This Homburger Bulletin looks at selected themes and issues that have arisen between January 1, 2008 and April 30, 2009 as a result of Swiss takeover transactions, recommendations and decisions of the Swiss Takeover Board (TB), and decisions of the Swiss Financial Market Supervisory Authority (FINMA), the former Swiss Federal Banking Commission*.

New Takeover Rules Effective as of January 1, 2009, the legislation governing public takeovers in Switzerland, i.e., the Federal Securities and Stock Exchange Act (SESTA), the Ordinance on Public Takeover Offers of the Takeover Board (OTB) and the Securities and Stock Exchange Ordinance of the Swiss Financial Market Supervisory Authority (SESTO-FINMA), was amended. The principal amendments resulted in a strengthening of shareholder rights, tightened disclosure obligations, the introduction of a "put up or shut up" rule, further restrictions on defensive measures and new rules on the appeal instances. In accordance with the jurisprudence of the Swiss Federal Tribunal, 1 the TB has applied the amended rules to all matters before it on and after January 1, 2009, irrespective of whether the relevant events occurred prior to such date. 2 Also, as of January 1, 2009, the Swiss Federal Banking Commission (FBC) was merged with the Federal Office of Private Insurance and the Anti-Money Laundering Control Authority, which combined entity forms the Swiss Financial Market Supervisory Authority (FINMA).

For more information on the new Swiss rules on public takeovers, please refer to our Bulletin of December 2008 ("New Swiss Takeover Regulations 2009") and our recent contribution in GesKR 3|2009 ("Harwanne – Erster Testfall für die neue Verfahrensordnung im Übernahmerecht").

Scope of Application

"Swiss Companies". According to Art. 22 para. 1 SESTA, Swiss rules on public takeovers are applicable to Swiss companies whose equity securities are, in whole or in part, listed on a Swiss stock exchange.

In the matter Richemont SA, 3 the TB examined the circumstances under which a company can be considered a Swiss company within the meaning of the SESTA. As a general rule, whether a company is Swiss or not depends on its place of incorporation (incorporation theory). However, according to the TB, under certain circumstances it may be reasonable to refer to the "actual seat" of a company when determining whether a company is Swiss or not (actual seat theory). This alternative approach was previously affirmed by the FBC in the Tag Heuer case. 4 The actual seat of a company is the place with which the company has its closest connection. In particular, determining the seat of a company by reference to its actual seat may be appropriate if use of the incorporation theory would result in a negative competence conflict between different jurisdictions (i.e., the public takeover would not be regulated by any jurisdiction). In the interest of legal certainty, an actual seat in Switzerland should prevail over a company's place of incorporation abroad only where concrete circumstances clearly lead to conclude to the existence of such actual seat. For example, in the Richemont SA case, the TB held that Richemont SA, which is a company incorporated in Luxembourg, but also a 100% subsidiary of Compagnie Financière Richemont SA (CFR), which is a company incorporated in Switzerland, has an actual seat in Switzerland for takeover law purposes. Indeed, shares of CFR are indivisibly twinned with participation certificates issued by its wholly-owned subsidiary, Richemont SA, to form Richemont units. In addition, the board of directors and the company secretary of both CFR and Richemont SA are identical. Finally, the board of CFR is the Group's supervisory board, composed of a majority of nonexecutive directors, whilst the board of Richemont SA, Luxembourg acts as the Group's management board. 5

"Listed Securities". In two separate cases, the TB examined whether the takeover of a non-listed company was actually a takeover of a listed company in substance.

In the matter of Eichhof Holding AG, Heineken Switzerland AG was planning to acquire the beverages division of Eichhof Holding AG, which is a listed company, by way of a public takeover over of a newly formed non-listed company (Eichhof Getränke Holding AG), which would be spun-off from Eichhof Holding AG and hold all the assets of Eichhof Holding AG's beverage division. Although technically a takeover of a non-listed company, the TB considered the takeover offer for the non-listed Eichhof Getränke Holding AG to be in substance an offer for a part of the listed Eichhof Holding AG and, consequently, found the legislation on public takeovers applicable (e.g., the minimum price rule of Art. 32 para. 4 SESTA, per analogiam). 6

In the matter of Hammer Retex Holding AG, the TB reaffirmed the applicability of takeover law to nonlisted companies per analogiam, if the takeover offer relates to non-listed shares of a newly formed target company, which was spun-off from a listed company. 7

Shares Created after the Additional Acceptance Period. Pursuant to Art. 9 para. 4 OTB, a takeover offer must cover equity securities that are created as a result of the exercise of financial instruments before the end of the additional acceptance period (Art. 14 para. 5), but there is no requirement that such offer include the underlying financial instruments themselves. In the SEZ Holding AG matter, the TB held that the bidder can extend its takeover offer to securities that will be created by option rights exercised after the additional acceptance period, but prior to the settlement of the takeover offer. 8

Preliminary Announcement

Deadline to Publish a Preliminary Announcement.

Under Art. 5 para. 1 OTB, a bidder is permitted to announce a takeover offer prior to the publication of the offer prospectus. However, upon submission of such an announcement to the relevant electronic information providers, the announcement must be published within three trading days in order to be considered a "preliminary announcement" under Art. 7 OTB (Art. 8 para. 2 OTB). In the matter of Hammer Retex Holding AG, the TB stated that a bidder may satisfy the requirement to publish the announcement within the three day trading period by publishing the offer prospectus within such period instead. 9

Deadline to Launch the Offer after a Preliminary Announcement

Pursuant to Art. 7 para. 1 OTB (formerly Art. 9 para. 1 OTB), a bidder must launch a takeover offer (including publication of the offer prospectus) within 6 weeks after the publication of the preliminary announcement. The TB may extend this deadline if, for example, the bidder must obtain an approval from a governmental authority (e.g., merger control). Even though the TB can extend the deadline for other reasons, the TB has stated that it will only grant such extension sparingly. In the matter sia Abrasives Holding AG, 10 Behr Deflandre & Snozzi BDS AG (offeror 1) requested an extension of the deadline until the date of the closing under the share purchase agreement, pursuant to which offeror 1 had agreed to sell its shares to Scintilla AG (offeror 2). In its request, offeror 1 did not specify a date by which such closing would occur. Consequently, if granted, such extension would mean that offeror 1 and 2 were essentially free to decide between them when such closing would take place. The TB denied the extension request, stating that the requested extension was too indefinite and far reaching into the future. The TB also noted that if it granted such extension, the share purchase agreement closing could theoretically take place prior to the closing of the public offer, which would make the request for an extension actually a request to revoke the offer. 11

Mandatory Offer

Mandatory Offer in Group Internal Restructuring.

Pursuant to Art. 32 para. 1 SESTA, anyone who, directly, indirectly or acting in concert with third parties, acquires equity securities, and, as a result of such acquisition, holds equity securities of a listed Swiss company exceeding the threshold of 33 1/3% of the voting rights of such company, must submit an offer for all listed equity securities of such company.

In the matter of Orascom Development Holding AG, 12 the TB acknowledged the established doctrine that the holder of the economic entitlement in relation to the equity securities is relevant when calculating whether such holder has exceed the threshold and is obligated to launch an offer. However, the TB intro-duced an important clarification: while the mere formal ownership of shares (i.e., the holding of shares on behalf of a third party who is entitled to the rights attached to such shares) does not trigger the obligation to launch an offer, the TB rejected the view that, in the case of group companies, the beneficial owner of equity securities held by a subsidiary is the ultimate parent of such subsidiary only and the subsidiary's role as shareholder is merely formal in nature. According to the TB, such a conclusion could lead to unwanted consequences. For example, if the Swiss subsidiary of a US parent acquired in its own name and for its own account more than 33 1/3% of a Swiss listed company, only the US parent would be obliged to launch a takeover offer. As a result, if such US parent went bankrupt prior to launching such an offer, the Swiss subsidiary would not be obliged to make the offer in its place. To avoid any unwanted consequences, the TB held that, in the case of a group of companies, both the ultimate parent company and the subsidiary that directly holds the relevant shares are considered beneficial owners of such shares, and both are subject to the obligation to launch an offer. Such a cumulative offer obligation will not be triggered only in the case of a fiduciary shareholding (i.e., there is a total split between the beneficial ownership of the principal and the formal ownership of the agent), and, in such a case, the mandatory offer obligation will only apply to the principal. One reason for this differentiation is that the principal may, in the case of bankruptcy of the agent, claim the shares to which the agent has acquired title in its own name but for the account of the principal (Art. 401 para. 3 of the Swiss Code of Obligations). This would not be true in the case of a mere parent - subsidiary relationship.

The TB stated that all companies belonging to a group are considered to be acting in concert for purposes of determining the mandatory offer obligation. 13 According to the Quadrant decision of the Swiss Federal Tribunal, 14 the transfer of voting rights within a group does not, in principle, trigger a mandatory offer if the group already had exceeded the 33 1/3% threshold prior to such transfer; however, single shareholders or sub-groups within the group are subject to the offer obligation if internal transfers lead to shares held directly by such shareholder or sub-group exceeding the threshold.

However, in the above-described case, the TB granted an exemption to such shareholder or subgroup under Ar. 32 para. 2 lit. a SESTA in connection with Art. 39 para. 2 lit. b SESTO-FINMA because the change of control has no negative effects on the minority shareholders of the target company. 15

Mandatory Offer by Way of Merger. In the matter of Hiestand Holding AG, 16 the TB stated that the obligation to make an offer may be fulfilled not only by making a public takeover offer, but also by way of a merger in accordance with the Swiss Merger Act, provided that, from a takeover law point of view, such merger is functionally equivalent to a public takeover offer. In determining whether a merger is functionally equivalent to a public takeover offer, there are two differences between the two to which the TB paid particular attention. First, in the case of a public takeover offer, the recipient of the offer is able to exchange his or her shares even if the other shareholders abstain from doing so. On the other hand, in the case of a merger, it is not certain that the shareholders' meetings of the companies in-volved will approve the merger and, depending on the outcome, either all shareholders must, or no shareholders can, tender their shares. Consequently, the TB held that, in the case of a merger, if one or both of the shareholders' meetings rejects the merger, there is a subsequent obligation to make a public takeover offer. 17 Second, there are differing circumstances under which a shareholder unwilling to exchange his or her shares can be forced to tender such shares. In the case of a public takeover offer, a forced sale of the remaining non-tendered shares is only possible if at least 98% of the shares have already been tendered, whereas, in the case of a merger, only twothirds of the voting rights represented at the general meeting is required to approve the sale of 100% of the target company's shares. 18 In the matter Hiestand Holding AG, which was decided in June 2008, the mandatory offer was triggered because IAWS Group Plc increased its stake in Hiestand Holding AG from 32% to 64%. However, since IAWS Group Plc held 64% of the voting rights and there was a high amount of dispo shares (i.e., shares without voting rights due to the fact that their acquirers are not registered in the share register), IAWS was easily able to control the shareholders' meeting of Hiestand Holding AG and, consequently, approve the merger and the forced sale of 100% of the target company's shares. 19

Under the amended takeover regulation, the Hiestand Holding AG matter would have been decided differently. Pursuant to Art. 43 para. 2 SESTOFINMA, an exchange offer in fulfilment of a mandatory takeover offer obligation is only permitted if a cash payment is offered as an alternative. In other words, IAWS Group Plc would have had to make a cash offer in parallel with the exchange offer by way of a statutory merger.

Exemptions from the Mandatory Offer for Recapitalization Purposes. In justified cases, the TB may grant an exemption from the obligation to make a takeover offer. In the matter 4M Technologies Holding SA, the TB reaffirmed its practice of granting such an exemption in cases where the equity securities have been acquired for recapitalization purposes (see Art. 32 para. 2 lit. e SESTA), provided that the recapitalization is necessary and the acquisition of such securities is an adequate recapitalization measure. 20 On April 25, 2008, the shareholders' meeting of 4M Technologies Holding SA resolved upon a declarative capital reduction to remove the loss on the balance sheet and on a subsequent capital increase. Prior to such resolution, the three main shareholders held 26% of the company's voting rights. After taking into account the future conversion of convertible bonds, these shareholders held, in the aggregate 51% of the company's voting rights. It was clear that, as a result of their participation in the resolved capital increase, these shareholders would collectively pass the threshold of 33 1/3%, which would trigger a mandatory offer. At the same time, it was clear that the company would be over-indebted should the capital increase not be carried out or another recapitalization measure taken. The TB stated that the purpose of the exemption from the obligation to make an offer in case of an acquisition for recapitalization is to support investors who are willing to support a company with financial problems. In such a case, the interest of the company in recapitalizing itself and continuing its business prevails over the interest of the minority shareholders in a mandatory offer. Consequently, the TB will grant an exemption if the applicant can provide evidence that the planned recapitalization measure is necessary and appropriate to secure the continuity of the company. However, the applicant does not have to prove that the planned measure will be sustainable. 21

Exemptions from the Mandatory Offer for Group Internal Restructuring. In the Orascom Development Holding AG matter, the TB applied Art. 32 para. 2 lit. a SESTA in connection with Art. 39 para. 2 lit. b SESTO-FINMA and granted a mandatory offer exemption because the change of control had no negative effect on the minority shareholders of the target company since it was a result of a group internal reorganization. 22

Belated Request for Exemption. In accordance with Art. 37 para. 1 SESTO-FINMA, once the 33 1/3% threshold has been exceeded, the mandatory offer must be made no later than two months thereafter. Consequently, any request for an exemption from the obligation to make a public offer must be made prior to such exceeding, or at the latest within the same period. In the case of Zwahlen et Mayr SA, restructurings among shareholders acting in concert had resulted in certain shareholders exceeding the 33 1/3% threshold, and such shareholders did not file a request for an exemption until after such two month period had elapsed. However, the TB found that the restructurings within the group had not led to any significant inconvenience for the minority shareholders and the market had been directly or indirectly informed by public notices about the changes in shareholdings. For this reason the TB refrained from taking any measures and granted the exemption despite the belated request for an exemption. 23

Exemption from the Publication of an Offer. In the matter sia Abrasives Holding AG, there were two competing bidders: one of whom had made an offer with respect to which the additional acceptance period had expired and filed a squeeze-out claim for the cancellation of the remaining public shares, and the other of whom had made a preliminary announcement, but had not published its offer. 24 The TB addressed the question of whether the bidder that had made a preliminary announcement, but had not published its offer, was still required to do so. The TB reasoned that since the cancelled shares would be re-issued to the competing bidder, which would then own 100 % of the shares, requiring the other bidder to launch an offer for shares that it would never be able obtain, would place a disproportionate burden on such bidder, and held that it was not required to do so.

Competing Offers

Competing Preliminary Announcements. If an offer is scheduled to expire after a competing offer is scheduled to expire, such offer will be automatically extended until the expiry date of the competing offer (Art. 51 para. 1 OTB, formerly Art. 50 para. 1 OTB). According to the TB, this rule also applies to preliminary announcements, which means that, in the case of competing offers, if the period within which an offer must be published expires prior to the expiry date of the period within which a competing offer must be published, such period will be automatically extended until the expiry date of the period applicable to such competing offer. Consequently, the competing offers are to be published simultaneously. 25

Acting in Concert

According to Art. 11 para. 1 OTB in connection with Art. 10 para. 1 and 2 SESTO-FINMA, and pursuant to the practice of the TB, a third party who coordinates with the bidder in view of a takeover offer and its terms, or who has reached an agreement (in writing or otherwise) with the bidder regarding the takeover offer or its terms, is considered to be acting in concert with such bidder.

Transaction with a Selling Shareholder. In the matter of Converium Holding AG, the TB stated that mere discussions between a (potential) bidder and a third party about a sale of shares of the (potential) target are not per se tantamount to acting in concert. 26 However, in the Converium matter, the selling shareholder (Martin Ebner, acting through his holding company Patinex AG) not only sold a stake of 20% to the bidder SCOR, but also arranged a meeting between the CEO of the bidder and the Chairman of the target, which he attended personally. When the takeover offer by SCOR was made public, Mr. Ebner publicly communicated that he was supporting such offer. Furthermore, BZ Bank, a bank controlled by Mr. Ebner, arranged for additional Converium shares held by third parties to be sold to SCOR. In view of these circumstances, the TB held Mr. Ebner, Patinex, BZ Bank and SCOR to have acted in concert from the moment Patinex and SCOR entered into the share purchase agreement. As a result, the offer prospectus relating to SCOR's offer should have disclosed the other persons with which SCOR was acting in concert. 27 After publication of the offer until the end of the additional acceptance period, any further transactions relating to the equity securities of the target involving any such persons should have been disclosed (Art. 38 OTB). The TB's recommendation in the Converium matter was confirmed by the FBC. 28 Both, Mr. Ebner and SCOR appealed the FBC's decision to the Federal Administrative Tribunal (FAT). The FAT 29 affirmed the standing of the appellants, in particular their legitimate interests. Even though the takeover of Converium by SCOR had been completed in the meantime, the appellants asserted that the statement in the FBC's decision that Mr. Ebner and SCOR had acted in concert and, consequently, disregarded their disclosure obligations in the initial offering prospectus, negatively affected their reputation. The FAT reasoned that insofar as the FBC's decision negatively affected the reputation of the appellants, any possible effect had been corrected by the positive report of the Review Body, which stated that SCOR had observed all relevant disclosure rules correctly. Consequently, the FAT closed the case as the matter in dispute had fallen away.

In the Harwanne case, the TB examined a typical provision in share and sale purchase agreements entered into between offerors and shareholders in offexchange transactions prior to the launch of a takeover offer, pursuant to which the seller agrees to abstain from buying and selling any securities in the target and exercising any voting rights until the closing of the share purchase. The TB held that a seller and offeror will not be considered to be acting in concert by reason of such provision alone. 30

Undertaking to Subscribe and Lock-up towards Underwriting Bank. In connection with the capital increase of Adval Tech Holding AG, two major shareholders holding 22% and 20.3% percent respectively agreed with the underwriting bank that they would exercise their pre-emptive rights and take up any unexercised pre-emptive rights. Three other shareholders with participations in the range between 5.2% and 14.1% entered into a lock-up with the underwriting bank for the 180-day period following the first trading day in the new shares. The TB confirmed that these undertakings (take-up and lockup) have no effect on the control of the company, and, therefore, held that the bank and the respective shareholders were not acting in concert for takeover law purposes. 31

Standstill Agreement between Shareholder and Target. In the Sulzer/Renova matter, 32 the TB addressed whether a shareholder and the company who had entered into a standstill agreement were acting in concert within the meaning of the mandatory offer rule. In this case, the shareholder Renova and the company Sulzer had entered into a standstill agreement that covered certain matters relating to the corporate governance of Sulzer (e.g., composition of board of directors, etc.) and exercise of control/ strategy over Sulzer (e.g., agreement of Renova not to launch a public takeover offer or to hold more than 33 1/3% of the share capital of Sulzer). Renova and Sulzer owned, collectively, slightly more than 33 1/3% of the share capital of Sulzer. First, the TB ruled that the treasury shares owned by Sulzer counted for purposes of calculating whether the 33 1/3% threshold had been exceeded or not despite the fact that the voting rights associated therewith were not exercisable. In accordance with Art. 32 para. 1 SESTA, when making such calculation, it is irrelevant whether voting rights associated with the equity securities in question are exercisable or not. 33 Second, the TB ruled that the standstill agreement between Renova and Sulzer was entered into "in view of the control" over Sulzer (Art. 27 SESTO-FBC) and, therefore, Renova and Sulzer not only were acting in concert under the rules on the disclosure of major shareholdings (Art. 15 SESTO-FBC), but also under the mandatory offer rule. 34 The TB stated that the standstill agreement was entered into with the aim to exercise the voting rights at the shareholders' meeting of Sulzer and also with the aim of exercising the control over Sulzer. Not only did the parties agree on the composition of the board, but they also agreed to set the strategy of Sulzer together (e.g., Renova agreed that it would not cast its vote in favor of a change of control over Sulzer, increase its stake above 33 1/3%, launch a takeover offer for Sulzer or vote in favor of an amendment to the articles of incorporation of Sulzer, in each case without approval of the board of Sulzer). In other words, the standstill agreement allowed Sulzer to maintain the status quo and, together with Renova, to exercise control "over itself". Therefore, if Sulzer and Renova were to exceed the 33 1/3% threshold, they would be obliged to launch a takeover offer. The parties did not accept this recommendation and appealed to the FBC. The FBC overruled the TB. 35 The FBC held that in order to act in concert for purposes of takeover laws, the vote coordination must be firm and sustainable; random vote coordination is not sufficient. In addition, a onetime agreement regarding the casting of votes at a general meeting, even for important items like the dismissal of the board, is not considered acting in concert for mandatory offer purposes. 36 Although the standstill agreement was found by the FBC to be firm and sustainable (it was entered into for a period of 19 months), Renova and Sulzer were not considered to be acting in concert for purposes of the mandatory offer rule because they were not acting "with the aim of exercising the control" over the target in the sense of Art. 27 SESTO-FBC, but rather in order to maintain the status quo. 37

However, since the agreement restricted the ability of Renova to exercise its voting rights, Renova and Sulzer were found to form a group for disclosure of shareholdings purposes. 38

Shareholders' Pool and Company acting in concert. In the matter Helvetia Holding AG, although Helvetia was not party to the pooling agreement among certain of its shareholders, the TB ruled that Helvetia was nevertheless acting in concert with such shareholders. The TB reasoned that in addition to being the object of the pooling agreement, Helvetia was integrated into the agreement. The TB called this the dual nature of corporations as objects and subjects of legal relations. 39 The TB stressed that when determining whether two or more parties have a collective obligation to make a takeover offer, whether such parties acted in concert "in view of controlling the company" is a crucial part of the analysis. In answering the question of whether such parties are acting in concert, consideration must be given to all circumstances under which the parties could be viewed as attempting to control the company – whether through voting rights, the composition of the board, collective determination of the company's strategy or otherwise. Because treasury shares were counted as shares under the pooling agreement, Helvetia was granted a pivotal role in the decisions made by the shareholder pool and, consequently, integrated into the organization of the pool. 40 In response to the TB's findings, Helvetia submitted a draft of a new pooling agreement, which removed Helvetia from, and the decisions made by, the shareholder pool. Helvetia further declared to procure not to be factually part of the pool. The TB ruled that, under the new pooling agreement, Helvetia would no longer be considered to be acting in concert with the parties to the pooling agreement in view of controlling the company (in the sense of Art. 15 para. 1 SESTO-FBC, i.e., now Art. 10 para. 1 SESTOFINMA). 41

Transaction Agreement with Target. In line with established practice, in the matter Hammer Retex Holding AG, the TB held that persons who coordinate with the bidder in view of a takeover offer and its terms or who have reached an agreement with the bidder regarding the takeover offer or its terms are considered to be acting in concert with the bidder as of the date of that agreement. 42

Coordinated Conduct other than by Contract. In order for two or more parties to be considered to be acting in concert within the meaning of Art. 10 para. 1 SESTO-FINMA, the agreements among such parties must reach a certain level of intensity and degree of organization. In the matter Esmertec AG, the listed Swiss target (i.e., Esmertec AG) was to acquire a French company (i.e., Purple Labs) by way of an exchange of shares (contribution in kind). The shares of Purple Labs were primarily held by certain major shareholders of Esmertec, and such shareholders were party to a shareholders' agreement relating to Purple Labs, but not to Esmertec. The TB held that since such Esmertec shareholders were only party to a shareholders agreement in relation to Purple Labs, such shareholders were not acting in concert with respect to Esmertec within the sense of Art. 10 para. 1 SESTO-FINMA when they approved the issuance of new shares for purposes of the contribution in kind, so long as the shareholders agreement did not bind such shareholders to a common strategy or require unanimity on the part of such shareholders when passing resolutions in the shareholders' meeting of Purple Labs. The TB also held that the Purple Labs shareholders agreement may not prohibit a dissenting shareholder of Purple Labs from disagreeing with other shareholders of Esmertec or from being heard at the shareholders' meeting of Esmertec. 43

Formal Cancelling of an Agreement regarding the Acting in Concert. If parties are considered to be acting in concert (in the sense of Art. 10 SESTOFINMA) based on an agreement entered into between them, such parties are not automatically considered to be no longer acting in concert upon termination of such agreement. Generally speaking, once two parties are acting in concert, they will be considered to be acting in concert for the duration of the offer period, irrespective of any termination of any agreement into which they have entered between them. 44 However, if one of the two parties sells its shares in the target to a third party (in casu, the bidder) and, thereafter, no longer has an interest in the target in connection with the takeover offer, the two parties would no longer be considered to be acting in concert. This would not be true, however, if such party were to sell its shares by tendering them as part of the offer since such party would continue to have an interest in the target and the completion of the takeover offer (e.g., in case of an increase in the offer price). 45

Minimum Price Rule

General. Any public takeover offer made for a number of equity securities that would result in the bidder holding a number of equity securities of the target that would trigger the mandatory offer rule (i.e., 33 1/3% of the voting rights of the target, whether exercisable or not, except where the target's articles of association contain an opting-up or opting-out provision) must comply with strict minimum price rules. Pursuant to Art. 32 para. 4 SESTA, the offer price per share may not be lower than the stock exchange price or 25% of the highest price paid by the bidder for equity securities of the target during the preceding 12 months 46 (even if this purchase was completed after the offer's launch, see below under Best Price Rule).

Illiquidity of the Target Shares. Art. 40 para. 2 SESTO-FINMA provides that the "stock exchange price" (in the sense of Art. 32 para. 4 SESTA) shall be equal to the volume weighted average price (VWAP) of all on-exchange transactions in the target shares executed during the VWAP-period.

However, if the target shares are "illiquid" prior to the takeover offer, the review body according to Art. 25 SESTA is required to value the target shares in accordance with Art. 40 para. 4 SESTO-FINMA. Pursuant to TB Communication No. 2 of September 3, 2007, equity securities are considered "liquid" only if they were traded at least 30 out of the 60 trading days prior to the announcement of the takeover offer. 47 Furthermore, if justified by the particular circumstances, additional factors must be taken into consideration when assessing the liquidity of the target shares (in particular, the trading volume during the VWAPperiod). In the Harwanne case, the main question presented was whether the target shares were "liquid" (as alleged by the bidder MMA), which would mean that MMA's offer price of CHF 2.60 complied with the minimum price rules, or "illiquid" (as alleged by the qualified shareholders that had opposed the original decision by the TB), which would mean that MMA would be obligated to arrange for a valuation of the target shares.

Although the target shares had been traded 47 out of the 60 trading days prior to the announcement of the takeover offer, the TB reversed its first decision 48 and held that the special circumstances of the case justified the application of additional criteria in assessing the liquidity of the target shares. In the opinion of the TB, the absence of business activities of the target, the lack of publicly available information on the target's financials during a major financial crisis, the specifics of the balance sheet (82% of the assets was in fact held in cash) and the fact that more than 68% of the target's shares traded during the VWAP-period were traded by the target itself distorted the application of the standard liquidity test. On that basis, the TB concluded that the market for the target shares had not been liquid.

MMA appealed the TB's decision to the FINMA, which affirmed the revised TB's decision of March 16, 2009. 49 Thereafter, MMA appealed to the FAT, but withdrew its appeal on June 18, 2009 after it increased its offer price to CHF 3.45 for all target shareholders, which offer price was in line with the required valuation report and approved by the TB. 50

The TB decision 403/02 can be read to suggest that the TB considers the Harwanne case to be an exception. The TB clearly emphasized that it only deviated from the 30/60 trading day rule because of the particular circumstances at hand. In contrast, FINMA's statement that most issuers listed on the SIX Swiss Exchange have notoriously low liquidity raises concerns that it would consider target equity securities in the context of future takeover offers to be illiquid despite compliance with the 30/60 trading day rule under Communication no. 2, and irrespective of whether the particular circumstances justify the consideration of additional factors. If there is indeed a danger FINMA would take such a position, the question also arises as to whether potential bidders should consider, as a matter of precaution in doubtful cases, obtaining pre-bid fairness opinions in relation to the takeover offer. Such a measure would be costly, however, it would counter any allegations by the authorities or other involved parties that special circumstances relating to the price of the target shares exist.

In the matter Métraux Services SA, which was decided shortly after the Harwanne case, the TB ruled that the board of the target may use an external valuation report as a basis for determining of the offering price, even if the shares are considered liquid under Communication No. 2. The TB agreed with the bidder that even though the shares of the target had been traded 31 of the last 60 trading days prior to the announcement of the offer, they should still be considered illiquid. Not only were the trading volumes of the target shares very low during the 60 trading day period (on ten of the 31 trading days on which the target shares had been traded, only five or less shares had been traded), the trading volumes of the target shares had also historically been low. Consequently, the TB approved the use of a valuation report as a basis for determining the offer price, in particular because such use would lead to a price that would be higher than the price calculated pursuant to Art 40 para. 2 SESTO-FINMA. The TB left open the question of whether it would accept a valuation report as a basis for determining the offer price if such report would lead to a price that would be lower than the price calculated pursuant to Art. 40 para. 2 SESTO-FINMA. 51

Shares of a Non-listed Company. If the target is a non-listed company and the shares of the target were issued only a few weeks before the preliminary announcement is made, such shares cannot be used as reference to determine whether the takeover offer complies with the minimum price rule. However, in the case of an offer for a newly created non-listed company to be spun-off from a listed company, the TB deems such offer to be, in substance, a partial offer for the shares of the listed company. Accordingly, in the matter Hammer Retex Holding AG, the TB held that when determining whether a bidder has complied with the minimum price rule, consideration may be given to other transactions to which the listed company from which the target will be spun off was a party. 52

Non-Application of the Minimum Price Rule. If the takeover offer, once completed, will not trigger a mandatory offer, the minimum price rule is not applicable (Art. 10 para. 5 SESTO-FINMA). This is the case, for example, if the articles of incorporation of the target include an opting-out clause. 53 Furthermore, in such case, if the target's shares are found to be illiquid, no valuation by an independent third party is required. 54

Footnotes

1 Decision of the Swiss Federal Tribunal, BGE 130 V 1, c.3.2.

2 See Decision 409/01 of the TB dated April 17, 2009 in the matter of Zwahlen et Mayr SA, c.1; decision 402/01 of the TB dated February 10, 2009 in the matter Esmertec AG, c.1; decision 384/04 of the TB dated February 11, 2009 in the matter sia Abrasives Holding AG, c.1.

3 Recommendation 377/01 of the TB dated July 29, 2008 in the matter Richemont SA.

4 Decision of the FBC dated September 30, 1999 in the matter Tag Heuer International SA, published in the FBC bulletin 39/2000, p. 25.

5 Recommendation 377/01 of the TB dated July 29, 2008 in the matter Richemont SA, c.2-4.

6 Recommendation 365/01 of the TB dated April 5, 2008 in the matter of Eichhof Holding AG, c. 1–3. This is a confirmation of the practice put in place by the recommendation 188/01 of the TB dated March 31, 2004 in the matter Clair Finanz Holding AG.

7 Decision 406/01 of the TB dated March 17, 2009 in the matter of Hammer Retex Holding AG, c.1.

8 Recommendation 348/01 of the TB dated January 7, 2008 in the matter of SEZ Holding AG, c.2.3.

9 Decision 406/01 of the TB dated March 17, 2009 in the matter of Hammer Retex Holding AG, c.3.

10 Recommendation 384/02 of the TB dated November 7, 2008 in the matter sia Abrasives Holding AG.

11 Recommendation 384/02 of the TB dated November 7, 2008 in the matter sia Abrasives Holding AG, c.1.

12 Recommendation 394/01 of the TB dated December 3, 2008 in the matter of Orascom Development Holding AG. See for a commentary of this recommendation, Frank Gerhard, "TOB clarifies mandatory bid obligation in case of share transfers among commonly controlled companies", in: CapLaw Newsletter 1|2009, pp. 12-15.

13 Recommendation 394/01 of the TB dated December 3, 2008 in the matter of Orascom Development Holding AG, c.2; decision 409/01 of the TB dated April 17, 2009 in the matter of Zwahlen et Mayr SA, c.2.2.

14 Decision of the Swiss Federal Tribunal, BGE130 II 530 et seq.

15 Recommendation 394/01 of the TB dated December 3, 2008 in the matter of Orascom Development Holding AG, c.3; decision 409/01 of the TB dated April 17, 2009 in the matter of Zwahlen et Mayr SA, c.2.2; see decision of the Federal Tribunal 130 II 530, p. 544; see also recommendation 292/06 of the TB dated May 15, 2008 in the matter of Schmolz + Bickenbach AG. .

16 Recommendation 372/01 of the TB dated June 6, 2008 in the matter Hiestand Holding AG, c.1.1.

17 Recommendation 372/01 of the TB dated June 6, 2008 in the matter Hiestand Holding AG, c. 1.2.

18 Article 18 para. 1 lit. a Merger Act.

19 Recommendation 372/01 of the TB dated June 6, 2008 in the matter Hiestand Holding AG, c.1.2.

20 Recommendation 376/01 of the TB dated July 8, 2008 in the matter of 4M Technologies Holding SA, c.1.

21 Recommendation 376/01 of the TB dated July 8, 2008 in the matter of 4M Technologies Holding SA, c.1.1.2.

22 Recommendation 394/01 of the TB dated December 3, 2008 in the matter of Orascom Development Holding AG, c.3.

23 Decision 409/01 of the TB dated April 17, 2009 in the matter of Zwahlen et Mayr SA, c.3.

24 Decision 384/04 of the TB dated February 11, 2009 in the matter of sia Abrasives Holding AG, c.4. The TB had held that the mere sale of a shareholding that triggered a mandatory offer would not relieve the former owner to launch a mandatory offer.

25 Recommendation 384/01 of the TB dated October 3, 2008 in the matter sia Abrasives Holding AG, c.2.

26 Recommendation 318/04 of the TB dated June 9, 2007 in the matter of Converium Holding AG, c.4.2.2.2.

27 Idem, c.4.3 and 4.4.

28 Decision of the FBC dated July 13, 2007 in the matter Converium Holding AG.

29 Decision of the Federal Administrative Tribunal dated December 22, 2008 in the matter Dr. Martin Ebner and Scor SE.

30 Decision 403/02 of the TB dated March 16, 2009 in the matter Harwanne Compagnie de participations industrielles et financières, c.3.

31 Recommendation 362/01 of the TB dated April 16, 2008 in the matter Adval Tech Holding AG.

32 Recommendation 345/01 of the TB dated December 6, 2007 in the matter Sulzer AG.

33 Idem, c.3.2.

34 Idem, c.3.3.

35 Decision of the FBC dated May 29, 2008 in the matter Sulzer AG and Everest Beteiligungs GmbH.

36 Idem, para. 53.

37 Idem, para. 56 et seq.

38 Idem, para. 50.

39 Recommendation 375/01 of the TB dated June 20, 2008 in the matter of Helvetia Holding AG, c. 3 et seq.

40 For details, see recommendation 375/01 of the TB dated June 20, 2008 in the matter of Helvetia Holding AG, c. 8 et seq.

41 Recommendation 393/01 of the TB dated December 8, 2008 in the matter of Helvetia Holding AG, c. 2.3.

42 Decision 406/01 of the TB dated March 17, 2009 in the matter of Hammer Retex Holding AG, c.6.2.

43 Decision 402/01 of the TB dated February 10, 2009 in the matter Esmertec AG, c.2.

44 Recommendation 358/03 of the TB dated April 30, 2008 in the matter of Groupe Baumgartner Holding SA, c. 2.2.

45 Idem.

46 See offer of MMA Vie SA for Harwanne dated January 30, 2009 as an example for payment of such a premium.

47 Decision of the TB dated March 17, 2009 in the matter of Hammer Retex Holding AG, c.5.2.

48 Decision 403/02 of the TB dated March 16, 2009 in the matter Harwanne Compagnie de participations industrielles et financières, c.2.

49 See decision of the FINMA dated April 6, 2009 in the same matter.

50 Decision 403/06 of the TB dated May 29, 2009 in the matter Harwanne Compagnie de participations industrielles et financières, c.2.

51 Decision 411/01 of the TB dated June 19, 2009 in the matter Métraux Services SA, c.4.2.1.

52 Decision 406/01 of the TB dated March 17, 2009 in the matter Hammer Retex Holding AG, c.5.3.

53 Recommendation 387/01 of the TB dated October 16, 2008 in the matter Golay-Buchel S.A., c.3.

54 Idem.

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