typical M&A transaction |
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Like M&A transactions in the United States, a Swiss M&A transaction typically goes through the following stages: |
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In this phase the parties agree to negotiate the principal terms of a M&A transaction and subject the target business to a thorough review. They typically enter into a letter of intent which contains the principal terms of the contemplated transaction as well as the terms for the negotiations (exclusivity, confidentiality, due diligence, termination). As a rule, the section of the letter of intent setting forth the principal terms of the contemplated transaction is not binding. Therefore, legally the parties can renegotiate these terms whenthey negotiate the final transaction agreement. Under Swiss law, a M&A transaction can be concluded by oral agreement or implied agreement. Therefore, it is important that the parties make always clear when negotiating the letter of intent that their proposals in relation to the terms of the contemplated transaction shall not be binding. In most transactions, the potential acquirer is entitled to do extensive due diligence prior to the signing of the transaction agreement. |
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Most of the transaction agreements follow today international standards, i.e. they include typical provisions regarding representations and warranties, closing, closing conditions, pre-closing and post-closing obligations of the parties. If the agreement is governed by Swiss law, one must take into consideration the applicable Swiss law on sale contracts. With parties outside of Switzerland which are not so familiar with Swiss law, it is advisable to restrict the remedies for the parties in the agreement to those described in the contract and exclude all remedies available by the parties under the applicable Swiss law. Typically, theclosing of a Swiss transaction agreement is subject to certain conditions precedent such as governmental approvals, consents of third parties, etc. This means that there exists a certain time period between the signing and the closing. As a rule, the transaction agreement sets forth certain obligations of the parties during that period; for instance the obligation to seek the required consent for the transaction, the obligation to seek the necessary approvals, the obligation of the seller to grant access to the target company's books and records, etc. |
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The closing depends on the legal form of the transaction and the legal form of the target business (see for details under the respective transaction form below). |
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In a Swiss transaction agreement parties agree quite often on certain matters which relate to the post closing. A purchaser often requires that the seller enter into a non-compete agreement. If the seller has also been an employee of the target company it is questionable whether he can enter into an non-compete agreement with a duration of more thanthree years. Generally, non-compete agreements should not exceed five years. Sometimes transaction agreements also include obligations of the purchaser to continue to operate a certain production facility or to keep a certain number of employees for a certain time period. |
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Transaction Forms |
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| In Switzerland, the following transaction forms are typically used: |
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Share deal |
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Asset deall |
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Statuatory merger |
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| Of course, these transaction forms can be combined. |
| Also, Swiss law provides additional legal forms which can be used in order to reorganize a group or prepare a business for a M&A transaction. These forms include de-mergers in the form of a split or spin off and conversions whereby the legal form of an entity is changed, e.g. a share corporation is transformed into a limited liability company. |
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Company are transferred. In a Swiss M&A transaction, target companies are usually share corporations or limited liability companies. Swiss share corporations may issue registered shares and/or bearer shares. It is not a requirement under Swiss law that the shares be issued in certificated form. If they are not issued in certificated form, the shares have to be transferred by assignment. If they have been issued in certificated form, a seller may transfer them to the purchaser as follows: bearer shares by delivery of the certificates; registered shares by endorsement in blank on the back of the share certificates and delivery of the certificates. It is possible that the transfer of registered shares is restricted by the articles of incorporation. If this is the case, the transfer requires board approval. The transfer of the share in a limited liability company (GmbH) requires the assignment of the share in the form of a public deed and the approval of the transfer by the shareholderses.
Taxes: In a share acquisition, the legal entity holding the business to be transferred does not change. Thetax position of the target company does not change as a consequence of the acquisition. Also no VAT is due on the transfer of shares. However, if a securities dealer is involved in the transaction either as a party or as an intermediary, federal transfer stamp tax will be levied on the transfer of the shares. Also, the shareholders may have to pay taxes on the capital gain made in the transaction: if the seller owns the shares as his private assets, except in extraordinary cases, the capital gain he makes on the sale is not subject to ordinary income tax. If he holds the shares sold as business assets than the realized gain is taxable as ordinary income. Also, the position of a private seller may change if the acquirer after the acquisition uses the assets of the target company to finance the acquisition. In this event, tax authorities deem these activities as a liquidation of the company and will levy a withholding tax at the target company level and income tax at the seller level.
For the specific aspects regarding the acquisition of a listed company see the section on public M&A. |
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Forms of asset deals: In Switzerland, an asset deal can be effected in the form of a statutory asset transfer or by simply agreeing to transfer certain assets and liabilities. In the event that the parties avail themselves of the statutory asset transfer, they must observe detailed rules regarding the documentation of the asset transfer and the transfer must be registered with the commercial register. If the parties elect to do their asset deal by way of a simple asset transfer, they have much more latitude as regards the content of the transaction agreement.
Transfer of assets, liabilities and contracts: If the parties avail themselves of the statutory asset transfer, they need not observe specific transfer forms because the assets and liabilities of the target business are transferred by operation of law upon the registration of the asset deal with the commercial register. It is believed that this is also the case regarding the contracts of the target business.However this is still not completely clear. If the parties do a simple asset transfer, they need to observe the specific requirements applicable to the transfer of each of the assets, liabilities and contracts. This means that real estate can only be transferred based on a separate agreement in a public deed and the transfer will only become effective upon registration of such transfer in the land register, the transfer of a liability will need the consent of the creditor to such liability, and the transfer of a contract will need the consent of the contracting party.
Taxes: Of course, to the extent the transferring company realizes a taxable gain such gain is taxable income except if it is only a transfer within the same group and certain specific requirements are satisfied. The transfer is not subject to VAT but the transfer needs to be notified to the VAT authorities. |
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Acquisitions may also be effected by way of statutory merger whereby the assets, the liabilities and the contracts of the target company are being transferred by operation of law to the acquiring company and the shareholders of the company receive as consideration shares in the acquiring company. This form is used to combine two businesses to a joint venture company or in public M&A transactions. For details see under Public M&A transactions. |
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Public M&A transactions |
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| There exist two ways to acquire a Swiss listed company: |
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Public offer: The most common way is that the acquirer launches a public offer for the listed target company; such an offer may be structured as a cash offer, an exchange offer for securities, or an offer for a combination of shares and securities. |
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Statutory merger: Less frequently, combinations of listed companies are effected through a statutory merger. |
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Regulations and regulators
The SESTA applies to all public offers for companies domiciled in Switzerland and listed at an exchange in Switzerland. A public offer pursuant to the SESTA is supervised by the Swiss Takeover Board (TOB) and the Federal Banking Commission (FBC). The TOB reviews the offering documentation and other activities of the parties involved in the acquisition process and issues recommendations. Parties affected by these recommendations may reject these recommendations and apply for a decision to the FBC.
Timing
The acquirer must observe the rules of the SESTA when it sets the timing of its offer. An acquirer may either directly launch its offer or preannounce its offer prior to the launch. The offer must be open for acceptances for at least 20 trading days and no more than 40 trading days. After the offer period, the acquirer must publish the results of the offer and whether the conditions of the offer have been satisfied. If the conditions of the offer must be open for acceptances for another 10 trading days. A typical offer timetable could look (not taking into consideration governmental approvals or statutory waiting periods) as set out in Timetable I.
Terms of the offer
A bidder has to observe the provisions of the SESTA and its implementing ordinances when fixing the terms of the offer. In particular he has to take into consideration the following: |
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Pricing: Except if the target company has a so called opting-up or opting-out provision in its articles of incorporation which exempts a holder of a controlling interest from the rules regarding mandatory offers, a bidder for a controlling interest in the target company (i.e. according to Swiss law a stake in the company conferring 33 1/3 of the voting rights) must comply with the following pricing restrictions: the price offered must at least be equal to the average opening price on the Swiss Exchange for the 30 trading days prior to the publication of the pre-announcement or the launch of the offer. In |
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addition, the offer price must be at least equal to 75% of the highest price paid by the bidder during the one year period prior to the pre-announcement or the launch of the offer. |
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Form of consideration: The purchase price may be paid in cash, securities or a combination of cash and securities. |
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Conditions: An offer may be made subject to certain conditions. A typical condition is the condition that a certain percentage of all shareholders accept the offer. It is not permissible to subject the offer to conditions the satisfaction of which is within the power of the bidder. |
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| Documentation of the offer |
| In connection with a public offer the following principal documents are published: |
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Pre-announcement: In the event that the offer is pre-announced the bidder must publish a pre-announcement that sets forth the price offered, the timing of the offer and the offer conditions. |
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Offer prospectus: At the time the offer is launched, the bidder must publish an offer document containing information on the terms of the offer, on the bidder (including parties acting in concert with the bidder), on the target company (including a statement confirming that the bidder has not received from the target company any material non-public information which could influence the decision of the shareholders of the target company to accept the offer), and information on the sources of financing. |
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Report by the board of directors: Within 15 trading days from the launch of the offer, the target company board must publish a report advising the shareholders of the advantages and disadvantages of the offer. The board of directors is not required to issue an opinion as to whether the offer should be accepted or not. |
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| Rules and regulators |
| The Swiss Merger Statute governs mergers of Swiss entities. Swiss law provides for two types of statutory mergers: the merger by way of absorption whereby an entity (the transferring entity) is merged into the other entity (the surviving entity) or the merger by way of combination whereby all merging entities are merged |
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| into a newly created entity. In Switzerland, the merger by absorption is by far the more frequently used form. The merger process itself is not supervised by a regulator. However, certain aspects of the merger (e.g. the exchange ratio of the shares) are subject to the review by a special auditor. |
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| Documentation of the merger |
| Swiss law sets out detailed rules concerning the documentation of a merger. In particular, the parties to a merger have to prepare the following documents: |
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The merger agreement: the boards of the merging companies must agree on the exchange ratio, the amount of cash consideration, and the special benefits granted to affiliates (i.e., directors, officers, controlling shareholders, or auditors). The merger agreement must be in written form. |
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The interim balance sheet of each merging company: A interim balance sheet is only required if the balance sheet of the most recent financial statements is more than six months old, or if material changes have occurred since the balance sheet date. |
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The merger report: This report explains and comments on the purpose of the merger, the merger agreement, the exchange ratio, the cash payments, particularities regarding the valuation and the determination of the exchange ratio, the scope of the share capital increase required by the surviving company, the effect of the merger on employees and creditors, and the required governmental authorizations. The boards of the merging companies may either come up with a joint report or each of them with a separate report. |
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The special audit report: A special auditor must review the merger agreement, the merger report, and the balance sheets which form the basis for the merger and must confirm that the shareholder rights have been observed, that the exchange ratio applied is acceptable, that the valuation method applied is appropriate, etc. |
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| The rights of the shareholders in the merger process |
| Shareholders of the merging entities have the following rights and remedies: |
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Shareholders of the merging companies are entitled to review the merger documentation (such as the merger agreement, the merger report, etc.). |
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The approval of the merger agreement by the shareholders meeting is subject to a supermajority requirement. |
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A shareholder who can show that the exchange ratio of the merger is inappropriate is entitled to bring an action against the surviving company and request that an additional payment be made. |
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A shareholder may challenge the merger resolution if he can show a breach of the provisions of the Swiss merger statute. |
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A shareholder may seek damages from directors and others involved in the merger process for breach of duties. This suit is similar to a directors' liability suit. |
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| Protection of employees in the merger process |
| Employees of the merging companies are protected as follows: |
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The merging companies must inform their employees of the reasons for the merger and of the legal, economic and social consequences it shall have for them. If, in connection with the merger, the merging companies intend to take measures that affect the position of employees (e.g., expected redundancies, salary reductions, etc.), employees need not only be informed about the merger but need to be consulted prior to the shareholders' approval of the merger agreement. |
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An employee of a transferring business organisation is transferred by operation of law to the surviving business organisation. Employees are entitled to object to a permanent transfer. |
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| The protection of creditors in the merger process |
| Creditors affected by a statutory merger are protected as follows: |
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The merging companies must notify their creditors of the merger, unless a special auditor confirms that creditor rights are not jeopardized by the merger. |
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The creditor of a merging company may request that his claim be secured. The surviving company need not secure the claim if it can show that the merger does not jeopardise the satisfaction of the claim. |
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A creditor may seek damages from directors and others involved in the merger process for breach of duties. This suit is similar to a directors' liability suit. |
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| When timing the merger, the merging parties need to take the following aspects into consideration: |
| Creditors affected by a statutory merger are protected as follows: |
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The due diligence and the negotiations of the merger documentation (see above) will require some time. |
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The merger documentation needs to be on display for 30 days prior to the shareholders' resolution on the merger. |
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Notice of the shareholders meeting approving the merger must be given at least 20 days prior to the shareholders meeting. |
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| A typical timetable for a merger of two Swiss listed companies (not taking into consideration governmental approvals or statutory waiting periods) could look as set out in Timetable II. |
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Links: |
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