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

A bidder should observe two simple rules for a successful takeover in Switzerland:

• Move quickly as soon as it contacts the target or publishes the bid; and
• Offer a fair and reasonable price.

6.1 Acting on a fast timeline

1. Preparation before contacting the target

   By far the biggest risk in a public takeover is a competing bid. The bidder may either lose out to a competing bid or risk over-paying if the price is driven up by a competing bidder. Normally, the competing bidder will need several weeks to assess the bidding opportunity. As seen in the timeline above, the tightest (normal) timeline gives a competing bidder a window of 30 trading days, or roughly six weeks, to publish the competing bid. Under normal circumstances, this is not sufficient to assess and launch a competing bid, which needs to be published at the end of the offer period of the first bid. However, a 10-week window may just be enough. These four weeks may make the difference.

   The bidder should always be aware that the target company's board may not be primarily interested in organizing a bidding competition. In fact, the board may wish to avoid a takeover bid entirely. Unfortunately, this knowledge does not help a lot. It just means that one should only present a takeover bid as unavoidable to the target company once one has done all the home work. If a bidder can persuade a target company that a takeover is unavoidable, the board's reluctance to accept a takeover bid may fade away. However, this does not mean that they will now full-heartedly welcome the bidder, rather that they may wish to organize a bidding competition since their interest is now to obtain the best price for the shareholders.

   Ultimately, the conclusion is that a bidder should confidentially prepare the bid and proceed with the due diligence based on publicly available information without disclosing any takeover intentions to the target. In certain instances, it may be appropriate to begin discussions with the target to get an impression of its position regarding a business combination. A bidder should present a proposal to the target only after the bidder is fully prepared.

   Discretely preparing a bid is also sensible to avoid the application of the "put up or shut up" rule, which may require certain decisions to be made before the bidder is ready. Under this rule, the bidder could be forced to either submit a bid or refrain from doing so for a period of six months. The rule will only apply where there is confusion in the market as a result of speculative comments by the possible bidder. Therefore, as long as the bidder remains entirely silent or announces its intentions in the correct way, the risk that the "put up or shut up" rule applies is reduced.

2. Use of standard and safe approaches increases speed

   Speed may also be jeopardized by employing risky approaches, such as earn-out structures for major shareholders that sell before the public takeover or put- and call-option structures for management in an MBO if management has also committed to sell shares. Such structures are not prohibited, but they are more prone to challenges which may slow down or hinder the efficient execution of the transaction.

3. Be wary of target companies taking away control over the bid

   When approaching a target, it is important to put a confidentiality agreement in place as soon as possible (see 3.2(c)(i)). Target companies often try to add a standstill clause into a confidentiality agreement and a clause that prevents the submission of the bid without the target's consent or attempts to lock in a certain price. A bidder should be wary of such attempts:

   • A bidder should try to avoid the consent clause and the price clause, although their effectiveness is limited. Once a bid is submitted to the shareholders, the bidder is bound and it is irrelevant if it was made in violation of the consent clause. Locking in the price only works effectively if the agreement is set up such that it works in favor of the shareholders and gives them the right to enforce the agreement directly.
   • The standstill clause on the other hand is most often acceptable, for the following reasons:
     • Stake building is possible as long as the target has not been contacted, since Swiss laws allow the bidder to trade based on the information that it intends to submit a takeover bid. However, trading target shares based on the knowledge that the target board is receptive of the bid or based on other price relevant information is not allowed. This needs to be factored in if the bidder wishes to purchase a stake shortly before the offer is launched. Such purchase is allowed as long as it does not exploit price sensitive information.
     • In addition to the limitations imposed by insider trading, stake building is also limited by disclosure obligations (see 3.2(b)). Therefore, unless one or several large blocks can be purchased, stake building prior to the launching of the bid is not helpful. However, if a large stake can be purchased, the uncertainty in the takeover bid can often be removed and speed becomes less of a factor.
4. Hostile approaches

   Switzerland has seen a number of hostile bids, some ending in favor of the original bidder, some in favor of a competing bidder. Typically, the target company was only successful in defending against a hostile bid when the price was insufficient. Hostile bids can be successful in Switzerland, but there are also some drawbacks:

   • Generally, hostile bids are not well received in the Swiss business community. This reputational issue needs to be considered carefully, particularly with respect to the employees. Nevertheless, many bidders have been able to properly manage the risks entailed, profiting from the fact that while the Swiss business community does not like a hostile approach, it also dislikes a defensive battle.
   • In the case of a bid that is not discussed in advance with the target company, it is not possible to get pre-approval from the TOB.
   • In certain instances, shareholders will have to vote on removing transfer or voting right restrictions to enable the bid. A shareholders' meeting is called by the board or possibly upon the request of shareholders holding a specified number of shares. If the offer is submitted for such company, the board may refuse to call the shareholders' meeting and, in such case, a shareholder with a sufficient holding of shares may have to go to court to force a shareholders' meeting to be called. However, the likelihood of the board refusing to call a shareholders' meeting in case of an offer with a good price is rather low, particularly as there is risk of both negative publicity and liability towards shareholders.

6.2 Paying a fair and reasonable price

Besides the necessity of speed, offering a fair and reasonable price is the second principle to observe. A bidder will also wish to avoid overpaying and so it is important to look into aspects that help to determine the price:

• The support of the board – For a board, it is extremely difficult to defend a company against a takeover bid if the price is good. Any board will have to consider what happens if it becomes public that a good price was confidentially made and the shareholders learn that the board did not support the offer. In many instances, a board will also not be inclined to engage in a bidding process as this inevitably means that independence is lost and there is a good chance of a leak. The board will therefore have a tendency to defend the target company by explaining that its own strategy, if valued properly, will beat the price offered by the bidder.
• The ordinary shareholders' votes – To control a company, it is often sufficient to get across the 50% threshold or even obtain fewer shares (see 3.1(a)). In particular, by crossing the 50% threshold, the bidder may elect all the directors and executives, and determine strategy and daily management. Experience shows that if the bidder gets a majority of the shares tendered during the offer period, it also gets across at least the two-thirds super-majority line in the additional offer period, which enables the shareholder to effect a delisting. The shareholders tendering are then not interested in remaining in a (potentially) delisted company ruled by one large shareholder who provides only minimal information. Many shareholders, such as investment funds, may not even stay invested in the stock. To get across the 50% threshold, a bidder only needs to offer a price that is acceptable to 50% of the shareholders.
• Super majority shareholders' votes – In certain instances, the success of the public takeover requires the removal of transfer restrictions or of voting rights restrictions. A number of Swiss companies limit the voting rights of shareholders that hold more than a certain percentage of shares. The bid is then made conditional on a shareholder vote to remove these restrictions. According to the law, the removal of such restrictions only requires a simple majority approval. However, the restrictions themselves may operate such that more than a simple majority of shareholders is required. Additionally, a number of companies provide that a super majority needs to approve the removal of those limiting clauses. Therefore, in case of a target company with these restrictions, the price offered by the bidder needs to accommodate the majority required to remove the limiting clauses.

6.3 Alternative tactics

Besides the two basic principles – speed and price – bidders often think about applying other deal protection methods, such as agreeing on exclusivity, break fees or tender agreements with larger shareholders. These techniques work to a certain extent, but are generally not very effective. Taking each of these in turn:

• Exclusivity – Exclusivity does not protect against a better competing offer. If the target company receives a proposal with a better offer price, the board is under a fiduciary duty to enter into discussions with the competing bidder and allow due diligence to the extent granted to the first bidder.
• Break fees – Break fees may cover costs, but nothing more. Otherwise, they are in conflict with the fiduciary duties of the board. Additionally, as all bidders need to be treated equally, break fees must be offered to all bidders and not just the first bidder.
• Tender agreements – Tender agreements are valuable in making sure that larger shareholders do not jeopardize a transaction. However, they become ineffective as soon as a competing bid is published. Any shareholder may then freely choose between the competing bids and may even withdraw tenders already made, irrespective of any tender agreements.

One needs to be careful with voting agreements and other arrangements with existing shareholders. Such agreements may make the contracting party a party acting in concert with the bidder. Therefore, their behavior is fully attributed to the bidder and may trigger a number of disclosures. In the worst case, the bidder may be forced to submit a mandatory bid (see 4.3).

6.4 Defense mechanisms employed

The above also illustrates the defense mechanisms employed by Swiss companies. There are usually no hard defense mechanisms in place, such as the right of a related company to purchase substantial assets of the target company.

Usually, defense mechanisms, such as voting rights or transfer restrictions, limitations on deselecting the board, etc., may be removed by a majority or a super-majority vote. The difficulty with these clauses is that if the board vigorously defends the company, a bidder needs to factor in the time required to enforce the calling of a shareholders' meeting in the courts. That may take between three and eight months. The bidder also needs to make sure that there are larger shareholders supporting the bid and willing to take the appropriate court actions, unless the bidder has already purchased sufficient shares to request a shareholders' meeting. The defense of Swiss companies therefore works on the level of reputation and the fear that a bid may be delayed by court proceedings or otherwise.