I OVERVIEW OF M&A ACTIVITY
In 2015, the level of M&A activity in Switzerland, as compared with the previous record year, was lower, with an overall number of around 350 reported M&A transactions in 2015. The Swiss M&A market – and the Swiss economy generally – was shaken up by the decision of the Swiss National Bank to abandon the Swiss franc/euro exchange rate floor in January 2015. The overall transaction value in 2015 decreased from US$190 billion in 2014 to approximately US$155 billion in 2015.2 There were a few large acquisitions with Swiss companies as targets of foreign acquirers, and many more transactions with foreign companies as targets of Swiss acquirers. The number of public tender offers in Switzerland decreased from six in 2014 to two in 2015, while their aggregate volume decreased from 3.4 billion Swiss francs in 2014 to 1.2 billion Swiss francs in 2015.
The Swiss M&A market continued to be cautious in the first months of 2016 due to the strong Swiss franc. However, the public M&A market initiated a strong recovery, led by the contemplated acquisition of Syngenta by China Chemical Corporation, worth US$45 billion, which is set to be the largest overseas investment made by a Chinese company.
II GENERAL INTRODUCTION TO THE LEGAL FRAMEWORK FOR M&A
The Corporation Law and the statutory provisions on the purchase and sale of goods, both integrated in the Swiss Code of Obligations (SCO), provide the fundamental statutory framework for the purchase and sale of corporate entities or of their assets and liabilities, for privately held or listed companies. In addition, the Federal Act on Merger, Demerger, Conversion and Transfer of Assets and Liabilities regulates all types of corporate restructurings, including business combinations and spin-offs.
Public tender offers are further regulated by the Financial Market Infrastructures and Market Conduct in Securities and Derivatives Trading (FMIA) and in several ordinances issued by the government (i.e., the Federal Council), the Swiss Financial Market Supervisory Authority (FINMA) and the Takeover Board (TOB).
The takeover regulations apply to public tender offers for equity securities of Swiss corporations that have at least one class of equity security listed on a Swiss stock exchange; and, newly, foreign corporations that have a primary listing on a Swiss stock exchange (together the Swiss target companies). The takeover regulations generally also apply to a public offer by a Swiss target company to buy back its own equity securities (including related conversion or option rights). If Swiss and foreign takeover regulations apply simultaneously to a public offer, it is possible to waive the application of Swiss law, provided the Swiss and foreign regulations are conflicting and the shareholders are equally protected under both foreign regulations and Swiss regulations.
Pursuant to the FMIA, anyone who acquires equity securities listed on a Swiss stock exchange representing more than one-third of the voting rights of a Swiss target company, whether such voting rights are exercisable or not, must submit a tender offer for all listed equity securities in such company (mandatory offer). The articles of incorporation of Swiss target companies may provide for a higher threshold of up to 49 per cent of the voting rights (opting-up) or may declare the mandatory tender offer obligations to be not applicable (opting-out). Share purchases that are not publicly announced are not subject to the takeover regulations unless the threshold for submitting a mandatory offer is exceeded.
The TOB and the FINMA ensure compliance with the takeover rules. The TOB reviews all public takeover offers subject to the FMIA. Parties may appeal to the FINMA against a decision of the TOB within five trading days; they may further lodge an appeal against a FINMA decision with the Swiss Federal Administrative Court within 10 calendar days, whose judgment shall be final.
M&A transactions that exceed certain turnover thresholds or lead to business concentrations having an effect on the Swiss market fall within the scope of the Swiss Act on Cartels and other Restraints of Competition (Cartel Act) and the relevant Ordinance on Merger Control (see Section IX, infra).
III DEVELOPMENTS IN CORPORATE, FINANCIAL MARKET AND TAKEOVER LAW
i Say on pay and other amendments to corporate law
Corporate law is currently under revision, and will be amended to strengthen shareholders’ rights further to the approval in 2013 of a popular legislative initiative aiming at introducing a mandatory say-on-pay mechanism with a requirement for a binding approval by the shareholders’ meeting for Swiss corporations listed in Switzerland or abroad. Transitional rules on say on pay entered into force on 1 January 2014. However, and importantly, the revision does not set any rules or limitations regarding the absolute amounts of individual or aggregate compensation for directors or members of senior management.
The transitional rules, which entered into force on 1 January 2014, brought far-reaching new rules on the corporate governance of Swiss public companies with direct effects on executive management, shareholders, pension funds and independent proxies, including:
- a the obligation to submit each year the total compensation of board members, senior management and advisory board members to the approval of the shareholders’ meeting;
- b the yearly and individual election of the chair of the board, the board members, the members of the compensation committee and the independent proxy by the shareholders’ meeting;
- c the obligation for pension funds to vote in the interest of their insured persons and to disclose how they vote;
- d the prohibition on all compensation to the members of the board of directors, the executive management and the advisory board (if any) taking the form of severance pay provided for by contract or the articles (‘golden handshake’), advance compensation (‘golden hello’) or incentive payments for restructurings within the group;
- e a tighter regulation of credits or loans granted to board members, share and bonus plans, and a limitation on the number of appointments of a person as a board member;
- f the elimination of the institutional voting representation by governing bodies of the company itself or custodians, and the strengthening of the role of the independent proxy; and
- g strict (criminal) sanctions in the case of violations of the new rules, including imprisonment of up to three years and a fine of up to an equivalent of six years of annual compensation.
The transitional rules have to some extent changed the voting behaviour of shareholders, in particular pension institutions. Generally speaking, proxy advisers already have, and will further, become more influential in Swiss public companies. Said changes also gave activist shareholders additional means of intervention.
In addition to the replacement of the current transitional rules on say on pay, the contemplated revision of corporate law includes further important amendments, including guidelines in terms of gender representation at higher executive levels by proposing the introduction of quotas of at least 30 per cent of each gender at the board of directors’ level within a transitional period of five years, and at least 20 per cent of each gender at the executive management level within a transitional period of 10 years. Companies that do not comply with this requirement will have to explain the reasons for the underrepresentation and inform about measures taken to reach the thresholds. Other proposed amendments include:
- a easing of the rules governing the registered share capital with, in particular, the introduction of a capital band within which the company is given more flexibility to manage its capital;
- b further developments of corporate governance for both private and listed companies;
- c the use of the internet for holding shareholders’ meeting;
- d the possibility to have share capital issued in foreign currency;
- e new protection rules concerning the reimbursement of reserves from capital contributions; and
- f incentives for companies to take corporate restructuring measures at an earlier stage in the case of financial difficulties.
The Federal Council reported on the results of the consultation process in December 2015 and determined the main elements of the bill, which will be submitted to the Parliament later in 2016. It is foreseeable that due to rather firm resistance from political parties, the proposed revision of the corporate law will still be subject to several material changes in a further legislative process. The timing of such process is not determined yet; however, it is not expected that the revised corporate law will enter into force before 2018.
ii Implementation of the Financial Action Task Force (FATF) recommendations
New rules implementing the revised recommendations of the FATF entered into force in two stages on 1 July 2015 and 1 January 2016, substantially tightening the Swiss framework for combating money laundering. The new rules introduce an obligation to report both the current holding and the purchase of bearer shares in privately held stock corporations, and an obligation to report the beneficial owner of significant shareholdings in privately held stock corporations and limited liability companies.
The acquirer of bearer shares in a privately held Swiss stock corporation must report the share purchase to the respective stock corporation (or, if so provided by resolution of the shareholders’ meeting, to an instructed financial intermediary) within one month following the purchase. Those who on 1 July 2015 already held bearer shares in a privately held stock corporation must also report their shareholdings (and, when reaching or exceeding the 25 per cent threshold set forth below, the ultimate beneficial owners thereof) in accordance with the above. The stock corporation, in turn, must register the holders of its bearer shares in a new bearer share register, which must be accessible within Switzerland at any time. Further, the bearer share register and all related records are subject to a mandatory retention period of 10 years.
A person who, alone or acting in concert with third parties, acquires shares in a privately held Swiss stock corporation or limited liability company, and thereby reaches or exceeds the threshold of 25 per cent of the company capital or voting rights, shall identify and report the beneficial owner of the relevant shares to the respective company (or, in the case of bearer shares and if so provided by a resolution of the shareholders’ meeting, to an instructed financial intermediary) within one month following the purchase. The ultimate beneficial owner of the shares can be either the direct or indirect holder of the stake in question at the end of the control chain. The reporting obligation, however, always lies with the direct shareholder. The company must keep a record of the so reported ultimate beneficial owner in a new register of beneficial owners, which must be accessible within Switzerland at any time. In the same way as the bearer share register, the register of beneficial owners and all related records are subject to a mandatory retention period of 10 years.
In cases of non-compliance by the shareholder with the above reporting obligations, the membership and financial rights associated with the stake held by such shareholder will be forfeited. Upon regularisation, rights will be activated again, although only from the reporting date onwards.
iii Developments in the takeover law
The takeover battle for Sika AG (see Section V, infra) gave the opportunity to clarify the applicable procedure for cancelling an opting-out, as Swiss law does not provide for an explicit procedure for such an ‘opting-in’. Nor has this ever been tested. According to the practice developed by the TOB, the subsequent introduction of an opting-out clause in the articles of association is valid and minority shareholders are sufficiently protected to the extent that the shareholders were duly and transparently informed prior to taking such decision, and a majority of the minority shareholders had agreed to its introduction. In Sika, the TOB decided in March 2015 that rules and TOB practice applying to the introduction of an opting-out clause subsequent to the listing of the shares of the company are not applicable to an opting-in, since in that case the risk of discrimination against minority shareholders does not exist.
In relation to the contemplated purchase of BSI by EFG from BTG for a purchase price partly in cash partly in shares of EFG (see Section V, infra), the TOB confirmed in February 2016 upon request of the parties that the entering into two ancillary agreements did not trigger the obligation for any parties to make a mandatory takeover offer for the shares in EFG held by the public, notwithstanding the fact that, as a consequence of the proposed transaction, the participation of EFG Group in EFG would be reduced from 54 to around 38 per cent of the voting rights, while BTG would obtain between 20 and 30 per cent of the voting rights of EFG and the right to appoint up to two representatives at the board of directors of EFG out of a minimum of five members. Pursuant to a decision of the Swiss Supreme Court, parties acting in concert are only deemed to act in view of controlling a company when the contractual undertakings are ‘allowed to control the company and that, based on the circumstances, it must be concluded that the parties pursue such control’. A group acting in concert would trigger the obligation to submit a mandatory offer in particular if the former controlling shareholder would not be able to continue to control the company alone, but only together with another party. The TOB left open the question of whether a non-shareholder, by entering into agreements in the preparation of a transaction, could become member of a group acting in concert in view of controlling a company. The TOB further confirmed that the takeover regulations have not been materially changed upon their transfer from the Federal Act on Stock Exchanges and Securities Trading to the FMIA, despite minor textual amendments.
iv Remodelling of the Swiss Financial Market Legislation
The Swiss financial market legislation is currently under revision and will be considerably amended, mainly to reinforce the protection of clients in asset management and the supervision of asset managers. It also introduces a new prospectus regime, allowing for stronger regulation of the primary market. The proposed remodelling includes the introduction of the new financial market infrastructure act (FIMA), which entered into force on 1 January 2016, the federal financial services act (FSA) and the financial institutions act (FIA). In June 2015, the Federal Parliament adopted the FIMA, while the Federal Council reported on the results of the consultation process and informed of changes to the draft FSA and FIA. The proposed FSA intends to strengthen client protection and to create a level playing field for all financial service providers, while the FIA will introduce a licensing requirement for asset managers. Asset managers will then be supervised by an independent supervision body, itself under the supervision of FINMA. The revised draft FSA proposes waiving the requirement for plaintiffs to pay in advance the costs of civil proceedings or to provide a guarantee, while under certain circumstances these costs will have to be supported by the financial service provider, even if the outcome of the civil procedure is in its favour.
It is expected that financial services providers will have to make extensive adjustments to comply with the new statutory requirements. The consolidation of the financial services industry in Switzerland is expected to continue, in particular in the private banking market where the number of participants continues to fall.
IV FOREIGN INVOLVEMENT IN M&A TRANSACTIONS
i Few restrictions for foreign investments
In general, foreign investors acquiring shares or assets of Swiss enterprises face very few restrictions. Certain exceptions apply for regulated industries, mainly in the areas of banking, finance, insurance, casinos and gaming, and air transport, where special requirements, regulatory approvals or notification duties might apply. For example, the acquisition of a Swiss bank by a foreign company is subject to specific disclosure and additional bank licensing requirements with the FINMA. Further restrictions apply to the direct or indirect acquisition of real estate in Switzerland by foreigners, although under the relevant provisions (Lex Koller), the acquisition of commercial property is generally not restricted. Nevertheless, the restrictions of the Lex Koller are a serious hurdle to be carefully considered in the case of potential acquisitions of real estate portfolios or real estate companies with residential properties or substantial building or land reserves.
ii Significant takeovers of Swiss companies by foreign enterprises
In 2015, Swiss companies were targets in 154 reported M&A deals (2014: 189), of which 77 target companies (2014: 89) were acquired by non-Swiss purchasers. As regards geographical background, the majority of the foreign acquirers were from western Europe (57 per cent; 2014: 53 per cent), followed by North America (21 per cent; 2014: 31 per cent) and Asia-Pacific (18 per cent; 2014: 7 per cent).3
In terms of volume, North America was Switzerland’s most important partner for M&A transactions in 2015, with combined deal values of approximately US$36 billion flowing between the two, versus approximately US$17 billion for western Europe.4
iii Significant takeovers of foreign companies by Swiss acquirers
In 2015, Swiss acquirers targeted foreign companies in 154 reported M&A deals (2014: 201). As regards geographical background, the majority of foreign targets were from western Europe (60 per cent), followed by North America (19 per cent) and Asia-Pacific (9 per cent).5
V SIGNIFICANT TRANSACTIONS AND KEY DEVELOPMENTS
i Sika takeover battle
In December 2014, the French competitor Saint-Gobain disclosed its intention to take control of Swiss industrial group Sika AG by indirectly offering to acquire all shares held by the Burkard family through Schenker-Winkler Holding AG (SWH), Sika’s current majority shareholder, for 2.75 billion Swiss francs. The offer, as initiated in late 2014 and binding until the end of 2016, would allow Saint-Gobain to control about 52.4 per cent of the voting rights but only about 16.1 per cent of the share capital of Sika AG. Saint-Gobain further disclosed its intention not to make a public takeover offer to the public shareholders of Sika AG, in reliance on an existing opting-out clause in the articles of association of Sika AG. Upon request of the majority shareholder, the TOB confirmed the validity of the opting-out clause in April 2015. Rejecting the request of several minority shareholders of Sika AG including, inter alia, the Bill & Melinda Gates Foundation Trust, both the TOB in April 2015 and, upon appeal, the FINMA in May 2015 and the Swiss Federal Administrative Court in August 2015, confirmed that the application of the opting-out clause to the contemplated acquisition by Saint-Gobain was not abusive, and that as a consequence, Saint-Gobain had no obligation to launch a public takeover offer.
In January 2015, the board of directors of Sika AG, which does not support the contemplated transaction, announced its intention to restrict the voting rights privilege of SWH to 5 per cent of all registered shares. Consequently, the board of directors of Sika AG applied such voting rights limitation at the ordinary shareholders’ meetings of Sika AG (AGM) held in 2015 and 2016 in relation to the votes aiming at terminating the currently dissenting board members, and electing a new member and chair of the board, which would have allowed SWH to pass control over to Saint-Gobain. SWH started legal proceedings before the competent courts to challenge such voting right restriction applied at the AGM, and such proceedings are still pending at the cantonal level.
ii Exit of BSI
In September 2015, Grupo BTG Pactual SA, the Brazilian bank, acquired BSI, a Swiss private bank based in Lugano, from Italy’s Assicurazioni Generali SpA for 1.25 billion Swiss francs. The transaction allowed BTG to almost double the amount of assets under management. Shortly thereafter, however, in November 2015, the founder, chief executor and chair of BTG was taken into custody in relation to the Petrobras corruption probe, and few days later, in December 2015, BTG announced that it was seeking to sell non-essential assets, including the newly acquired BSI.
In February 2016, EFG International AG agreed with BTG to pay some 1.33 billion Swiss francs for BSI, subject to adjustments, including 975 million Swiss francs in cash and the rest in shares of EFG, thereby allowing BTG to become the second-largest shareholder of EFG with a participation not exceeding 30 per cent. The transaction is expected to be closed by the end of 2016. In May 2016, the FINMA announced proceedings against BSI for alleged breaches of the money laundering regulations and the fit and proper requirements in relation with the corruption scandals surrounding the Malaysian sovereign wealth fund 1MDB, while the Monetary Authority of Singapore announced its intention to withdraw BSI’s local licence. At the same time, FINMA granted its conditional approval of the takeover of BSI by EFG, with the condition that BSI will be integrated and thereafter dissolved within 12 months. The integration process with EFG was nevertheless reported to be progressing smoothly.
iii Syngenta: A coveted target
During the course of 2015, Monsanto, which had courted Swiss agrochemical company Syngenta several times previously without success, renewed its offer to buy Syngenta in April, and increased its offer in August, valuing the company at US$47 billion. It did not succeed in bringing Syngenta into discussions regarding the proposed transaction.
In February 2016, China National Chemical Corporation (ChemChina) pre-announced its offer comprising two offers: a Swiss offer to purchase all publicly held shares in Syngenta listed in Switzerland in accordance with the rules of the FMIA, and a US offer for all American depositary shares of Syngenta listed at the New York Stock Exchange, in accordance with the Securities Exchange Act, valuing the company at US$43 billion. The contemplated transaction, which received the support of the board of directors of Syngenta, could become the largest outbound acquisition ever made by a Chinese company, and provides a strong indication that the Chinese government is looking beyond emerging markets to invest in developed economies.
Monsanto several times indicated its unwillingness to launch a hostile takeover bid for Syngenta, and has so far renounced making a counteroffer. However, it may not be necessary for the US-based company to go on the front in order to avoid the long-coveted target falling to China, as the proposed acquisition by ChemChina could still face regulatory challenges in the United States, Brazil and elsewhere, creating hurdles that could delay or force major concessions to the proposed acquisition. Several analysts have reported that the outcome of the proposed acquisition could depend on discussions at a higher political level, with access to the Chinese market for seeds at stake, or even a lifting of the ban on the import of genetically modified organisms in China. While the price offered in the Swiss offer amounts to US$465 per share in Syngenta, the price of the shares in the company at the SIX Swiss Exchange briefly reached 420 Swiss francs upon publication of the pre-announcement of the offer (it is now back to 385 Swiss francs). This could be an indication that a majority of market participants still doubt the possibility of a positive outcome of the offer from ChemChina.
VI FINANCING OF M&A: MAIN SOURCES AND DEVELOPMENTS
Many Swiss companies continue to have significant cash reserves and may also take advantage of the increased purchasing power, particularly as far as outbound M&A transactions are concerned. In addition thereto, debt-financed M&A remains attractive with low interest rates.
VII EMPLOYMENT LAW
Switzerland’s employment law is generally widely considered to be flexible and investor-friendly compared with the laws of other European jurisdictions. Of particular interest in Swiss M&A transactions are the protective rules applicable to the transfer of an enterprise and its personnel in the case of an asset deal or statutory merger or demerger, which are not applicable, however, in the case of a share deal (that is to say, the transfer of shares).
If a transaction qualifies as a transfer of an enterprise as per the above, unless an employee declines the transfer, his or her employment is transferred to the acquiring party by operation of law, including all rights and obligations as of the date of transfer, the former employer remaining jointly and severally liable to the employee for all the latter’s claims arising from the employment contract until the post-transfer date on which the employment contract could have been terminated. However, in the case of insolvency of the transferred enterprise, there is no such joint and several liability of the acquiring party with the former employer; also in addition, employment relationships are not transferred by operation of law, but only with the consent of the acquiring party.
Employee representatives or, if there are none, employees must be informed in due time prior to the transfer of the reason for the transfer and the transfer’s legal, economic and social consequences. If, however, as a result of the transfer, measures affecting the employees are planned (e.g., subsequent dismissals, salary reductions, transfer of workplaces), the employees must in addition be adequately consulted in due time prior to any decision on these measures.
On 9 February 2014, the Swiss voters approved the initiative ‘against mass immigration’ with 50.3 per cent of the votes. The acceptance of this initiative, which aims at introducing employment quotas, obliges the Federal Council to renegotiate the EU labour market agreements within three years. The current treaties stay in force in the meantime, and the initiative therefore has no immediate legal consequences for the labour market. The mid and long-term consequences are still unknown.
VIII TAX LAW
i Stricter dividend withholding tax refund practice
From an M&A perspective, the application of double taxation treaty benefits in the context of cross-border acquisition structures is currently undergoing a change. In principle, dividends of Swiss target companies are subject to Swiss withholding tax at a rate of 35 per cent. Foreign shareholders of a Swiss target company can recover all or part of this dividend withholding tax depending on the double taxation treaty in place. We have seen a clear tendency for Switzerland to become stricter in granting a reduction of the dividend withholding tax under double taxation treaties. This is driven by two developments: first, Action 6 of the OECD base erosion and profit shifting (‘Preventing the granting of treaty benefits in inappropriate circumstances’); and secondly, the withholding tax refund division of the Swiss tax authorities has, in the wake of numerous cases of abusive holding structures claiming double refunds or refunds flowing through to persons who were not treaty-entitled, is more restrictive in granting treaty benefits. So far, the Swiss Federal Supreme Court has protected this restrictive approach. As a consequence, foreign investors should ensure that the direct shareholder of a Swiss target company is equipped with sufficient substance (for instance, a holding company should have other investments, own employees and own offices, and should be adequately financed by equity).
ii Strict old reserves practice
Another tax issue in transactions is the old reserves practice of the Federal Tax Administration. Old reserves in this context mean distributable earnings accumulated by a Swiss company prior to the transfer of the shares of the Swiss target company. Such profits are not necessary for the ongoing business operations of the Swiss target company and would, upon distribution, be subject to Swiss dividend withholding tax.
If after the transaction the buyer as new shareholder can apply a reduction exceeding the one that was applicable to the selling shareholder, the Swiss authorities might, based on the argument of withholding tax avoidance, not grant the dividend withholding tax rate otherwise applicable to the buyer as regards the distribution of the old reserves. By way of example, should a US shareholder of a Swiss target company sell its shares in a Swiss company to a German shareholder, and should the Swiss target company have freely distributable reserves prior to the transfer, in such case, the Swiss tax authorities might deny a full reduction of the 35 per cent Swiss dividend withholding tax to the new German shareholder on dividends declared by the Swiss target company after acquisition despite a full reduction of Swiss dividend withholding tax under the Swiss–German double taxation treaty. Unfortunately, the authorities have become strict on this issue, and it is difficult, although not excluded, to demonstrate that the transaction did not intend to obtain a better Swiss dividend withholding tax rate. In such circumstances, we recommend obtaining clearance on the Swiss withholding tax reduction rate usually applicable for the buyer.
IX COMPETITION LAW
Under the current Swiss merger control legislation, the concentration of enterprises must be notified to the Swiss Competition authorities if, in the last accounting period prior to the concentration, the enterprises concerned reported a joint turnover of at least 2 billion Swiss francs or a joint turnover in Switzerland of at least 500 million Swiss francs; and at least two of the enterprises concerned reported an individual turnover in Switzerland of at least 100 million Swiss francs.
Alternatively, a transaction must also be notified in any case if the Swiss competition authorities have previously issued a legally binding decision stating that one of the undertakings concerned is dominant in a specific market related (horizontally, vertically or adjacent) to the activities at issue in the transaction.
The term concentration means the merger of two or more enterprises that are independent of each other or any transaction whereby one or more enterprises acquire, in particular by the acquisition of an equity interest or conclusion of an agreement, direct or indirect control of one or more independent enterprises or a part thereof.
The threshold above which mergers have to be notified (formal criterion) is considered to be relatively high in comparison to international standards. A transaction can be notified prior to the conclusion of the final agreement. However, in such cases, the parties have to demonstrate a good faith intention to enter into a binding agreement and to complete the transaction. Once the notification has been submitted, the authorities will conduct a preliminary investigation, and have to decide within one month whether there is any need to initiate an in-depth investigation of the transaction. If initiated, the in-depth (Phase II) investigation will have to be completed within four months. Therefore, the entire procedure (Phase I preliminary assessment and Phase II in-depth investigation procedure) must not exceed five months. While closing of the transaction is prohibited prior to the notification and clearance or expiration of the preliminary investigation phase, the competition authorities may allow a preliminary closing if there are important reasons for such preliminary closing. In the past, this instrument was mainly used to allow the reorganisation of distressed companies. Recently, however, the competition authorities have also allowed a preliminary closing in the case of a pending public takeover bid. However, it has been made clear that there is no general exception for public bids (contrary to the situation according to the European merger control rules), and that each case will be assessed individually.
The practice of the Swiss Federal Supreme Court, in the merger cases Swissgrid/Berner Zeitung AG and Tamedia AG/20 Minuten (Schweiz) AG, reveals that even substantive law calls for a very high intervention threshold. The mere possibility of a merger creating or strengthening a dominant position is not sufficient for an intervention. The merger must also eliminate effective competition. In the case of the joint venture Swissgrid, the national network operator of the leading Swiss electricity companies, the Swiss Competition Commission approved the joint venture only subject to certain obligations and conditions. The Appeals Commission for Competition Law Matters, however, decided that due to the already non-existing competition for network services, there is no room to intervene against the joint venture. It reasoned that if competition in a specific market is already ineffective, a concentration of enterprises cannot possibly eliminate competition. The Supreme Court confirmed the Appeals Commission’s decision.
The question of the elimination of effective competition has considerable practical significance. If it is to be given an independent meaning in the sense of requiring qualified market dominance, Swiss authorities could only intervene in situations where a quasi-monopoly will be created by the merger.
If a transaction is prohibited by the Competition Commission, the decision can be appealed within 30 days to the Swiss Federal Administrative Court and ultimately to the Swiss Federal Supreme Court. Furthermore, the parties may apply to the Federal Council within 30 days to request a clearance of the transaction based on public interests. Third parties not directly participating in the transaction have no right to challenge the decisions regarding notified transactions. This applies regardless of whether the third party has any interest of its own in lodging such an appeal.
On 1 December 2014 the EU–Swiss Competition Law Cooperation Agreement entered into force. This ‘second generation’ agreement increases the possibilities of the EU and Swiss competition authorities to cooperate with each other in competition law matters, and enables them to exchange evidence they obtain in their respective investigations and merger control procedures, provided that certain conditions are met. The planned revision of the Swiss Cartel Act, stuck in parliamentary deliberations during 2013 and 2014, failed to be approved by the Swiss parliament during the autumn session of 2014. The two chambers of parliament were unable to reconcile their differences regarding the content of the revision despite two rounds of deliberations, leading to a definite rejection of the complete revision project.
The continuously strong Swiss franc and the general exposure to global economic and geopolitical risks only allow for a cautious outlook for 2016. The strong Swiss franc considerably affected Switzerland’s economy and M&A activity during 2015. The increased purchasing power may continue to encourage outbound acquisitions in 2016. Meanwhile, the public M&A market in Switzerland initiated a strong recovery in the first quarter of 2016, with large transactions being announced. Consolidation in the Swiss financial services industry, including insurance and private banking, shall continue in 2016, as the number of Swiss private banks in particular is expected to continue to decline substantially.
1 Lorenzo Olgiati, Martin Weber, Jean Jacques Ah Choon, Harun Can and David Mamane are partners at Schellenberg Wittmer Ltd. The authors would like to thank their colleague at Schellenberg Wittmer Ltd, Philippe Nicod, for his valuable contribution to this chapter.
2 KPMG Report ‘Clarity on Mergers & Acquisitions 2016’.
3 KPMG Report ‘Clarity on Mergers & Acquisitions 2016’.