The rules regarding tender offers for Swiss-listed companies have been revised as part of the revision of the Swiss Stock Exchange Act. With this revision the offence of insider trading has been extensively revised and adapted to international standards. The revised provisions have come into force on 1 May 2013. This column briefly summarises them.
Revised Swiss takeover rules
Scope of application. In future, the Swiss takeover rules will also apply in the case of tender offers for foreign companies with equity securities that are, at least in part, primarily listed on a Swiss stock exchange. Prior to the revision, the scope of application of the Swiss takeover rules required both that the target’s corporate domicile is in Switzerland and that its equity securities are, at least in part, listed on a Swiss stock exchange.
Control premium. In future, the offer price in mandatory bids and voluntary bids affecting the control of the target will have to be at least as high as the highest price paid by the bidder for equity securities of the target in the preceding 12 months. Thus, it will no longer be possible to pay a control premium to a controlling shareholder, or to significant shareholders.
We expect the abolition of the control premium to make takeovers of Swiss-listed companies more expensive. In addition, it should be noted that there is no transitional provision and that purchases of equity securities made in 2012 can therefore affect the minimum price if the offer is launched after 1 May 2013.
In order to facilitate change of control transactions, existing controlling share-holders and companies should consider making use of the flexibility granted by the takeover rules and waive the mandatory offer duty (“opting out”) or raise the relevant threshold to up to 49% (“opting up”).
Enforcement of the mandatory offer duty. If there is reasonable suspicion that the mandatory offer duty has been violated, the Takeover Board will in future have the competence to suspend voting rights and declare a ban on additional purchases of shares or related derivatives. In addition, intentional violations of the mandatory offer duty will constitute a criminal offence and be punishable with a fine of up to 10 million Swiss francs (US$10.7 million). As a consequence, the enforcement of the mandatory offer duty will in future be more effective.
Takeover proceedings. Shareholders must in the future hold at least 3% of the voting rights in order to request legal standing in the proceedings before the Takeover Board.
Until now, a stake of 2% was sufficient to request legal standing. Consequently, the threshold of the right to participate in the takeover proceedings will correspond to the lowest threshold for the disclosure of significant shareholdings. This means that a bidder will in future know if, and how many, significant shareholders can potentially request legal standing and thus complicate the takeover proceedings.
New insider trading rules
Expansion of the circle of primary insiders and inclusion of random insiders. Both the old and revised insider trading rules set a high range of punishment for so-called “primary insiders”, and a lesser one for those they inform – so-called “secondary insiders”. Primary insiders are subject to a penalty of up to three years in prison – under the revised rules, for an economic advantage of over 1 million francs they face up to five years – or fines. Secondary insiders are subject to a penalty of up to a year in prison, or fines.
Under the old law, the circle of primary insiders was tightly restricted to officers – directors and top management – and auditors of a stock corporation, civil servants and government officials, and in each case their respective assistants.
Primary insiders expanded
The revised law expands the circle of the primary insiders to anyone who, in whatever capacity, has legitimate direct access to inside information. Also under the revised rules, legal persons still do not generally qualify as offenders unless the act is that of an undetermined perpetrator whose identity cannot be established due to the poor internal organisation of his or her employer (article 102 of the Criminal Code).
Extending the concept of insider information. The definition of insider information covers any confidential information which, if disclosed, is likely to significantly affect the trading price of securities that are listed on an exchange or an exchange-like facility in Switzerland. Under the revised law, insider information also includes price-sensitive confidential information originat-ing entirely outside the relevant listed companies (e.g., industry-relevant fundamental decisions of authorities or the discovery of new, or depletion of, existing sources of raw materials).
Expansion of insider trading offence. Under the revised law, a mere recommendation by a primary insider, based on insider information, to trade in Swiss-listed securities is a criminal insider offence, even if no inside information was disclosed. In addition, under the new law an insider offence can also be committed by transactions with all derivatives of securities listed in Switzerland, including in particular with listed, non-standardised over-the-counter products. The only derivatives covered by the old law were options.
All suspects fair game
Extended application of regulatory penalties. Under the revised law, the Swiss Financial Markets Supervisory Agency may not only proceed against banks, fund management companies and securities dealers, but also against all market participants who are suspected of insider trading. As a result, regulatory and criminal procedures may be pursued in parallel.
Felix Egli is a senior partner and Robert Bernet is a partner at the Swiss law firm VISCHER in Zurich. Wu Fan, a counsel of the firm, co-authored this article
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