ARTICLE
12 October 2020

Pension Plan Structuring In Merger & Acquisition Transactions

BK
Bär & Karrer

Contributor

Bär & Karrer is a renowned Swiss law firm with more than 170 lawyers in Zurich, Geneva, Lugano and Zug. Our core business is advising our clients on innovative and complex transactions and representing them in litigation, arbitration and regulatory proceedings. Our clients range from multinational corporations to private individuals in Switzerland and around the world.
Employees are generally vital for the success of a business operation. Merger & acquisition (M&A) transactions («Transactions») regularly affect the employees of a target business...
Switzerland Corporate/Commercial Law

I. Introduction

Employees are generally vital for the success of a business operation. Merger & acquisition (M&A) transactions («Transactions») regularly affect the employees of a target business in some way or the other – or create a fear of the employees of a (negative) impact if not handled well by the parties. In particular, a Transaction may affect an employee's pension situation – which in practice is often overlooked or identified only at a rather late point in time in the Transaction process, potentially causing disruption, uncertainties, delays or even a loss of talents, workforce and resources. The employees' pension schemes should thus be addressed with high priority in the planning, structuring and implementation of a Transaction.

To ensure a smooth Transaction, it is essential to suitably address potential pension topics, including, e.g., information and consultation obligations, required amendments to the employment agreements and affiliation with a pension scheme, and to consider timing requirements at an early stage.

The following simple example illustrates a typical scenario of the pension situation in a Transaction («Example Case»):

Company group A («Group A») intends to sell its business division X. In Scenario I (see chart 1 below), a part of the business operation of Swiss company A refers to business division X («Swiss Company A»). In Scenario II (see chart 2 below), a part of the business operation of Swiss Company A and the business operations of Swiss company X refer to business division X («Swiss Company X») . Both Swiss Company A and Swiss Company X are affiliated with the pension foundation Y to include their employees in the mandatory pension plan scheme of pension foundation Y.

Company group B («Group B») intends to purchase the business division X from Group A. The top holding companies of Group A and of Group B enter into a framework sale and purchase agreement for the sale of the business division X (that might refer to several group affiliate companies in their entirety or in part) to Group B. In Scenario I, Group B has no Swiss group affiliate company. In Scenario II, Group B holds a Swiss group affiliate company B («Swiss Company B») that is affiliated with the mandatory pension plan scheme of pension foundation Z.

The implementing elements of the overall Transaction are the following:

  • Scenario I: The transfer of the part of the business of Swiss Company A that refers to the business division X; and
  • Scenario II: The transfer of the part of the business of Swiss Company A that refers to the business division X and the Swiss Company X from Group A to Group B.

There are various structuring alternatives to implement such transfer. In order to determine the preferred alternative, various aspects must be considered from a business perspective, but also legal aspects need to be taken into consideration. These include: pension, employment,contractual, corporate law perspective, and tax considerations.

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In Scenario I, the operational business in Swiss Company A referring to the business division X could in a first step be carved-out, e.g. by way of an asset transfer under the Swiss Merger Act («Merger Act») into a newly incorporated NewCo Swiss Company A (or which is less seen in practice be spun-off from the Swiss Company A in a spin-off under the Merger Act) and in a second step, Holding Company B could acquire the shares in NewCo Swiss Company A by way of a share transfer under an implementing local share (purchase and) transfer agreement. The below chart illustrates this transaction alternative.

In Scenario II, the Swiss Company A could e.g. carveout and transfer the business of division X in Swiss Company A directly by way of a local asset (purchase and) transfer agreement under Merger Act to the Swiss Company B.1 . In a separate step Holding Company A could transfer the shares in Swiss Company X to Holding Company B by way of an implementing local share (purchase and) transfer agreement. The below chart illustrates the transaction structure in Scenario II.

Footnotes

1 In contrast to Scenario I usually no two-step approach consisting of an asset transfer and subsequent share transfer applies or is required because of the already existing Swiss company of Group B (i.e. Swiss Company B).

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The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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