Recent Changes in the Swiss Delisting Regime in the Context of Public Tender Offers

On 1 January 2023, the revised Swiss Corporate Law entered into force. Under the new legislation, it is the shareholders’ meeting and no longer the board of directors which has the power to make a decision on the delisting of the equity securities of a Swiss listed company.

In 2022, SIX Exchange Regulation (SER) published a total of eleven delisting decisions six of which were a result of a successful public tender offer. In the context of public tender offers, a delisting of the target’s equity securities is typically sought as soon as legally possible following the settlement of the public tender offer and the ensuing squeeze out of non-tendering minority shareholders. In the past five years every public tender offer for shares listed on SIX Swiss Ex-change has been followed by a delisting of the target shares.

In Switzerland, the delisting procedure is governed by the regulations of the respective stock exchange. For SIX Swiss Exchange (SIX)-listed companies, the self-regulatory delisting regime is mainly contained in the Directive on Delisting of Equity Securities, Derivatives and Exchange Traded Products of the SER which applies to issuers whose shares are listed on SIX Swiss Exchange. The question of which corporate body is competent to resolve on the delisting is, however, one to be assessed under Swiss corporate law. The revised Swiss Corporate Law lists delisting among the inalienable powers of the shareholders’ meeting (Article 698 of the Swiss Code of Obligations, or CO), and the delisting resolution qualifies as an “important resolution”, therefore requiring a supermajority of at least two thirds of the votes represented and the majority of the nominal value of the shares represented at the respective shareholders’ meeting (Article 704, CO).

The legislature justifies the shift of competence from the board of directors to the shareholders’ meeting on the far-reaching legal and economic consequences that delisting has for the shareholders of a company. This shift aligns Switzerland with regulations in many other European states.

Following public tender offers for all publicly held shares in SIX-listed companies, bidders have in the past typically reached the required threshold to squeeze out minority shareholders. This threshold lies at 90% of the voting rights for a squeeze-out merger and 98% of the voting rights for a statutory squeeze-out (the latter being the more robust route from a bidder’s perspective as the price is set as the offer price paid in the preceding public tender offer). Following a squeeze-out, the delisting rules of the SER allow for an expedited delisting within five trading days.

The revised Corporate Law coming into force prompts the question: will achieving tender results at 90% and above become more difficult in the future.  

It has been standard practice that bidders disclose in the offer prospectus their intention to delist the target’s shares following the settlement of the offer, which they are legally entitled to do as soon as they control the board of director, which requires 50% of the voting rights represented at a shareholders meeting. The language in the offer prospectus typically reads as follows: “After the settlement of the offer and irrespective of the acceptance level, the offeror intends to have the target apply to SIX for the delisting of the target’s shares in accordance with the listing rules of SIX” (emphasis added). This threat of being exposed to a forced expedited delisting of the target shares may be one of the reasons why Swiss public tender offers have regularly yielded very high tender results. The internal regulations of many institutional shareholders make it impossible for them to risk being locked into a delisted shareholding with no secured exit route available.

Under the new regime, with the shareholders’ meeting being the competent body to resolve on a delisting, a blocking minority of one third of the votes represented at the shareholders’ meeting may prevent a tender offer as they are no longer faced with the risk of the target board resolving on a delisting against their will. In summary, the shift in competence from the board to the shareholders’ meeting removes some of the bidder’s leverage and strengthens the shareholders’ position in the context of public tender offers. The years ahead will show how this will play out in the Swiss takeover landscape and if it will over time affect the level of the premiums offered or even the success rate of public tender offers.

In contrast to resolutions of the board of directors, which according to Swiss law cannot be challenged (but in severe cases may be void), shareholders’ resolutions that violate the law or the articles of associations can be challenged in court by the board of directors and every shareholder within two months after the respective shareholders’ meeting. Hence, under the new legislation, minority shareholders could challenge the delisting resolution arguing that the resolution improperly deprives or restricts the rights of the shareholders (Article 706 paragraph 2 cif. 2, CO) and is therefore invalid.

It should be noted that the requirements for a successful challenge are typically high, and that the courts are generally reluctant to overturn shareholders’ resolutions. Especially in the case of a delisting following a successful public tender offer, a challenge will likely fail as, in such a case, a delisting is usually reasonable and the shareholders were offered an exit opportunity in the course of the takeover offer. Furthermore, shareholders’ resolutions can be implemented despite an ongoing challenge, provided that the court has not ordered a preliminary injunction. Against this background, a successful challenge of the delisting resolution of the shareholders’ meeting in the context of a successful public tender offer seems rather unlikely, but shareholders may be able to delay the delisting.

Bidders may request the target to include the delisting as an agenda item for the extraordinary shareholders’ meeting needed to change the composition of the target board and to make certain amendments to the articles of association in view of the settlement of the tender offer.