Insight

Cross-Border Listings of Swiss Companies

The law of unintended consequences.

Cross-Border Listings
JH

Jacques Iffland and Ariel Ben Hattar

September 1, 2017 12:49 AM

Cross-border listings are in fashion in Switzerland. Swiss Exchange (SIX) has long been trying to lure foreign issuers into listing their shares on its markets. The success has been limited so far, since only 13 non-Swiss issuers currently have a main listing on SIX. Indeed, the trend seems to go in the other direction. Out of a total of 17 IPOs of Swiss issuers between 2014 and the end of June 2017, six—or around 35 percent—were carried out outside of Switzerland.

The main reason for this state of affairs seems to be the (at least perceived) higher liquidity of foreign markets, especially for smaller market capitalizations. Some issuers hope that tapping the U.S. or European markets will give them access to deeper pools of liquidity.

From a legal perspective, however, cross-border listings have far-reaching implications. One of the most significant ones is that they often leave the relevant issuers ill-prepared and vulnerable to unsolicited takeover approaches. The Swiss takeover rules only apply to issuers that have equity securities listed on a Swiss stock exchange. As a result, the key mechanism through which Swiss law protects minorities in the event of a change of control—the mandatory offer regime that obliges any person who acquires more than one-third of the voting rights of a Swiss company to make a tender offer for all the listed shares of the company—does not apply to issuers whose shares are not listed in Switzerland.

In some jurisdictions, and most notably in the U.S., takeovers and protection of minorities are matters governed by company (state) law and not by securities law. Thus, in the event of a fight for the control of a Swiss issuer listed exclusively in the U.S., the expectation there will be that Swiss law makes it possible for the target to take defensive measures by implementing some sort of “poison pill.”

However, this is not the case. Swiss law considers that minority protection in the event of a change of control is a matter of securities law, not of company law. Also, because the Swiss securities laws (normally) protect minorities in the event of a change of control through the mandatory offer regime, defensive tactics are generally deemed unnecessary and consequently problematic in Switzerland. In particular, the legal consensus is that Swiss corporate law does not allow the board to dilute a dissident shareholder by excluding it from a rights issue (which would be the typical mechanism of a U.S.-style poison pill). Unless the Swiss target opts for a (costly) new additional listing in Switzerland, its board may consequently find itself defenseless in the event of an unsolicited bid. This may not only affect the board’s ability to defeat the hostile approach, but also to negotiate a friendly transaction.

The issue is not only theoretical. The independent directors of Alcon, the Swiss eye care specialist (then listed on the NYSE), discovered the issue the hard way in 2010. After having acquired a majority stake in the company from Nestlé, Novartis attempted to force a buy-out merger on the company. Since it was not bound by the Swiss takeover rules, the deal proposed by Novartis valued the Alcon shares well below the then prevailing market price (and below what had been paid to Nestlé), which would not have been possible had the Swiss takeover regime applied. Novartis’ merger proposal met stiff resistance from minority shareholders and Alcon’s independent directors. A class action was filed in New York against Novartis and Alcon, but was eventually dismissed for lack of jurisdiction in the U.S. courts. The matter was eventually settled amiably, after Novartis agreed to sweeten the terms of the merger. It exposed, however, the dire consequences of the legal vacuum that resulted from Alcon’s cross-border listing.

Seven years later, the issue raised by outbound cross-border listings is still unresolved. The risk that this type of transaction represents for a company and its shareholders may seem remote at the time of listing, when a majority of the shares are generally in firm hands. The consequences of the risk materializing can however hardly be ignored, as what initially seemed like an attractive choice and a way to secure the future of the company may in retrospect turn out to have been a leap in the dark.

Trending Articles

2025 Best Lawyers Awards Announced: Honoring Outstanding Legal Professionals Across the U.S.


by Jennifer Verta

Introducing the 31st edition of The Best Lawyers in America and the fifth edition of Best Lawyers: Ones to Watch in America.

Digital map of the United States illuminated by numerous bright lights

Unveiling the 2025 Best Lawyers Awards Canada: Celebrating Legal Excellence


by Jennifer Verta

Presenting the 19th edition of The Best Lawyers in Canada and the 4th edition of Best Lawyers: Ones to Watch in Canada.

Digital map of Canadathis on illuminated by numerous bright lights

Legal Distinction on Display: 15th Edition of The Best Lawyers in France™


by Best Lawyers

The industry’s best lawyers and firms working in France are revealed in the newly released, comprehensive the 15th Edition of The Best Lawyers in France™.

French flag in front of country's outline

Presenting the 2025 Best Lawyers Editions in Chile, Colombia, Peru and Puerto Rico


by Jennifer Verta

Celebrating top legal professionals in South America and the Caribbean.

Flags of Puerto Rico, Chile, Colombia, and Peru, representing countries featured in the Best Lawyers

Announcing the 13th Edition of Best Lawyers Rankings in the United Kingdom


by Best Lawyers

Best Lawyers is proud to announce the newest edition of legal rankings in the United Kingdom, marking the 13th consecutive edition of awards in the country.

British flag in front of country's outline

Unveiling the 2025 Best Lawyers Editions in Brazil, Mexico, Portugal and South Africa


by Jennifer Verta

Best Lawyers celebrates the finest in law, reaffirming its commitment to the global legal community.

Flags of Brazil, Mexico, Portugal and South Africa, representing Best Lawyers countries

Prop 36 California 2024: California’s Path to Stricter Sentencing and Criminal Justice Reform


by Jennifer Verta

Explore how Prop 36 could shape California's sentencing laws and justice reform.

Illustrated Hands Breaking Chains Against a Bright Red Background

Announcing the 16th Edition of the Best Lawyers in Germany Rankings


by Best Lawyers

Best Lawyers announces the 16th edition of The Best Lawyers in Germany™, featuring a unique set of rankings that highlights Germany's top legal talent.

German flag in front of country's outline

Celebrating Excellence in Law: 11th Edition of Best Lawyers in Italy™


by Best Lawyers

Best Lawyers announces the 11th edition of The Best Lawyers in Italy™, which features an elite list of awards showcasing Italy's current legal talent.

Italian flag in front of country's outline

Tampa Appeals Court ‘Sends Clear Message,” Ensuring School Tax Referendum Stays on Ballot


by Gregory Sirico

Hillsborough County's tax referendum is back on the 2024 ballot, promising $177 million for schools and empowering residents to decide the future of education.

Graduation cap in air surrounded by pencils and money

Find the Best Lawyers for Your Needs


by Jennifer Verta

Discover how Best Lawyers simplifies the attorney search process.

A focused woman with dark hair wearing a green top and beige blazer, working on a tablet in a dimly

Key Developments and Trends in U.S. Commercial Litigation


by Justin Smulison

Whether it's multibillion-dollar water cleanliness verdicts or college athletes vying for the right to compensation, the state of litigation remains strong.

Basketball sits in front of stacks of money

Woman on a Mission


by Rebecca Blackwell

Baker Botts partner and intellectual property chair Christa Brown-Sanford discusses how she juggles work, personal life, being a mentor and leadership duties.

Woman in green dress crossing her arms and posing for headshot

Best Lawyers Celebrates Women in the Law: Ninth Edition


by Alliccia Odeyemi

Released in both print and digital form, Best Lawyers Ninth Edition of Women in the Law features stories of inspiring leadership and timely legal issues.

Lawyer in green dress stands with hands on table and cityscape in background

The Human Cost


by Justin Smulison

2 new EU laws aim to reshape global business by enforcing ethical supply chains, focusing on human rights and sustainability

Worker wearing hat stands in field carrying equipemtn

Beyond the Billables


by Michele M. Jochner

In a recently conducted, comprehensive study, data reveals a plethora of hidden realities that parents working full-time in the legal industry face every day.

Women in business attire pushing stroller takes a phone call