[Last updated: 1 January 2025, unless otherwise noted]

There are essentially two ways to effect a takeover. The first is a voluntary or mandatory takeover bid to the shareholders, be it in the form of a cash offer, a share offer or a mix between the two. The second is a statutory merger, where the shareholders' meetings resolve on merging one company into the other or both companies into a new entity. However, in Switzerland, statutory mergers are rarely used in takeover situations.

4.1 Voluntary public cash takeover bid

A voluntary cash takeover bid is an offer for the purchase of the shares of a Swiss or foreign company with a main listing on a Swiss stock exchange addressed publicly to the shareholders of that company. It needs to be made public through a prospectus. It may be pre-announced through a published pre-announcement that contains the key elements of the bid. The pre-announcement triggers the obligation to publish the prospectus within a period of six weeks. The pre-announcement also has the effect of locking-in the minimum price and requiring the bidder and the target to comply with the takeover rules. A pre-announcement may be required if a transaction that is not yet fully prepared leaks or where the bidder needs additional time to prepare certain aspects of the offer.

A public takeover bid may be made for some or all of the shares of the target. A partial offer is basically irrelevant in the Swiss market. The main reason is that if the partial offer is for a number of shares that takes the bidder over the 33 ⅓% voting rights threshold and the target company has no opting-out clause in its articles, the offer must be made for 100% of the shares. Additionally, it is substantially easier and less costly to acquire some blocks of shares in the market rather than submit a partial takeover bid.

1. Price rules

   The minimum price rules are applicable to a bid for the shares of a company without an opting-out clause in the articles. An opting-out clause is a clause in the articles of a company that allows it to exclude the application of the mandatory offer rules to that specific company. The rules require that the price offered to the shareholders of the target company is at least as high as:

   • The highest price paid by the bidder in the 12-month period prior to the launch of the bid. Purchases of derivatives are taken into account by computing the implied price of the share underlying the derivative. This means that a control premium does not need to be paid to a controlling shareholder whose shares are purchased before the bid is launched. Bidders sometimes try to circumvent the minimum price rule by having others purchase shares for them. This does, however, not work as those others are most often deemed to be parties acting in concert with the bidder; and
   • The market price. If a share is sufficiently liquid, the market price equals the 60-trading day volume weighted average price prior to the launch of the offer. If the shares of the target are illiquid, the price is determined by valuation, whereby the prices paid at the market have a particular weight in that valuation.

   A bidder also needs to comply with the best price rule. That rule applies from the launch of the offer until six months after the end of the additional offer period. It applies irrespective of whether there is an opting-out clause or not. Under the rule, if the bidder purchases shares outside of the offer it needs to also offer that same price, if higher than the offer price, to all other shareholders. The rule is particularly dangerous in the following situations:

   • Purchases by parties acting in concert with the bidder – The best price rule also applies to parties acting in concert with the bidder, i.e., violation of the rule by any party acting in concert with the bidder forces the bidder to increase the offer price. The bidder and all its controlled and controlling entities are parties acting in concert with the bidder. The same applies to the target company, its controlled entities and its controlling entities in the case of a pre-agreed transaction. The bidder must make sure that all such parties fully abide by the best price rule by giving corresponding instructions internally to their treasury departments.
   • Purchasing shares from a major shareholder during the offer to secure the bid and granting additional rights, e.g., a gross-up right in case of a subsequent improvement of the offer – Any such additional agreement or right may be regarded as increasing the cash price paid. If that is the case, the value of the additional right or agreement is assessed by an expert and added to the cash price paid, which may then result in a violation of the best price rule requiring the offer price to other shareholders to be increased.
   • Engaging in plans to obtain 100% of the shares subsequent to the offer – There are several ways to squeeze out remaining minority shareholders after the offer. During the applicability of the best price rule, the bidder needs to be particularly careful not to overpay in subsequent purchases or squeeze-out transactions.

   There is no restriction on the currency that may be offered. However, if a currency other than the Swiss Franc is offered, the bidder may have to offer any retail investors the opportunity to exchange the offer price into Swiss Francs at an exchange rate that corresponds to one generally available to large investors only.

2. Certainty of funds

   The law requires that the bid is audited by a special auditor or review body, which is normally one of the large audit companies. Among others, they primarily have to confirm that the bidder has taken those measures that are necessary to ensure that, at the time of settlement of the offer, the necessary funds are available:

   • In a self-financed cash bid, the bidder needs to have sufficient own funds. There is no requirement to put these funds into escrow although the review body may require this in certain circumstances. Normally, the review body will look into the cash-flow planning of the bidder to be comfortable with the use of the funds.
   • In a bank financed bid, a mere term sheet is not enough. The full financing documentation must be available and signed. Until the bid is settled, a so-called "certain funds period" applies. It limits the conditions precedent and the covenants. Conditions that correspond to offer conditions are generally admissible. Conditions precedent concerning the existence, ability to act and change of control of the bidder are admissible as well. Conditions precedent and covenants that are under the control of the bidder, such as the issue of securities or compliance with certain obligations under the agreements (pari passu clauses, negative pledge clauses, etc.) are also allowed during the certain funds period. Even the substantial deterioration of the bidder's ability to make payments is accepted.
3. Offer conditions

   The bidder's offer may be subject to conditions. Conditions are only admissible if:

   • it is in the bidder's interest to set the condition;
   • the condition cannot be substantially influenced by the bidder;
   • the bidder has made all efforts available to it to fulfil a condition; and
   • the condition does not violate any of the general principles of transparency, fairness and equal treatment.

   The last requirement in particular has been used by the TOB to scale back the number of admissible conditions. In essence, the following conditions are admissible in voluntary bids:

   • Minimum acceptance level – For Swiss companies, a company is almost under full control of a shareholder if 66 ⅔% of its shares are owned by one shareholder (see 3.1(a)). Therefore, this is the acceptance threshold a bidder may set if it starts the bid from zero holding. Of course, it may provide a substantial benefit to set the level at 90% as this allows for a squeeze-out merger. However, such a high threshold would require that the bidder hold about 60% of the target shares already before the offer is launched.
   • Material adverse change clauses – Material adverse change clauses need to list major consequences to be acceptable, e.g., a 5% reduction in turnover, a 10% reduction in EBIT or EBITDA and a 10% reduction in equity. The trigger event may either be a future event or an unknown past event.
   • Approvals by authorities – This normally concerns the approval of competition law authorities as well as approvals by authorities that regulate the particular industry of the target, be it in Switzerland or abroad. Typically, one should specifically name these approvals rather than refer to them in general.
   • No prohibition of the offer – Normally, bidders include a condition that the offer or its settlement has not been prohibited by any court.
   • Amendments to articles of incorporation – A bidder must make sure that it controls the target company after the offer. Therefore, a bidder will usually put the offer subject to the removal of any transfer restrictions and voting right restrictions in the articles.
   • Entry in the shareholders' register – To acquire the shares and to be allowed to vote the shares, a bidder needs to be registered with all voting rights in the shareholders' register. Therefore, a bidder will normally make its bid under the condition that the board has approved the registration of the bidder's shares with voting rights in the shareholders' register.
   • Control over the board – Subsequent to the offer, a bidder may wish to fully control the target company. The bidder may therefore ask that the current board members step down as per the settlement and that new board members are elected subject to the settlement. The alternative is that sufficient current board members sign agreements with the bidder under which they are obligated to follow the bidder's instructions.
   • No structural changes – A bidder may also include a condition that aims to limit actions taken by the shareholders' meeting of the target. This includes, for example, open or hidden distributions or disposals of more than 10% of the assets or that influence EBITDA by more than 10%, mergers, demergers, capital increases, new transfer or voting right restrictions.

   The first two conditions only last until the end of the offer period, while the other conditions last until the settlement of the offer, if so provided for in the prospectus. Normally, a bidder will provide that the settlement may be postponed if competition authority clearance has not been obtained. A postponement period of up to four months is the most common period agreed to by the TOB. A bidder will usually provide that it is entitled to waive conditions partly or entirely.

4.2 Voluntary public exchange or mixed offer

Instead of cash, a bidder may offer shares or a mix thereof. Mix-and-match offers are also admissible. The offered shares do not have to be listed shares. There are a number of particularities to be taken into account when offering anything other than pure cash:

1. Price rules

   The minimum price rules and the best price rule apply as well. If the shares are listed and sufficiently liquid then the bidder can use the 60-trading day volume weighted average price of the shares offered to comply with the minimum price rules. If that is not the case, they need to be valued by the special auditor. For compliance with the best price rule, the value of the offered shares at the moment the agreement to exchange shares is entered into is relevant.

   In case of a partial or full exchange offer, there are two additional price rules which must be complied with:

   • Pre-offer cash purchases rule – If during the 12-month period before launching the bid, the bidder purchases 10% or more of the equity capital of the company with cash, it is under an obligation to offer a full cash alternative. That cash alternative may be lower than the share alternative as long as it complies with the minimum price rules. The pre-offer cash purchases rule does not apply if the target's articles contain a so-called opting-out clause.
   • Pending offer cash purchases rule – If, during a bid, the bidder purchases shares for cash, it needs to offer a full cash alternative. Again, that cash alternative may be lower than the share alternative as long as it complies with the minimum price rules.
2. Certainty of funds

   Certainty of funds in exchange offers or for the shares part in mixed offers means that the bidder must have taken the necessary measures to ensure that the required shares can be created. These measures need not have been taken before the bid is launched, but the review body needs to be satisfied that the plans to take those steps are such that they are going to be implemented in time.

3. Offer conditions

   The following are typical additional offer conditions in exchange or mixed offers:

   • Shareholders' meeting to approve the issue of new bidder shares – In some cases, the board of the bidder has the necessary powers to resolve to issue shares to the target's shareholders. However, a shareholders' meeting of the bidder may also be required. The approval by the bidder's shareholders may be set as a condition of the exchange or mixed offer.
   • Registration and listing of newly issued shares, approval of issue prospectus and admission to trading – Depending on the origin of the bidder, certain measures may need to be taken and approvals sought so that the bidder's shares can be admitted to trading on a stock exchange. It is admissible to set the granting of these approvals as conditions for the exchange or mixed offer.

4.3 Mandatory offer rules

A shareholder is obligated to submit a mandatory offer if it crosses the 33 ⅓% threshold, or a higher threshold if there is an opting-up clause in the target company's articles. An opting-up clause is a clause in the articles of a company which moves the mandatory offer threshold to a level not greater than 49%. No obligation to submit a mandatory offer exists if the articles of the target company provide for an opting-out clause as in this case the mandatory offer rules do not apply to the relevant company. There are no creeper rules.

There are a number of exemptions from the obligation to submit a mandatory bid. For example, if shareholders form a group to coordinate a sale of their shares rather than to control a company, they may obtain an exemption even if they have crossed the requisite threshold for making a mandatory offer. There are various other situations in which an exemption may be sought. In each case, the exemption must be obtained before entering into the particular transaction. The TOB is responsible for approving any exemptions.

All shares held by a shareholder, directly or indirectly, or in a group together with others, are aggregated to determine whether or not the mandatory offer threshold has been crossed. A group of shareholders exists if shareholders act together and coordinate their actions with respect to controlling a company. This goes beyond mere discussions with a view to a shareholders' meeting. The boundaries are quite vaguely defined and the TOB looks at each case individually. Therefore, it is important to enter into an agreement early on if there is an intention to coordinate actions in order to avoid triggering the offer threshold.

If a shareholder is under an obligation to submit a mandatory bid, there are some special rules to be observed:

• Extent of the offer – The offer must be made to all shareholders holding listed equity securities;
• Price rules – The bidder may offer shares, but is under an obligation to offer a full cash alternative to the target's shareholders; and
• Conditions – The offer conditions are more limited. Acceptance thresholds do not apply and material adverse change clauses are inadmissible. Conditions that require control to be obtained are admissible.

The typical practice in Switzerland is to buy shares up to 33 ⅓% or slightly below and then, when the price rules allow for a low offer price, to cross the threshold and submit an offer at the minimum price. By doing so, the bidder just crosses the mandatory offer threshold but only acquires a few shares. After the expiry of the best price rule, the bidder is free to buy as many shares as it wishes in the market without the obligation to submit another bid.

4.4 Duties of the board of directors

Under Swiss law, the board of directors is not the shareholders' agent, but only has responsibility towards the company. It has to act solely in the company's interests. This principle becomes slightly modified in a public takeover scenario:

• The board needs to comment on the bid and, in particular, to consider the bid from the perspective of the shareholders. If it recommends accepting or not accepting the bid, such recommendation has to be made from the shareholders' perspective and not the target company's perspective. Instead of giving a recommendation, the board may also simply list the advantages and disadvantages of the bid. The report of the board needs be true and complete. If a fairness opinion is obtained, it needs to be obtained from an independent and appropriately qualified provider.
• If, due to the situation of the company, it is necessary for the board of directors to sell the target company or where the sale of the company becomes inevitable, the board's duties shift more towards the shareholders. The board is now under an obligation to maximize the price, but is not obligated to arrange for a bidding competition.

Within the framework described, there is no difference between the duties of the board in a hostile offer or in a recommended offer. The only difference is at the beginning of an approach when a bidder may contact the board with a high indicative price, which motivates the board to allow such bidder to conduct due diligence. If the board does so, the bidder may, subsequent to the due diligence, try to renegotiate a lower offer price. That creates a difficult situation for the board as, in many instances, the only way to control a takeover bid is by not allowing a due diligence. Thus, the board should, prior to allowing a due diligence to take place, already be thinking about its duty to obtain a high offer price and to try to secure that price before allowing a due diligence.

Aside from the above obligations, there are a number of further duties of the board of directors that apply after the launch of the takeover bid. In particular, the board of directors must treat all bidders equally, which has an impact on granting access to due diligence and paying break fees. The board must report defense actions it intends to take and is barred from taking certain defense measures, in particular those that entail a substantial change to the company's capital structure, the remuneration of directors or the business of the target company.

4.5 Mergers

A takeover may also be effected through a statutory merger, where either:

• The two companies involved form a new entity and combine into that entity; or
• One company survives and takes over all the assets and liabilities of the other company by granting the other company's shareholders shares in the surviving entity.

Those transactions are possible both within Switzerland and, if the foreign law allows, cross-border. Cross-border mergers often pose a challenge because one needs to properly consider all applicable laws and be aware of the risk of undesired tax consequences. In pure Swiss transactions statutory mergers are uncommon. The disadvantage of the merger is that shareholders have appraisal rights, i.e., they may dispute the exchange ratio offered relating to the merger. Although the success rate of shareholders that have asked for an appraisal is very low, that right nevertheless leads to uncertainty that may last for quite a while. In addition, offering only cash requires a super-majority of 90%. As a consequence, such mergers are much less common than public takeover bids.