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Swiss Mergers and Acquisitions
Focused on the Sale, Merger and Acquisition of commercial businesses in Switzerland
Spissenstrasse 82, 6045 Meggen, Switzerland Website: www.SwissMandA.com
Tel: +41 (0)41 360 2678
Contact: Info@SwissMandA.com
SWISS MERGER AND ACQUISITION OUTLINE
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 or others?)
• The purchaser (foreign or domestic? Public or private company?)
• The seller(s) (foreign or domestic? Public or private company?)
• The legal form for the transaction (asset deal, share deal, mixture of asset and
share deal or statutory merger?)
• Tax considerations
II. Applicable Law
Swiss `conflict of laws` rule 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 two Swiss
companies is governed by the Swiss Merger Statute. 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 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).
III. Phases of a Typical M&A Transaction
Like M&A transactions elsewhere, a Swiss M&A transaction typically goes through the
1. Pre-contractual phase
following stages:
Swiss Mergers and Acquisitions
In this phase the parties agree to negotiate the principal terms of an 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) or HOTS (`Heads of
Terms`). As a rule, the parties agree that the section of the letter of intent setting forth the
principal terms of the contemplated transaction is not binding. However, 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 or Sale and Purchase Agreement.
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2. Signing of transaction agreements
Most of the transaction agreements today follow international standards, i.e. they include
typical provisions regarding representations and warranties, 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 legal form of the transaction and the legal form of the target
business (for details see under the respective transaction form below).
4. Post closing phase
Swiss Mergers and Acquisitions
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 a non-compete agreement with 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 employed a certain number of employees for a certain
time period.
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IV. Transaction Types
1. Overview
In Switzerland, the following transaction forms are typically used:
• Share deal
• Asset deal
• Statutory merger
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. 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.
Swiss Mergers and Acquisitions
Taxes: In a share acquisition, the target company to be transferred does not change.
Generally, 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 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 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 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 liquidation of the
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company and may 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.
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. 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.
Swiss Mergers and Acquisitions
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 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 that the transferring company realizes a taxable gain such
gain is taxable income, unless 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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4. Statutory Merger
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.
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, combinations of listed companies are effected through
a statutory merger.
1. Public Offer
1.1 Regulations and Regulators
Swiss Mergers and Acquisitions
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 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; the TOB issues orders to comply with the
requirements of the TOB. Parties affected by these orders (i.e. the bidder, the target
company and any 2%-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
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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.
1.3 Mandatory offer and Opting-up and Opting-out
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 company listed at a Swiss exchange must submit an
offer within 2 months from the date the 33 1/3% threshold is 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, if the target
company has included in its articles a so called opting-up provision.
1.4 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 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; normally 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. Once the offer period expires, the acquirer must
publish the results of the offer and state whether the conditions of the offer have been
satisfied. If the conditions of the offer have been satisfied, the offer must be open for
acceptances for another 10 trading days.
Swiss Mergers and Acquisitions
1.5 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. Particularly, It has to take into consideration the following:
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• Pricing: A bidder of a mandatory offer or a bidder who would become subject to the
mandatory offer rules as a consequence of the closing of its offer must comply with
the following pricing restrictions: the price offered must be at least equal to the
volume weighted average price on the Swiss exchange for the 60 trading days prior
to the publication of the pre-announcement or the launch of the offer. In 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.
• Form of consideration: The purchase price may be paid in cash, securities or a
combination of cash and securities. Mandatory offers may not only provide
securities, they always have to also provide for a cash alternative.
• Conditions: An offer may be made subject to certain conditions. A typical condition is
that a certain percentage of all shareholders accept the offer. It is not permissible to
subject the offer to conditions where the satisfaction is within the power of the
bidder. Only very few conditions are acceptable for mandatory offers.
1.6 Documentation of the Offer
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 price offered, the timing of the offer
and the offer conditions.
Swiss Mergers and Acquisitions
• 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.
1.7 Squeeze out
A bidder holding more than 98% of all shares in the target company following the 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).
2. Statutory Merger
2.1 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 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.
2.2 Documentation of the Merger
Swiss Mergers and Acquisitions
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:
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: 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 that
the shareholder rights have been observed, that the exchange ratio applied is justifiable,
that the valuation method applied is appropriate, etc.
2.3 The rights of the shareholders in the merger process
Shareholders of the merging entities have the following rights and remedies:
• 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: two thirds of all votes represented and a majority of the
par value of all shares represented.
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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. 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.
2.4 Protection of Employees in the Merger Process
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 transferring business organization is transferred by operation of law to
the surviving business organization. Employees are entitled to object to a permanent
transfer.
2.5 The Protection of Creditors in the Merger Process
Creditors affected by a statutory merger are protected as follows:
• The merging companies must notify their creditors of 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 his/her claim be secured. The
surviving company need not secure the claim if it can show that the merger does not
jeopardize the satisfaction of the claim.
Swiss Mergers and Acquisitions
• 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.
3. The Timing of the Merger
When timing the merger, the merging parties need to take the following aspects into
consideration.
The due diligence and the negotiations of the merger documentation will require some
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time.
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.
6045 Meggen, Switzerland
Swiss Mergers and Acquisitions
April 2012
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