Author: | Published: 3 Apr 2003
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What legislation governs M&A activity in your jurisdiction?

In Switzerland, takeovers (share deals and asset deals) are regulated by the Swiss Code of Obligations (CO). In this context, article 181 CO (concerning purchase of a business), article 184 - 215 CO (concerning purchase of goods) and article 748 - 751 OR (concerning mergers of stock corporations) are of particular interest.

Companies quoted on the Swiss Exchange are also governed by the Federal Act on Stock Exchanges and Securities Trading (SESTA). The SESTA defines the circumstances under which a purchaser is required to make a mandatory offer for 100% of the issued shares of a target company. As a general rule, a purchaser is obliged to make a public offer for 100% of the outstanding shares of a listed company, if he or she directly or indirectly controls more than 33.3% of the company's voting rights. However, the company can increase this threshold in its articles of incorporation to 49% (opting up). Before the listing of the securities on an exchange in Switzerland, a company can also stipulate in its articles of incorporation that an offeror cannot be bound by the obligation to make a public offer (opting out).

Other areas affecting M&A transactions are, without limitation, banking law, insurance law, antitrust law and, most importantly, tax law.

What impact have recent legislative changes had on the nature and amount of M&A activity?

No recent changes in Swiss legislation have occurred which substantially affect the number of M&A transactions.

However, it is worth mentioning the draft of a Swiss statute on mergers, spin offs and transformation (Fusionsgesetz), which is intended to come into force in 2004. This new statute will replace the rules of the CO on mergers and transformations and is supposed finally to fill in significant gaps of Swiss legislation in this field.

What have been the most significant M&A transactions in your jurisdiction over the past year?

Among the largest M&A transactions of 2002 in Switzerland were: the take over of Chef America (US) by Nestle; the acquisition of Roche Vitamin Division by DSM (Netherlands) and the sale of Structured Finance to GE Commercial Finance; each with a transaction volume of between €2 billion ($2.18 billion) and €3 billion.

Other key transactions were the acquisition of RMF Investment by Man Group (GB); the take over of BZ Visionen by Zürcher Kantonalbank; and the sale of EPA to Coop.

In the context of the grounding of Swissair, the Nuance-Group was sold to PAM (Italy); SR Technic was purchased by 3i (GB); and the Gate Gourmet-Group was acquired by the Texas Pacific Group (US).

Finally, the acquisition of Arthur Andersen Schweiz by Ernst & Young Schweiz; the merger of the Geneva private banks Lombard Odier and Darier Hentsch and the sale of Swiss Dairy Food to Emmi and Crema may be worth mentioning.

How, and to what extent, is foreign involvement in M&A transactions in your jurisdiction regulated or restricted?

The acquisition of real estate and of companies owning real estate is specifically regulated in Switzerland. Based on the Swiss Lex Koller/Friedrich, a foreign person or entity needs the approval of the competent cantonal authority in order to purchase real estate or shares of companies that own real estate. However, if the real estate owned by a company is used for the production purposes of such a company (so called Betriebsstätte), then no particular authorization is required in order to purchase the company. No authorization is needed for EU citizen who have their domicile in Switzerland.

Furthermore, a foreigner who wants to work in Switzerland needs an official authorization to do so. Highly-educated specialists and persons working in business areas where not enough Swiss citizens work, have the best chance of gaining a work permit. Based on bilateral agreements with the EU, Switzerland will now continually abolish its working restrictions with respect to EU citizens. After a transitional period of two respectively five years, EU citizens will enjoy full freedom of movement.

Swiss banking law provides for certain restrictions with respect to the purchase of a Swiss bank.


What are the principal disclosure requirements in a typical M&A transaction?

In a typical mid-size M&A transaction, full disclosure is granted once the buyer has entered into a confidentiality agreement. The standard due diligence request lists are usually rather extensive. In a larger transaction and in auction procedures a seller can prepare a data room based on which each potential buyer must perform its due diligence review. However, it is typical that additional information will be provided on receipt of written information requests. Sometimes, a seller can also prepare a seller's due diligence review, based on which a purchase agreement (especially the representations and warranties) must be drafted.

To what extent do the current disclosure requirements achieve market transparency?

Corporations, which have issued bonds, and corporations, whose shares are listed on a stock exchange, are obliged to publish the annual financial statements and - if applicable - the group financials (article 697, sec 1 CO). Furthermore, companies quoted on the Swiss stock exchange are required to comply with various additional disclosure obligations. According to article 21, SESTA, the company must publish any changes with respect to its shareholders within two days after receipt of such information. Furthermore, the listed companies are required immediately to disclose any information which may materially effect the price of their listed stock (so called ad hoc publicity).

Companies, which have not issued bonds and are not listed on a stock exchange, are not obliged to publish their annual financial statements. However, ariticle 697h, sec 2 CO stipulates that a creditor of such a corporation is entitled to review the corporation's annual financial statements if the creditor is able to prove that it has a justified interest in doing so.

How significant an issue is prospectus liability in a typical M&A transaction?

Prospectus liability does not seem to be an issue with respect to small and mid-size M&A transactions.

Pubic tender offers and the form and content of the offering prospectus, however, are regulated in detail by the SESTA and the concerning stock exchange regulations.

The SESTA does not define the legal consequences if its rules concerning the prospectus are not complied with. Therefore, it is argued that the principles stipulated in article 752 CO apply. Based on this provision, any person or legal entity, who has directly or indirectly caused a prospectus to be incorrect, may become liable for the damages caused.

How have recent M&A transactions or current legislation dealt with the issue of material adverse change clauses?

In Switzerland, the issue of material adverse change is addressed by two legal instruments: material error (Grundlagenirrtum) and the so called clausua rebus sic stantibus.

The institute of the material error (article 24, sec 1, ciph 4 CO) generally addresses situations, where certain facts which have been existent before the date of an agreement have not been known or are materially different from those expected. In order for this provision to apply, an error must be material and it must concern a specific subject matter which can be reasonably qualified as the necessary basis of the agreement. If article 24, para 1, ciph 4 CO is invoked with cause by a party, the agreement becomes null and void.

The clausula rebus sic stantibus deals with facts that occur after the date of the agreement. This legal principle allows a court to modify and amend an agreement, at its own discretion, if and to the extend that the relevant facts have materially changed since the date of the agreement. The thresholds for the clausula rebus sic stantibus to apply are rather high. If the parties have stipulated certain material change clauses in their agreement, such contractual clauses prevail.


Are there any specific regulations and/or regulatory bodies governing takeovers in your jurisdiction?

The Swiss Antitrust Statute provides for a preventive merger control process if a merger reaches certain minimal thresholds. This process is governed and controlled by the Swiss Merger Control Commission (Wettbewerbskommission).

The official bodies responsible for compliance with the SESTA are the Swiss Banking Commission (Bankenkommission), and the Swiss Takeover Board (Übernahmekommission). The Swiss Takeover Board supports the Banking Commission with respect to stock exchange matters. It has to make sure that the parties involved in a public tender offer duly comply with all applicable rules of the SESTA and the relevant laws and regulations. In this context, the Swiss Takeover Board issues recommendations to the parties with respect to specific issues or questions in the course of a public takeover. If such recommendations are not duly complied with, the Swiss Takeover Board will report to the Banking Commission which has the power to adopt legally binding decisions (subject to appeal to the Swiss Federal Court). As the Swiss Takeover Board is very pragmatic and helpful, it is advisable to contact it early before entering into a formal take over process.

What are the various methods by which a takeover can be achieved?

Takeovers can be achieved by way of a share deal, asset deal or by merging corporations. In the case of a merger, two possibilities exist: either both corporations are merged and a new corporation comes to existence (fusion) or one corporation is merged into another corporation (absorption). As mentioned above, the new Fusionsgesetz will address these issues in one single act.

How differently do the legislation or regulations treat hostile and voluntary takeover bids?

The Swiss takeover procedure does not distinguish between friendly and unfriendly takeovers. According to article 29, SESTA, the board of directors of the target company must publish a report setting out its position in relation to the offer. The information provided in this report must be true and complete. Depending on whether this report supports the takeover bid or not, the bid is deemed to be hostile or friendly. However, independently of whether the bid is friendly or not, the board of directors of the target company is not allowed to enter into any legal transactions which would have the effect of significantly altering the assets or liabilities of the company from the moment the offer is published until the result is announced. (Decisions taken by the general meeting of shareholders are not subject to this restriction.)

What penalties are imposed for parties which violate takeover regulations (or equivalent)?

Whoever intentionally fails to notify a qualified shareholding in a listed company or fails to disclose the purchase or sale of equity securities of a listed company as the owner of a qualified shareholding will be punished with a fine. The amount of the fine will not be more than double the purchase price or the sale proceeds.

Under article 42, SESTA, if the target company fails to publish in good time a correct report setting out its position (see above), the persons responsible will be punished with a fine of up to SFr200,000 ($23,000).


What have been the key recent developments in competition policy and legislation as they relate to M&A in your jurisdiction?

In 1996 the new Swiss Antitrust Act came into force. The Act has been revised and the revised Act is intended to come into force in 2004. With respect to M&A transactions, two proposed changes are of particular interest. The merger notification thresholds for media companies are proposed to be increased to the level of other companies (see below). Furthermore, the thresholds that trigger an obligation to notify with respect to banks and financial institutes will be brought in line with European standards.

How are the competition regulations enforced in your jurisdiction?

The Swiss Merger Control Commission is entitled to examine transactions at its own discretion, without being notified. The parties involved are then obliged to render all information required by the Commission. In the case of a violation of antitrust rules, heavy fines can be imposed (up to three times the profit earned by an unlawful conduct or - in the case of non-compliance with the duty to notify a transaction - fines of up to SFr2 million).

How does the legislation or the regulations approach the use of abuse of dominant position?

The Antitrust Act specifically addresses the abuse of dominant position. The regulations and underlying principles are quite similar to the European rules.

To what extent are parties to a M & A transaction subject to prior notification requirements?

If a transaction exceeds the merger control thresholds, the parties to the agreement are obliged to notify the Antitrust Commission before the agreement is executed. The Merger Control Commission must then decide within four weeks whether further enquiries are necessary. If they are, a final decision must be reached within four months. An obligation to notify exists if the cumulative annual turnover of the companies involved exceeds SFr2 billion or if the annual turnover of the companies involved in Switzerland exceeds SFr500 million, and the turnover of at least one company involved exceeds SFr100 million.

About the authors

Dr Wolfgang Zürcher

Wenger Vieli Belser

Admitted to the Bar in 1994
Joined Wenger Vieli Belser in 1996

University of Zurich (Dr iur),
University College London (LLM)

English, German, French

Preferred areas of practice
Mergers and acquisitions, MBOs, capital market law

E-mail: w.zuercher@wengerlaw.ch

Dr Christian Wenger

Wenger Vieli Belser

Admitted to the Bar in 1993
Joined Wenger Vieli Belser in 1996

University of Zurich (Dr iur),
Duke University School of Law (LLM)

English, German, French, Spanish

Preferred areas of practice
Mergers & acquisitions, private equity and venture law

E-mail: c.wenger@wengerlaw.ch

Wenger Vieli Belser
Dufourstrasse 56
CH-8034 Zurich
Tel: +41 1 563 33 33
Fax: +41 1 563 33 66
Website: www.wengerlaw.ch