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Site contribution
Date: February 2016
Prepared by:
Dr. Jakob Hoehn
Severin Roelli
Pestalozzi Attorneys at Law Ltd
Löwenstrasse 1
8001 Zurich
Phone:   +41 44 217 91 11
Fax:   +41 44 217 92 17
E-Mail:   jakob.hoehn@pestalozzilaw.com
I. Summary
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:
  • the legal form of the target business (share corporation, limited liability company, listed or private company, others?)
  • the purchaser (foreign or domestic? listed or private company?)
  • the seller(s) (foreign or domestic? listed or private company?)
  • the legal form for the transaction (asset deal, share deal, mixture of asset and share deal, statutory merger?)
  • tax considerations
  • regulatory considerations, if applicable
    II. Applicable Law
    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. 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. However, the parties have still considerable flexibility to agree in the transaction agreement on the terms they deem appropriate.
    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 Federal Act on Financial Market Infrastructures and Market Conduct in Securities and Derivatives Trading (FMIA) and its implementing ordinances (Swiss Takeover Rules). A statutory merger of two Swiss companies is governed by the Swiss Merger Act (Swiss Merger Law). When completing the acquisition of a Swiss company the applicable provisions 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 public offers, the M&A transaction process itself is not supervised by a regulator, however, specific aspects of a M&A transaction, if applicable, are super-vised by specific regulators such as the antitrust authority or by specific industry regulators (e.g. mergers of banks and insurance companies).
    III. Phases of a Typical M&A Transaction
    Like M&A transactions in the United States, a Swiss M&A transaction typically goes through the following stages:
    In this phase the parties agree to negotiate the principal terms of the 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 parties agree that the sections of the letter of intent setting forth the principal terms of the contemplated transaction are not binding. 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 and drafting 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.
    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, the closing 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.
    3.  Closing
    The closing depends on the type of the transaction and the legal form of the target business (see for details under the respective transaction form below).
    In a Swiss transaction agreement parties agree quite often on certain matters which relate to the period after 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 a non-compete agreement with a duration of more than three 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.
    IV. Transaction Forms
    1.  Overview
    In Switzerland, the following transaction forms are typically used:
  • Share deal
  • Asset deal
  • Statuatory merger
    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.
    2.  Share Deal
    Transfer of Shares: 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 the shares have not been issued in certificated form, the shares have to be transferred by assignment (except if issued in book entry form). 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 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 or a prior shareholders' meeting lifting the transfer restrictions.
    Taxes: Generally, in a share acquisition, the tax 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: the private Swiss seller who holds the shares as his/her private assets (other than in extraordinary cases), is not subject to ordinary income tax or a special capital gains tax on the capital gain he/she makes. If the Swiss seller is a company or an individual who holds the shares as business assets, then the gain is taxable as ordinary income. Also, in certain instances the tax position of a Swiss 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 may deem these activities as a partial liquidation of the company and may levy 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.
    3.  Asset Deal
    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 based on assignment/assumption agreements. 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 in Switzerland. If the parties elect to do their asset deal by way of a simple asset transfer, they have much more discretion 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 of the seller. While there are good arguments that entire contracts of the target business are also transferred by operation of law, this has not yet been confirmed by the competent courts in Switzerland. 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 (tripartite agreement).
    Taxes: To the extent that the transferring company realizes a taxable gain such gain is taxable income except if it is only a transfer within the same group of companies and certain specific requirements are satisfied. The transfer is not subject to VAT but the transfer needs to be notified to the VAT authorities.
    Acquisitions may also be effected by way of statutory merger pursuant to the Swiss Merger Law 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 to be acquired 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.
    V. Public M&A Transactions
    There exist two ways to acquire a Swiss listed company:
  • 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.
  • Statutory merger: Less frequently, a listed Swiss company is taken over by way of a statutory merger.
    The Swiss Takeover Rules apply to public offers for companies domiciled in Switzerland and listed at an exchange in Switzerland and for companies domiciled abroad with the principal listing at an exchange in Switzerland (Swiss Listed Company/Companies). A public offer that is governed by the Swiss Takeover Rules is supervised by the Swiss Takeover Board (TOB) and the Swiss Financial Market Supervisory Authority (FINMA). The TOB reviews the offering documentation and also other documents produced and actions taken by the bidder and the target company and orders the relevant parties to comply with the requirements of the FMIA and its implementing ordinances. Parties affected by these orders (i.e. the bidder, the target company and any 3%-shareholder) may appeal and request a decision by the FINMA.
    1.2  Review Body
    Prior to launching an offer, the bidder must appoint an auditing firm admitted by the FINMA or a securities dealer supervised by the FINMA to review the offer. In practice, only auditing firms provide the service of acting as review body. The review body must be independent from the bidder and the target company.
    A shareholder who by itself or together with concert parties becomes the holder of more than 33 1/3% of all shares of a Swiss Listed Company must submit an offer within 2 months from the date the 33 1/3% threshold has been surpassed. This mandatory offer rule does not apply in the event that the target company has a so-called opting-out provision in its articles, or only applies at the relevant higher threshold (up to 49%), if the target company has included in its articles a so called opting-up provision.
    A bidder which, at the time of the offer, has not passed the 33 1/3 (or such higher mandatory offer threshold, as applicable) but would become subject to the mandatory offer rules as a consequence of the closing of its offer (Change of Control Offer) is bound to some of the rules applying to mandatory offers (e.g. minimum price rule) but not to all of them.
    1.4  Timing
    The bidder must observe the Swiss Takeover Rules when it sets the timing of its offer. A bidder may either directly launch its offer or pre-announce its offer prior to the launch. If it pre-announces its offer, it must submit the offer at the latest within 6 weeks from the pre-announcement. Once the offer itself has been published, the offer is subject to a cooling-off-period, i.e. the offer cannot be accepted during 10 trading days following the publication of the offer. The offer must be open for acceptances for at least 20 trading days and no more than 40 trading days (subject to exemptions to be approved by the TOB). After the offer period, the bidder must publish the results of the offer and whether the conditions of the offer have been satisfied. If the conditions of the offer have been satisfied, the offer must be open for additional acceptances for another 10 trading days.
    A bidder has to observe the provisions of the FMIA and its implementing ordinances when fixing the terms of the offer. In particular it has to take into consideration the following:
    Pricing: A bidder of a mandatory offer or a bidder of a Change of Control Offer) must comply with the following minimum pricing restrictions: the price offered must be at least equal to the volume weighted average price of the target shares on the Swiss exchange for the 60 trading days prior to the publication of the pre-announcement or the launch of the offer, as the case may be. In addition, the offer price must be at least equal to the highest price paid by the bidder during the one year period prior to the pre-announcement or the launch of the offer, as applicable.
    Form of consideration: Generally, the purchase price may be paid in cash, securities or a combination of cash and securities. In cases of mandatory offers and in some cases of Change of Control Offers, bidders are required to provide besides securities also a cash alternative.
    Conditions: An offer may be made subject to certain conditions. A typical condition is the tender threshold condition pursuant to which a certain minimum percentage of the voting rights of the target company must have accepted the offer. It is not permissible to subject the offer to conditions the satisfaction of which can be controlled by the bidder. Only very few conditions are acceptable for mandatory offers.
    In connection with a public offer the following principal documents are published:
    Pre-announcement: In the event that the offer is pre-announced the bidder must publish a pre-announcement that sets forth the offer price, the timing of the offer and the offer conditions.
    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.
    Report by the board of directors: Within 15 trading days from publication of the offer prospectus, 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.
    A bidder holding more than 98% of all voting rights in a Swiss incorporated target company following the public offer is entitled to squeeze out the remaining minority shareholders in a court procedure. A bidder holding more than 90% of all shares may consider to squeeze out the remaining minorities by merging the target company into a newly created company and providing cash or securities other than the securities of the surviving company to the minority shareholders (squeeze out merger pursuant to the Swiss Merger Law).
    The Swiss Merger Law governs mergers of Swiss entities. The Swiss Merger 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 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.
    The Swiss Merger Law sets out detailed rules concerning the documentation of a merger. In particular, the parties to a merger have to prepare the following documents:
    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.
    The interim balance sheet of each merging company: An 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.
    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.
    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, among others, that the shareholder rights have been observed, that the exchange ratio applied is justifiable, that the valuation method applied is appropriate.
    Shareholders of the merging entities have the following rights and remedies:
    They are entitled to review the merger documentation (such as the merger agree-ment, the merger report, etc.).
    The approval of the merger agreement by the shareholders meeting is subject to a supermajority requirement: two thirds of all votes represented and a majority of the par value of all shares represented, subject to specific majority requirements set forth in the articles of association of the merging entities.
    A shareholder may challenge the merger resolution if she/he can show a breach of the provisions of the Swiss Merger Law. 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. 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 (appraisal suit).
    Employees of the merging companies are protected as follows:
    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.
    An employee of a merging company (transferring company) is transferred by operation of law to the surviving company. Employees of the transferring company are entitled to object to a permanent transfer. In such case the employment agreement is terminated by law at the end of the statutory notice period.
    Creditors affected by a statutory merger are protected as follows:
    The merging companies must inform their creditors about the merger, unless a special auditor confirms that creditor rights are not jeopardized by the merger.
    The creditor of a merging company may request that its claim be secured. The surviving company needs not to secure the claim if it can show that the merger does not jeopardize the satisfaction of the claim.
    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.
    When timing the merger, the merging parties need to take into consideration various aspects.
    Due diligence, negotiations of the merger documentation and preparation of balance sheets, if necessary, require some time. Further, the merger documentation needs to be on display for 30 days prior to the shareholders' resolution on the merger. Notice of the shareholders meeting approving the merger must be given at least 20 days prior to the shareholders meeting.
  • Steps Public Offer
  • Steps Statutory Merger