Private M&A - media.homburger.ch · Yozua Makes Makes & Partners Law Firm Ireland 122 Paul Robinson...

2019Private M

&A

Private M&AContributing editorsWill Pearce and John Bick

2019© Law Business Research 2018

Private M&A 2019Contributing editors

Will Pearce and John BickDavis Polk & Wardwell LLP

PublisherTom [email protected]

SubscriptionsJames [email protected]

Senior business development managers Adam [email protected]

Dan [email protected]

Published by Law Business Research Ltd87 Lancaster Road London, W11 1QQ, UKTel: +44 20 3780 4147Fax: +44 20 7229 6910

© Law Business Research Ltd 2018No photocopying without a CLA licence. First published 2017Second editionISBN 978-1-78915-055-1

The information provided in this publication is general and may not apply in a specific situation. Legal advice should always be sought before taking any legal action based on the information provided. This information is not intended to create, nor does receipt of it constitute, a lawyer–client relationship. The publishers and authors accept no responsibility for any acts or omissions contained herein. The information provided was verified between July and September 2018. Be advised that this is a developing area.

Printed and distributed by Encompass Print SolutionsTel: 0844 2480 112

LawBusinessResearch

Reproduced with permission from Law Business Research Ltd This article was first published in October 2018

For further information please contact [email protected]

© Law Business Research 2018

CONTENTS

2 Getting the Deal Through – Private M&A 2019

Comparing UK and US acquisition agreements 7Will Pearce and William TongDavis Polk & Wardwell London LLP

Price mechanisms: seller versus buyer considerations 11Amit Abhyankar and Hinesh DesaiPricewaterhouseCoopers LLP

Creative dealmaking: the rise and continued relevance of M&A insurance 14Piers JohansenAon M&A and Transaction Solutions

Data privacy and cybersecurity in global dealmaking 19Pritesh Shah and Daniel ForesterDavis Polk & Wardwell LLP

Australia 23Michael Wallin, Jessica Perry and Andrew JiangMinterEllison

Austria 29Florian KusznierSchoenherr Rechtsanwaelte GmbH

Belgium 35Dries Hommez and Laurens D’HooreStibbe

Brazil 42Marcelo Viveiros de Moura, Marcos Saldanha Proença and André Santa RittaPinheiro Neto Advogados

Canada 47John Mercury, James McClary, Bryan Haynes, Ian Michael, Kristopher Hanc and Drew BroughtonBennett Jones LLP

China 53Jie Lan and Jiangshan (Jackson) Tang Haiwen & PartnersHoward Zhang Davis Polk & Wardwell LLP

Costa Rica 59Esteban Agüero GuierAguilar Castillo Love

Denmark 64Anders Ørjan Jensen and Charlotte ThorsenGorrissen Federspiel

Ecuador 70José Rafael Bustamante Crespo and Kirina González ArtigasBustamante & Bustamante

Egypt 75Omar S Bassiouny and Maha El MeihyMatouk Bassiouny

Finland 80Sten Olsson and Johannes HusaHannes Snellman Attorneys Ltd

France 86Christophe Perchet, Juliette Loget and Jean-Christophe DevougeDavis Polk & Wardwell LLP

Germany 92Alexander Schwarz and Ralf MorshäuserGleiss Lutz

Hong Kong 98Paul Chow and Yang ChuDavis Polk & Wardwell

India 106Iqbal Khan and Faraz KhanShardul Amarchand Mangaldas & Co

Indonesia 117Yozua MakesMakes & Partners Law Firm

Ireland 122Paul Robinson and Conor McCarthyArthur Cox

Italy 129Filippo Troisi and Francesco FlorioLegance - Avvocati Associati

Japan 135Kayo Takigawa and Yushi HegawaNagashima Ohno & Tsunematsu

Korea 141Gene-Oh (Gene) Kim, Joon B Kim and Jae Myung KimKim & Chang

Luxembourg 147Gérald Origer, Claire-Marie Darnand and Michaël MeylanStibbe

Malaysia 153Dato’ Foong Chee Meng, Michelle Tan Wen Mien, Liang Soo Chee and Choo Kang WeiFoong & Partners

Myanmar 160Takeshi Mukawa, Win Naing and Nirmalan AmirthanesanMHM Yangon

Netherlands 166Hans Witteveen and Julie-Anne SiegersStibbe

Norway 173Ole Kristian Aabø-EvensenAabø-Evensen & Co Advokatfirma

Philippines 182Lily K Gruba, Jorge Alfonso C Melo, Karen Kate C Pascual and Bea Lizelle B GutierrezZambrano Gruba Caganda & Advincula (ZGLaw)


www.gettingthedealthrough.com 3

PREFACE

Poland 188Joanna Wajdzik, Anna Nowodworska, Karolina Stawowska and Damian MajdaWolf Theiss

Portugal 196Francisco Santos CostaCuatrecasas

Serbia 203Nenad Stankovic, Sara Pendjer, Tijana Kovacevic and Dusan DjordjevicStankovic & Partners

Singapore 209Andrew Ang, Ong Sin Wei and James ChooWongPartnership LLP

South Africa 217Charles Smith and Jutami AugustynBowmans

Spain 224Federico Roig García-Bernalt and Francisco J Martínez MarotoCuatrecasas

Sweden 231Peter Sundgren and Matthias Pannier Advokatfirman Vinge KB

Switzerland 237Claude Lambert, Reto Heuberger and Andreas MüllerHomburger AG

Taiwan 243Kai-Hua Yu and Yeng LuLCS & Partners

Turkey 248Noyan Turunç, Kerem Turunç, Esin Çamlıbel, Grace Maral Burnett and Nilay EnkürTURUNÇ

United Kingdom 254Will Pearce, Simon J Little and William TongDavis Polk & Wardwell London LLP

United States 261Harold Birnbaum, Lee Hochbaum, Brian Wolfe and Daniel BrassDavis Polk & Wardwell LLP



PREFACE

Getting the Deal Through is delighted to publish the second edition of Private M&A, which is available in print, as an e-book and online at www.gettingthedealthrough.com.

Getting the Deal Through provides international expert analysis in key areas of law, practice and regulation for corporate counsel, cross-border legal practitioners, and company directors and officers.

Throughout this edition, and following the unique Getting the Deal Through format, the same key questions are answered by leading practitioners in each of the jurisdictions featured. Our coverage this year includes new chapters on Brazil, Costa Rica, Ecuador, Egypt, Indonesia, Malaysia, Myanmar, Philippines, Singapore and Taiwan.

Getting the Deal Through titles are published annually in print. Please ensure you are referring to the latest edition or to the online version at www.gettingthedealthrough.com.

Every effort has been made to cover all matters of concern to readers. However, specific legal advice should always be sought from experienced local advisers.

Getting the Deal Through gratefully acknowledges the efforts of all the contributors to this volume, who were chosen for their recognised expertise. We also extend special thanks to the contributing editors, Will Pearce and John Bick of Davis Polk & Wardwell, for their continued assistance with this volume.

LondonSeptember 2018

PrefacePrivate M&A 2019Second edition


Homburger AG SWITZERLAND


SwitzerlandClaude Lambert, Reto Heuberger and Andreas MüllerHomburger AG

Structure and process, legal regulation and consents

1 How are acquisitions and disposals of privately owned companies, businesses or assets structured in your jurisdiction? What might a typical transaction process involve and how long does it usually take?

Acquisitions of privately owned businesses are usually structured as share or asset deals.

Companies may also be acquired or combined by means of a statutory merger pursuant to the Federal Act on Mergers, Demergers, Transformations and Transfers of Assets (Merger Act). Statutory merg-ers are subject to a formal procedure and can involve two forms: either, one company is dissolved and merged into another company (merger by absorption), or the two combining companies are both dissolved and merged into a newly incorporated company (merger by combina-tion). In both cases, the assets and liabilities of the dissolved company or companies are transferred to the surviving or newly incorporated company by operation of law. The merger consideration may consist of shares of the surviving or the newly incorporated company, shares of another company (for example, the parent company in a triangular merger), cash, or a combination thereof. The merger of two corpora-tions requires approval by at least two-thirds of the votes represented and the absolute majority of the par value of the shares represented at the shareholders’ meeting. However, if the merger consideration com-prises any compensation other than shares of the surviving or newly incorporated company, 90 per cent of all voting securities outstanding need to approve the merger.

Joint venture companies may be established by transferring certain assets (and liabilities) to a newly incorporated (or existing) company in exchange for shares in such company.

Divestments or spin-off transactions may be structured in various ways, including:• the transfer of the business (including the assets and liabilities) to

be spun-off to the acquiring company, either by means of an asset deal or a business transfer pursuant to the Merger Act, against cash or shares;

• a two-step demerger, in which the business (including the assets and liabilities) to be spun-off is first transferred to a (newly incor-porated) subsidiary and the shares of such subsidiary are then dis-tributed to the shareholders of the parent company (distribution in kind), who may sell the shares to an acquirer;

• a statutory demerger (hardly seen in practice due to the unlimited joint and several (subsidiary) liability and reduced flexibility).

The process and timing of a transaction depends, among other things, on whether the acquisition or disposal is structured as an auction pro-cess or in the form of a one-on-one negotiation.

2 Which laws regulate private acquisitions and disposals in your jurisdiction? Must the acquisition of shares in a company, a business or assets be governed by local law?

Private acquisitions are normally a matter of negotiations between the involved parties, and no regulated offer process as in public acquisitions is applicable. While the Swiss Code of Obligations applies to most trans-action structures, the majority of its relevant provisions are not manda-tory and may be contracted out.

Statutory mergers and demergers are governed by the Merger Act, whose provisions are largely mandatory.

The Swiss Federal Act on Cartels and other Restraints of Competition and the Ordinance on Merger Control govern merger control aspects.

An acquisition is generally not required to be governed by Swiss law, except for certain aspects of a transaction (eg, corporate approv-als, transfers of shares in a Swiss company, transfers of Swiss real estate) as well as certain transaction structures (eg, statutory merger or demerger), which are governed by mandatory Swiss statutory law.

Transaction agreements are typically drafted in an Anglo-American style and governed by Swiss law.

3 What legal title to shares in a company, a business or assets does a buyer acquire? Is this legal title prescribed by law or can the level of assurance be negotiated by a buyer? Does legal title to shares in a company, a business or assets transfer automatically by operation of law? Is there a difference between legal and beneficial title?

The buyer becomes the legal owner of the acquired shares, assets or liabilities as a matter of contract and statutory law. The level of assur-ance cannot be negotiated by the parties; rather, the requirements for transfer of title under the applicable statutory law must be complied with. Usually, legal title is transferred automatically by operation of law if the statutory prerequisites are met (eg, the share transfer in a private company usually requires the transfer of the certificated shares with the seller’s endorsement; the approval of the company’s board; and the registration of the buyer in the share register of the company). For real estate, a registration in the land register is required. There is no distinc-tion in Switzerland between legal and beneficial title as regards own-ership in shares, assets and liabilities. However, the parties may agree that the transfer of the shares or business is effected with retroactive economic effect, although legal title will be transferred only later upon completion of the transaction.

4 Specifically in relation to the acquisition or disposal of shares in a company, where there are multiple sellers, must everyone agree to sell for the buyer to acquire all shares? If not, how can minority sellers that refuse to sell be squeezed out or dragged along by a buyer?

As a rule, every shareholder must agree to the sale of his, her or its shares. Shareholders’ agreements (if any) regularly provide for drag-along or tag-along rights, which are usually triggered by a contractually defined number of shareholders willing to sell or a minimum percent-age of shares that are being sold. In this event, the minority sharehold-ers are contractually required to sell their shares.

In a statutory merger, all shares of the absorbed company will cease to exist and the absorbed company will be dissolved. A statutory merger is resolved in a shareholders’ meeting by at least two-thirds of the votes represented and the absolute majority of the par value of the shares represented at the shareholders’ meeting. A squeeze-out merger (ie, if shareholders are forced to accept compensation other than shares of the surviving company) requires a 90 per cent majority of all voting securities outstanding.


SWITZERLAND Homburger AG


5 Specifically in relation to the acquisition or disposal of a business, are there any assets or liabilities that cannot be excluded from the transaction by agreement between the parties? Are there any consents commonly required to be obtained or notifications to be made in order to effect the transfer of assets or liabilities in a business transfer?

As a general rule, the parties may contractually define the scope of assets, liabilities and contracts to be transferred in an asset deal. Other than in the case of a business transfer pursuant to the Merger Act, the counterparties of contracts must be notified of or consent to the trans-fer of the contract based on contractual change of control, no-assign-ment or no-merger clauses. Such clauses cannot prevent the closing of the asset deal as such, but the relevant contract can either be termi-nated or the contract transfer be prevented.

In the event of a transfer of a business, the transfer of the employ-ment contracts relating to the business cannot be excluded. Such employment contracts transfer by operation of law to the buyer unless the employee terminates his or her employment contract within the statutory termination period.

6 Are there any legal, regulatory or governmental restrictions on the transfer of shares in a company, a business or assets in your jurisdiction? Do transactions in particular industries require consent from specific regulators or a governmental body? Are transactions commonly subject to any public or national interest considerations?

Under Swiss law, there are no foreign investment control mechanisms or other general legal instruments that would allow governmental agencies to influence or restrict the completion of business combina-tions or acquisitions.

There are also generally no restrictions on foreigners or foreign companies acquiring shares in Swiss companies, other than in specific sectors such as financial services, radio and television, telecommunica-tions and transportation or with respect to real estate. Further, sanc-tions imposed against certain countries, groups or individuals may bar individuals and entities from investing in Switzerland.

The acquisition by a foreign person or a foreign-controlled com-pany of rights in rem over real estate, or the acquisition of non-listed shares of a company owning such rights is subject to governmental approval if (rules of thumb): • one-third or more of the target company’s assets or consolidated

assets (ie, including the assets of its subsidiaries), at market value, consists of real estate other than commercially used real estate;

• the legal entity’s actual purpose is to acquire or trade in real estate; or

• the legal entity possesses considerable land reserves suitable for residential buildings or industrial land reserves that will not be used within two to three years.

Governmental approval is granted only in exceptional cases. Agricultural properties may not be acquired by non-farmers (whether Swiss or foreign).

7 Are any other third-party consents commonly required?In the case of a sale of a business including contracts, consents from counterparties to contracts may be required depending on the struc-ture of the transaction (see question 5). In a share deal, usually the board of directors of the company must approve the share transfer and register the acquirer in the share register of the company.

8 Must regulatory filings be made or registration fees paid to acquire shares in a company, a business or assets in your jurisdiction?

Certain transactions such as mergers, demergers, transformations and business transfers pursuant to the Merger Act have to be filed with the commercial register. The transfer of real estate requires a registra-tion in the land register. If a transaction is subject to merger control, a merger control filing must be made.

Advisers, negotiation and documentation

9 In addition to external lawyers, which advisers might a buyer or a seller customarily appoint to assist with a transaction? Are there any typical terms of appointment of such advisers?

Depending on the complexity of the transaction, a party may appoint one or several advisers such as investment bankers, lawyers, economic and financial advisers, tax consultants and auditors. The adviser’s rights and obligations are specified in an engagement letter. As a matter of Swiss mandatory statutory law, such engagement can be terminated by either party at any time. The adviser owes a duty of care and loyalty. As a result, conflicts of interest must be avoided and confidentiality maintained.

If the adviser prepares a report, it is usually addressed to the client, but it may also be provided to the other side on a non-reliance or reli-ance basis.

10 Is there a duty to negotiate in good faith? Are the parties subject to any other duties when negotiating a transaction?

In general, a party has to negotiate in good faith, which includes the duty to give true answers that are not misleading if asked, but not a gen-eral duty to disclose any and all potentially relevant facts without being asked. In the event of a breach of pre-contractual or contractual duties, the injuring party could be liable for pre-contractual (culpa in contra-hendo), contractual or fraudulent statements.

11 What documentation do buyers and sellers customarily enter into when acquiring shares or a business or assets? Are there differences between the documents used for acquiring shares as opposed to a business or assets?

In general, there are two types of agreements: share purchase agree-ments and asset purchase agreements. While they differ in the object of the sale with all its consequences, they are otherwise very similar and contain comparable provisions. Further, closing documents for the transfer of shares or assets and liabilities are required. Statutory mergers, demergers and business transfers pursuant to the Merger Act require additional documentation.

12 Are there formalities for executing documents? Are digital signatures enforceable?

Share or asset purchase agreements do not need to be executed in a cer-tain form. In practice, they are made in writing. Shareholder resolutions approving statutory mergers, demergers and business transfers pursu-ant to the Merger Act must be recorded in a public deed and be filed with the commercial register, together with certain other documents.

Only qualified electronic signatures issued by a Swiss-recognised provider of certification services are enforceable. Electronic signatures are therefore not common in Switzerland. Foreign electronic signa-tures that do not comply with this requirement are not enforceable in Switzerland.

Due diligence and disclosure

13 What is the typical scope of due diligence in your jurisdiction? Do sellers usually provide due diligence reports to prospective buyers? Can buyers usually rely on due diligence reports produced for the seller?

Usually, there is an (electronic) data room that the buyer may use for its due diligence. Due diligence normally includes all aspects and covers business, financial, tax, environmental, employment, pension, insur-ance, compliance and legal matters. Sellers may also provide a ven-dor due diligence report to prospective buyers. Vendor due diligence reports are normally produced by external specialists. Scope and form of reliance vary on a case-by-case basis.

14 Can a seller be liable for pre-contractual or misleading statements? Can any such liability be excluded by agreement between the parties?

A seller can be liable for pre-contractual or misleading statements (see question 10). In practice, such pre-contractual liability is rare, unless there is a manifest violation of the principle of good faith. It cannot be excluded contractually.




15 What information is publicly available on private companies and their assets? What searches of such information might a buyer customarily carry out before entering into an agreement?

Private companies must be registered in the commercial register (www.zefix.ch). Among other things, its share capital, the purpose of the com-pany, and its directors and officers and their respective signatory power are registered. In addition, certain documents such as the articles of incorporation can be obtained from the commercial register. Other pub-licly available information can be found in the land register and the debt enforcement register. While access to the commercial register is unre-stricted, the land and the debt enforcement registers can be inspected only after having shown evidence for a prima facie legitimate interest.

16 What impact might a buyer’s actual or deemed knowledge have on claims it may seek to bring against a seller relating to a transaction?

Unless otherwise agreed, the buyer is deemed to have knowledge of any facts including the disclosed information.

In the event of a breach of contractual representations and war-ranties, the liability of the seller is usually contractually excluded if the buyer had or should have had knowledge of the matter. The transaction agreement usually provides that the buyer has knowledge only of facts and circumstances that have either been fairly disclosed in the data room or that are explicitly referred to in the disclosure schedules to the transaction agreement.

Pricing, consideration and financing

17 How is pricing customarily determined? Is the use of closing accounts or a locked-box structure more common?

The price of a business is in general based on the enterprise value of the target that may be determined according to the usual valuation meth-ods (discounted cash flow, multiples, comparables, etc). The price is then subject to negotiations between the buyer and the seller.

In practice, purchase price adjustments with closing accounts or locked-box structures are seen. We believe that there is currently a cer-tain preference for locked-box structures to minimise the risk of any post-closing negotiations or disputes on price.

18 What form does consideration normally take? Is there any overriding obligation to pay multiple sellers the same consideration?

The form of consideration depends on what has been agreed upon between the parties. While there is no ‘rule’, in practice the considera-tion is normally cash.

Except for statutory mergers (and public tender offers), there is no requirement for paying the same consideration to all sellers.

19 Are earn-outs, deposits and escrows used?Earn-outs are primarily used to bridge a valuation gap between the seller and the buyer.

Deposits and escrows are common if a private seller is involved to secure any potential post-closing claims of the buyer against the seller.

20 How are acquisitions financed? How is assurance provided that financing will be available?

Transactions are financed with own funds or financing by banks. If the buyer needs bank financing, the level of comfort provided by the buyer at signing depends on its negotiation power (eg, secured financing at signing, comfort letter).

21 Are there any limitations that impact the financing structure? Is a seller restricted from giving financial assistance to a buyer in connection with a transaction?

Swiss law does not contain specific financial assistance rules. However, financial assistance (up-stream and cross-stream financing, or pro-viding security) may be restricted, depending on the circumstances, by general principles of corporate and tax law such as the principle that equity cannot be distributed or redistributed to the sharehold-ers, except through the procedures for dividends or capital decreases. Contributions to shareholders may also trigger withholding and other

taxes. Therefore, debt pushdown and similar transactions require care-ful structuring and, usually, an advance tax ruling.

Conditions, pre-closing covenants and termination rights

22 Are transactions normally subject to closing conditions? Describe those closing conditions that are customarily acceptable to a seller and any other conditions a buyer may seek to include in the agreement.

If the transaction cannot be closed at signing, transactions are normally subject to closing conditions. Closing conditions are subject to negotia-tions. Usually, the following conditions can be found: • receipt of governmental approvals and merger control clearance

necessary for the transaction;• no action pending that would prevent the consummation of the

transaction; • no material adverse effect;• representations and warranties are true and correct; and• parties have performed or complied with their respective obliga-

tions and covenants under the transaction agreement.

Closing conditions, however, depend substantially on the transaction, and may therefore vary from case to case. For example, in carve-out transactions, the parties may agree on making the completion of spe-cific carve-out measures by the seller a closing condition.

23 What typical obligations are placed on a buyer or a seller to satisfy closing conditions? Does the strength of these obligations customarily vary depending on the subject matter of the condition?

Based on the principle of good faith and compliance with its contrac-tual obligations under the transaction agreement, a party has to use its commercially best efforts to cause the satisfaction of the closing condi-tions and to omit any actions that would frustrate such satisfaction. If the unsatisfied condition was caused by a breach of a party’s obligations under the transaction agreement, if a party acted in bad faith, or if a party otherwise prevented, frustrated or interfered with the satisfac-tion of a closing condition, such party cannot terminate the transaction agreement as a result of a closing condition not being satisfied.

If the transaction involves an increased merger control risk, the seller will usually ask for a ‘hell or high water’ clause (ie, that the buyer has to offer those commitments that are required to obtain clearance).

24 Are pre-closing covenants normally agreed by parties? If so, what is the usual scope of those covenants and the remedy for any breach?

The parties normally agree on pre-closing covenants, depending on the specifics of the transaction, the type of business and the duration of the period between signing and closing. The seller is usually required to conduct the business between signing and closing in its ordinary course, subject to a range of measures that require the buyer’s approval (to the extent permissible under gun-jumping rules). Further, the seller is com-monly required to make the necessary filings, submissions and notifica-tions or assist the buyer therewith.

In the case of any breach of pre-closing covenants, specific perfor-mance could be claimed or – if so agreed upon – non-satisfaction of a closing condition could be invoked. In any event, a breach of a covenant leads to liability for damages of the breaching party to the non-breach-ing party.

In the case of locked-box transactions, the value of the target com-pany is usually secured by means of no leakage covenants, the usual remedy being a Swiss franc-for-Swiss franc payment claim for every leakage without any de minimis deductibles or other limitations.

25 Can the parties typically terminate the transaction after signing? If so, in what circumstances?

If the parties agree on closing conditions and one or several conditions are not satisfied (and waived) by the agreed long-stop date, the trans-action agreement can be terminated unless the non-satisfaction of a closing condition was caused by the terminating party. Further, a trans-action agreement may always be terminated by mutual agreement of the parties. Unilateral rights to terminate are usually excluded.




26 Are break-up fees and reverse break-up fees common in your jurisdiction? If so, what are the typical terms? Are there any applicable restrictions on paying break-up fees?

In connection with private transactions (as opposed to public tender offers), there are no statutory or judicially determined limits as to whether break-up fees or reverse break-up fees are permissible in prin-ciple and, if so, what amount would be acceptable. Therefore, break-up and reverse break-up fees are restricted mainly in light of the board’s fiduciary duties and shareholder rights.

In transactions requiring shareholder approval (eg, a statutory merger or demerger), the board of directors may not agree to a break-up fee in an amount that would coerce the shareholders to approve the transaction. As a rule of thumb, break-up fees that correlate to the approximate cost incurred by the other party in connection with the intended merger or demerger should be permitted.

Reverse break-up fees payable by the bidder are relatively rare.

Representations, warranties, indemnities and post-closing covenants

27 Does a seller typically give representations, warranties and indemnities to a buyer? If so, what is the usual scope of those representations, warranties and indemnities? Are there legal distinctions between representations, warranties and indemnities?

A seller is typically required to give a set of contractual representations and warranties because the statutory representations are not giving the level of comfort the buyers are looking for. Certain sellers (eg, private equity) ask for no representation deals and, depending on their nego-tiation power, they succeed with this. The scope of representations and warranties involves fundamental representations such as authority and power to enter into the agreement and title as well as representations with respect to financials, compliance and other aspects of the busi-ness. Representations and warranties are often knowledge-qualified or contain materiality qualifiers, or both.

For risks that have been disclosed in the due diligence, usually indemnifications are given (eg, tax liabilities, court proceedings, envi-ronmental matters or pensions). While in the case of a misrepresenta-tion or a breach of warranty, the contractually agreed limitations are applicable (eg, de minimis, thresholds and buyer’s knowledge), an indemnity is usually unconditional and not subject to limitations other than an agreed overall cap and time limits. In case of known and quan-tified risks, a buyer may also ask for a purchase price reduction instead of an indemnity.

28 What are the customary limitations on a seller’s liability under a sale and purchase agreement?

Typically, the seller’s liability for misrepresentations and breaches of warranty is limited by time limits, thresholds, de minimis and a cap, a predefined notification process and other limitations as agreed between the parties (eg, exclusion in cases where the claiming party knew or should have known about such issues).

In cases where a claim is made based on an indemnification, no limitations are applicable other than an agreed cap and time limits.

29 Is transaction insurance in respect of representation, warranty and indemnity claims common in your jurisdiction? If so, does a buyer or a seller customarily put the insurance in place and what are the customary terms?

Warranty and indemnity (W&I) insurance is often used, particularly in medium-sized and larger M&A transactions.

Typically, buyers take up the insurance. However, particularly in auction processes, sellers often pre-discuss and arrange for insurance cover with a broker and W&I insurers prior to approaching potential bidders (stapled W&I insurance). At a later stage of the auction process, a limited number of bidders will be granted access to the insurance pro-vider to finalise the terms and conditions with the provider.

Costs for W&I insurance continue to decrease. The actual fees are mainly driven by the scope of insurance coverage and the deductible agreed with the insurance provider.

Known risks as well as representations and warranties relating to future events are usually excluded from the insurance coverage. Environmental risks may be covered by special risk insurance. Unless

it is already certain that a specific risk will materialise, claims under tax indemnities are often covered by W&I insurance, however.

30 Do parties typically agree to post-closing covenants? If so, what is the usual scope of such covenants?

Parties typically agree on post-closing covenants, depending on the specifics of the transaction and the identified post-closing issues. Commonly, the parties agree on confidentiality, non-compete and non-solicitation clauses, access to books and records, assistance and indemnification in case of third-party claims, and discharge of the members of the board and the executive management from liability.

Tax

31 Are transfer taxes payable on the transfers of shares in a company, a business or assets? If so, what is the rate of such transfer tax and which party customarily bears the cost?

Sale of sharesIf the seller is an individual, capital gains on his or her private portfolio are usually tax-exempt. In specific cases, however, the tax authorities tend to perceive capital gains as: • de facto dividends (in ‘transformations’, if the individual sells his

or her shares to a company that he or she controls); • business income (if the seller qualifies as a professional securities

dealer, which is also the case, according to jurisprudence, if an individual seller regularly and systematically deals with securi-ties), which makes the seller subject to income taxation and social security contributions;

• employment income (if a portion of the sales proceeds is economi-cally a remuneration for the employment); or

• liquidation proceeds (in ‘indirect partial liquidations’, if the sale is refinanced by the assets of the acquired company), namely, if shares representing at least 20 per cent of the share capital of a company are sold from the private assets of an individual investor (or a group of individual investors) to the business assets of a cor-porate or individual buyer, and the target distributes current assets not needed for business operations out of distributable profit or reserves within a period of five years after the sale of the shares with the cooperation of the seller.

If the seller is a company incorporated in Switzerland, subject to the exemptions below, capital gains are subject to federal and cantonal income taxation of about 12 per cent to 24 per cent (the effective tax rate for profits before taxes), depending on the canton of residence. However, capital gains from the sale of a qualifying investment (namely, at least a 10 per cent participation), if held for at least one year, qualify for ‘participation relief ’, usually leading to an almost full capital gains tax exemption at both the federal and the cantonal level. Qualifying investments may be transferred tax-neutrally to a Swiss or foreign group company. In addition, if the seller qualifies as a company with cantonal holding or domicile privilege, only the federal income tax of 8.5 per cent (effective tax rate 7.8 per cent) applies.

Sale of assetsCapital gains on business assets sales are fully taxable by all Swiss sell-ers (individuals and companies). The seller of a business may avoid these tax consequences if his or her company first spins off the assets and liabilities to be sold into a new company in a tax-neutral reorgani-sation and the seller then sells the shares in the new company, provided that the spun-off activities and the activities left behind both constitute businesses to be continued by the old and the new company, respec-tively. Furthermore, the sale of assets is subject to 7.7 per cent value added tax (VAT), which is recoverable by the purchaser if it qualifies as a Swiss VAT subject and uses the assets for Swiss VAT underlying activities. In the transfer of an entire group of assets (and liabilities) or a closed group of assets (and liabilities), the VAT liability can be dis-charged with a notification to the federal tax administration rather than payment of the tax.

Tax aspects for the purchaserPurchase of sharesThe tax base for the shares in the purchaser’s books is equal to the pur-chase price. Except in particular cases (eg, if the acquired company




encounters serious financial difficulties), it is not possible to write off the goodwill component for tax purposes. In contrast, in an asset pur-chase, the goodwill may be recorded separately and written off against taxable income.

Swiss tax law does not acknowledge the concept of tax grouping or tax consolidation, which makes it difficult to set off the acquisition debt or losses carried forward against operational income of an acquired company. Therefore, before the acquisition of a Swiss operating com-pany or a group holding company, foreign investors sometimes form a Swiss leveraged acquisition vehicle (NewCo), which subsequently pur-chases the shares of the Swiss target company. If the NewCo and the target company are merged thereafter, the NewCo’s debt will be taken up into the operating company. Tax authorities will likely qualify this transaction as abusive with the result that the interests paid on debt are not tax-deductible (in certain cantons, denial of deduction may be limited to the subsequent five years). If the NewCo is not merged with the target company, dividends paid out by the target company may serve to finance the acquisition debt. However, there is a risk that tax authorities could qualify such dividend payments in cases where the shares have been purchased from a private individual seller as an indi-rect partial liquidation, triggering unfavourable tax effects on the seller (see above).

Other alternatives to push down debt is to leverage the Swiss oper-ating company by having it repay its share capital and additional paid-in capital to the extent legally permissible against assumption of debt or by selling an asset (in particular participation) from a group company to the Swiss operating company. Furthermore, additional leverage may be created by having a Swiss holding company first sell qualified participa-tions to subsidiaries outside Switzerland where the debt is deductible and distribute the sales receivables to the foreign investor. Dividends, which are taxable income for a Swiss-resident individual or company, may be sheltered if the shares are held by a Swiss holding company or by an operational company taking advantage of the participation relief. If dividends are not sheltered, the company’s income is taxed twice, as profit of the acquired company and as dividend income of the private individual shareholder. The taxation of dividends for private individu-als holding qualified participations of 10 per cent in the stated capital of the company making the distribution is reduced by way of a reduction of the tax rate or the taxable amount. In any event, the distribution of dividends (but not repayment of stated capital and additional paid-in capital contributed after 1996) is subject to a 35 per cent withholding tax that may be fully recovered by a Swiss taxpayer, or fully or partially recovered in the event of a foreign recipient under an applicable dou-ble taxation treaty. In cross-border transactions, the tax authorities may refuse to refund all or part of the withholding tax if the purchaser, under an applicable double taxation treaty, is entitled to a refund that is higher than that which the seller would have obtained.

Purchase of assets In a purchase of assets, the tax base in the purchaser’s book is equal to the purchase price of the assets purchased. The goodwill may be recorded separately and written off against taxable income. In a pur-chase of assets, the operating income of the purchase may be used for the payment of interests on the acquisition debt.

Transactional taxesThe sale of shares, whether by Swiss residents or non-Swiss residents, may be subject to a Swiss securities transfer stamp duty of up to 0.15 per cent (for shares of a Swiss company) or up to 0.3 per cent (for shares of a foreign company) calculated on the sale proceeds if it occurs through or with a Swiss bank or other securities dealer as defined in the Swiss Federal Stamp Tax Act. In addition to this stamp duty, the sale of shares by or through a member of SIX Swiss Exchange may be subject to a stock exchange levy. The transfer of assets is subject to VAT (see above). The transfer of real estate is in many cantons subject to real estate gains tax, real estate transfer tax, or both.

Taxes on mergersShares issued in a statutory merger are exempt from the 1 per cent issuance stamp duty. Capital gains of individual shareholders of the acquired company resident in Switzerland are normally tax free. Should the nominal value of the new shares exceed the nominal value (plus proportional additional paid-in capital) of the shares of the merged

company, however, the difference may be subject to income tax. Corporate shareholders are not taxed if they retain the same tax base for the new shares. Squeeze-out payments and payments for fractional shares made by the merging companies may be subject to income tax. Corporate shareholders may claim participation relief for such pay-ments if they hold a participation representing either a value of at least 1 million Swiss francs or at least 10 per cent of the stated capital of the other company. If assets and liabilities are transferred at book value in a reorganisation, no income tax is usually incurred. Transfers of real estate in the context of a merger do not trigger a real estate transfer tax.

A share-for-share transaction (quasi-merger) where the acquisition of shares of one corporation in exchange for newly issued shares of the acquiring company leads to the acquisition of at least 50 per cent of the voting rights of the acquired company, and not more than 50 per cent of the consideration for the shares in the acquired company is paid in cash (namely, at least 50 per cent of the consideration consists of newly issued shares of the acquiring company), is exempt from both the 1 per cent issuance stamp duty and securities transfer stamp duty. Treasury shares of the acquiring company used as acquisition currency are con-sidered a cash consideration.

An acquiring company using treasury shares as acquisition cur-rency will be treated as having sold the treasury shares and, depending on the tax base and the market value of the treasury shares, realises a taxable gain or a tax-deductible loss on the treasury shares used for the acquisition. Except if deemed an indirect partial liquidation, a share-for-share transaction is tax-neutral for individual shareholders resident in Switzerland: a cash consideration paid by the acquiring company constitutes a tax-free capital gain and an increase in the nominal value of the shares in the acquiring company over the shares in the acquired company as a result of the exchange ratios is tax-neutral. Cash consid-eration paid to individuals that are deemed securities dealers or that hold the shares in the acquired company otherwise within a business, and corporate shareholders, are not taxable for shares exchanged if they retain the same tax base for the new shares. A cash consideration paid to them is taxable. It may, however, be offset against a charge to expenses if an impairment is required. If the aforementioned conditions for a tax-free quasi-merger are not met, the 1 per cent issuance stamp duty or the securities transfer stamp duty of 0.15 per cent (for shares in a Swiss com-pany) and 0.3 per cent (for shares in a foreign company), or both, apply. If after a tax-neutral share-for-share transaction the acquired company is merged within five years with the acquiring company, the transaction will retroactively be taxed like a statutory merger (see above).

32 Are corporate taxes or other taxes payable on transactions involving the transfers of shares in a company, a business or assets? If so, what is the rate of such transfer tax and which party customarily bears the cost?

See question 31.

Update and trends

On 21 March 2018, the Swiss Federal Council published the proposal on a corporate tax reform which aims at abolishing certain tax privileges, such as the mixed company and the principal company, instead reducing the corporate income tax rates in general and introducing new tax incentives such as the patent box regime. The Council of States made several amendments in spring 2018, and in particular introduced a notional interest deduction. The National Council is currently debating the bill. If passed, the amended tax law is expected to be applicable as of January 2020.

On 23 November 2016, the Swiss Federal Council published its proposal regarding a revision of Swiss corporate law. The bill covers matters as diverse as capital structure and capital changes, shares, shareholder rights and lawsuits, restructuring, executive compensation and gender representation on the board and execu-tive management. One aim of the revision is to modernise the capital structure and governance of public and private companies in Switzerland. In particular, the rules on incorporation, share capital and shares would become even more flexible than they are currently, shareholder rights would be strengthened and the rules on share-holders’ meetings would be adapted to technological developments. Other proposals cover shareholder lawsuits and the financial restruc-turing of distressed companies. After completion of the legislative process, the corporate law reform may take effect in the early 2020s.




Employees, pensions and benefits

33 Are the employees of a target company automatically transferred when a buyer acquires the shares in the target company? Is the same true when a buyer acquires a business or assets from the target company?

In a share deal, the employment agreements with the target company or its subsidiaries are not affected and remain in full force and effect.

In an asset deal (transfer of a business or part thereof ) and a statu-tory merger, the employees working in such business and their employ-ment contracts are automatically transferred to the buyer by operation of law, unless an employee rejects such transfer. In the case of rejec-tion, the employment contract is terminated with the applicable statu-tory notice period. As former and new employer, the seller and buyer are jointly and severally liable for all claims (including severance) of the employees relating to the period prior to the transfer and for a certain period thereafter.

34 Are there obligations to notify or consult with employees or employee representatives in connection with an acquisition of shares in a company, a business or assets?

If employees are transferred in an asset deal or statutory merger, the employees’ representatives or, in the absence thereof, the employees of all involved companies need to be informed and, if measures affecting the employees (eg, termination, change of workplace and the like) are planned, consulted a few weeks prior to closing or, in case of a statutory merger, approval by the shareholders of the involved companies.

Mass dismissals are subject to particular notification and consul-tation obligations. Further, a social plan may need to be implemented and agreed with labour unions, the employees’ representatives or, in the absence thereof, the employees. If the parties fail to reach an agree-ment, an arbitral tribunal will establish the social plan.

Collective employment agreements may set out additional require-ments in relation to the above.

35 Do pensions and other benefits automatically transfer with the employees of a target company? Must filings be made or consent obtained relating to employee benefits where there is the acquisition of a company or business?

A transaction either involves the transfer of each Swiss employee’s vested benefits or, if part of a business or a larger group of employees are affected by the transaction, a partial liquidation of the Swiss pension plan. In the latter case, in addition to the vested benefits a proportion of the freely available funds and certain reserves are transferred as well. In the case of an underfunding, leaving employees will have to share in the deficit to a certain extent. Swiss pension plans need to include details of the requirements and procedures to be followed if the employees leave the plan, and be approved by the supervisory authorities.

In addition, as an ultima ratio, an employer can be forced to share with the employees any underfunding as evidenced by actuarial cal-culations and to pay a proportionate share of additional premiums required to level out the deficit. Therefore, due diligence and indemni-ties to identify and address a potential underfunding are critical.

Claude Lambert [email protected] Reto Heuberger [email protected] Andreas Müller [email protected]

Prime TowerHardstrasse 2018005 ZurichSwitzerland

Tel: +41 43 222 10 00Fax: +41 43 222 15 00www.homburger.ch


2019Private M

&A

Acquisition Finance Advertising & Marketing AgribusinessAir Transport Anti-Corruption Regulation Anti-Money Laundering AppealsArbitration Art LawAsset RecoveryAutomotiveAviation Finance & Leasing Aviation Liability Banking Regulation Cartel Regulation Class ActionsCloud Computing Commercial ContractsCompetition ComplianceComplex Commercial LitigationConstruction Copyright Corporate Governance Corporate Immigration Corporate ReorganisationsCybersecurityData Protection & PrivacyDebt Capital MarketsDispute ResolutionDistribution & AgencyDomains & Domain Names Dominance e-CommerceElectricity RegulationEnergy Disputes

Enforcement of Foreign Judgments Environment & Climate RegulationEquity DerivativesExecutive Compensation & Employee BenefitsFinancial Services ComplianceFinancial Services LitigationFintechForeign Investment Review Franchise Fund ManagementGamingGas Regulation Government InvestigationsGovernment RelationsHealthcare Enforcement & LitigationHigh-Yield DebtInitial Public OfferingsInsurance & Reinsurance Insurance LitigationIntellectual Property & Antitrust Investment Treaty Arbitration Islamic Finance & Markets Joint VenturesLabour & EmploymentLegal Privilege & Professional SecrecyLicensing Life Sciences Loans & Secured FinancingMediation Merger Control MiningOil Regulation Outsourcing Patents Pensions & Retirement Plans

Pharmaceutical Antitrust Ports & TerminalsPrivate Antitrust LitigationPrivate Banking & Wealth Management Private Client Private Equity Private M&AProduct Liability Product Recall Project Finance Public M&APublic-Private Partnerships Public Procurement Real Estate Real Estate M&ARenewable EnergyRestructuring & Insolvency Right of Publicity Risk & Compliance ManagementSecurities Finance Securities LitigationShareholder Activism & EngagementShip FinanceShipbuilding Shipping State Aid Structured Finance & SecuritisationTax Controversy Tax on Inbound Investment Telecoms & Media Trade & Customs Trademarks Transfer PricingVertical Agreements

ISBN 978-1-78915-055-1

Getting the Deal Through

Also available digitally

Onlinewww.gettingthedealthrough.com


Private M&A - media.homburger.ch · Yozua Makes Makes & Partners Law Firm Ireland 122 Paul Robinson...

Documents

Transcript of Private M&A - media.homburger.ch · Yozua Makes Makes & Partners Law Firm Ireland 122 Paul Robinson...