No Tailoring of Opting Out Clauses – Takeover Board rejects Schindler’s Proposed Changes to its Articles of Association

In its recent decision 610/01 in the matter of Schindler Holding Ltd (published on 21 July 2015), the Swiss Takeover Board held that Swiss takeover law does not allow companies to provide for individual rules on the obligation to make a takeover offer that go beyond the options set forth in the law. Accordingly, in the eyes of the TOB, a new provision in the articles of association of Schindler which indirectly provides for an obligation to make a takeover offer for anyone who acquires more than 50% of the voting rights in Schindler, combined with Schindler’s existing opting out clause, would not have any legal effect.

By Pascal Hubli / Nadin Schwibs (Reference: CapLaw-2015-44)

1) Factual Background

The case discussed herein involves Schindler Holding Ltd, Hergiswil (Schindler), a Swiss stock corporation listed at the SIX Swiss Exchange and active in the area of mobility solutions, i.e. elevators and escalators. Schindler is controlled by the families Schindler and Bonnard (the Schindler Family Shareholders), who together own around 70% of the voting rights (as at 31 December 2014).

Schindler’s articles of association (Articles) provide for an opting out clause (Opting out Clause) which was introduced in May 1996 and which waives the statutory offer obligation, i.e. the obligation for acquirers of shares in Schindler to make a public takeover offer if they pass (alone or acting in concert with others) the threshold of 33 1/3% of the voting rights.

On 3 July 2015, Schindler informed the public about its intention to amend its Articles by introducing what it referred to as a “tailor-made opting in clause”. This new clause provided that any person acquiring 50% or more of the voting rights in Schindler shall only be entered into the share register as a full shareholder if it proved that (i) it had made a voluntary takeover offer to all shareholders of Schindler with (ii) an offer price of at least 90% of the highest price paid in the 12 months before the offer (Schindler Clause).

On 6 July 2015, Schindler also informed the Chairman of the Swiss Takeover Board (TOB) about the planned amendment of its Articles. Thereupon, the Chairman decided to initiate proceedings to assess the permissibility of the Schindler Clause. Interestingly, the decision in this matter was taken by a panel consisting of five members instead of the usual three members.

2) Main Considerations of the TOB

a) Competence of the TOB to Review the Schindler Clause

The TOB found that, contrary to Schindler’s view, it was competent to review the Schindler Clause based on article 23 of the Swiss Federal Stock Exchange Act (SESTA), according to which the TOB may rule on any question that arises with respect to the application of the provisions on public takeover offers. Therefore, in the TOB’s view, any clause in the articles of association of a company that may be of relevance under public takeover law should be subject to its review. For the Schindler Clause, which, if implemented, would not only modify Schindler’s existing Opting out Clause but would additionally create an individual set of rules for public offers for shares in Schindler, the TOB considered this to be the case.

b) Characterization of the Schindler Clause

The TOB then elaborated on the statutory framework providing for an obligation to make a public takeover offer as well as the options for limiting the applicability of such offer obligation through (i) a general waiver (opting out, articles 22 (2) and (3) SESTA), (ii) a waiver with regard to designated shareholders (selective opting out) or (iii) an increase of the triggering threshold from 33 1/3% to 49% (or anywhere in between, opting up, article 32 (1) SESTA).

With regard to the Schindler Clause, the TOB considered that any rational acquirer of 50% or more of the voting rights in Schindler would logically be interested in no less than being accepted as full shareholder with full voting power. Consequently, in the eyes of the TOB, the Schindler Clause would factually establish an obligation for such an acquirer to make a takeover offer. However, as the TOB further pointed out, the Schindler Clause provides for a different triggering threshold than the law and, more importantly, would allow the payment of a (limited) control premium to a controlling shareholder. Based thereon, the TOB concluded that the Schindler Clause did not fit into the statutory framework but went beyond the options provided for under Swiss public takeover law.

This, in turn, led to the core question of the decision:

Is Schindler free to deviate from the existing legal framework regarding the offer obligation as well as the statutory options to opt out of it and to provide for its own set of rules for public takeover offers in order to satisfy its specific needs? Or is Schindler rather limited by the rules and options provided for by law? In other words, the TOB had to examine, whether the system of the SESTA and its implementing ordinances left room for tailor-made solutions such as the Schindler Clause, particularly if such solutions are in the interest of the minority shareholders.

c) Rejection of Tailor-Made Solutions

The answer to this question was not evident from the wording of the legal texts and, thus, had to be determined by interpretation. The TOB first examined the intentions of the legislator at the time of the introduction of the relevant public takeover rules and concluded that, likely, the historic legislator would have rejected the possibility for listed companies to tailor the rules, preferring instead the approach that companies must decide for or against an opting out or opting up with no option of modifying the rules individually.

In this regard, the TOB also called attention to the fact that, in 2012, the legislator had decided on eliminating the option of paying a control premium in mandatory public takeover offers whereas a change of the rules on opting out and opting up clauses had not been discussed. Had the legislator wanted to eliminate or modify the current system relating to opting out or opting up clauses it could have done so in the course of the 2012 revision (entry into force: 1 May 2013).

Finally, the TOB reflected on whether any individual modifications to the applicable takeover framework would be in compliance with the general takeover law principles according to article 1 of the Takeover Ordinance: the principles of integrity, transparency and equal treatment. It considered that the introduction of a tailor-made solution, as intended with the Schindler Clause, may indeed be considered favourable, especially with a view to the principle of equal treatment. However, in the eyes of the TOB, permitting such tailoring of the applicable takeover rules could lead to a myriad of individual solutions that may (fairly) easily be changed at any shareholders’ meeting. The resulting legal uncertainty and lack of transparency would not even be justified by the advantages of a tailor-made solution for the minority shareholders. At least, the TOB pointed out that anyone who considers acquiring a stake in a listed company nowadays has full access to such company’s articles of association and, therefore, can have full knowledge about the lack of minority shareholder protection in case of a change of control.

The TOB concluded that the legislator created an exhaustive statutory regime consisting of the obligation to make a takeover offer (article 32 (1) SESTA) as well as the possibility of an opting out (articles 22 (2) and (3) SESTA) and an opting up (article 32 (1) SESTA), which leave no room for any further individual solutions by the listed companies themselves, e.g. in their articles of association.

Consequently, the TOB held that the Schindler Clause was not in compliance with Swiss takeover law and, even if implemented by Schindler’s shareholders’ meeting, would not have any legal effect.

3) Remarks

The proposed changes to Schindler’s Articles were intended to safeguard the interests of the minority shareholders in case of a general change of control over Schindler, while maintaining the advantages of the Opting out Clause, in particular, sheltering the controlling Schindler Family Shareholders from the risk of being obliged to make a takeover offer in case of (significant) changes within the controlling group. As the TOB pointed out itself, the added protection for minority shareholders appears noble and welcome. The recent intense discussions about the admissibility and fairness of the opting out clause in the articles of association of Sika Ltd (see the recent decision of the Swiss Administrative Court dated 27 August 2015 in the matter of Sika Ltd for further information) also seem to support Schindler’s approach. In this light, the decision of the TOB in the matter of Schindler may even be described as regrettable.

However, the TOB’s reasons for not allowing Schindler to implement the Schindler Clause are logical and dogmatically correct. The TOB rightfully stated, that the current Swiss takeover law and the practice of the TOB already provide for adequate options for adapting Schindler’s Opting out Clause in order to reflect Schindler’s intentions and fulfil its needs, including a certain protection of minority shareholders.

In particular, with reference to its recent important decision 600/01, dated 22 April 2015, in the matter of Kaba Holding AG, the TOB reiterated that it considers so-called selective opting out clauses, that is, clauses that only release a specific (group of) shareholder(s) from the obligation to make a takeover offer when passing the threshold of 33 1/3% in connection with a specific transaction, fully admissible from a takeover law perspective – provided that the general requirements for the introduction of an opting out clause as developed by the TOB in various cases over the last years are met.

In its decision in the matter of Schindler, the TOB also made it clear, that an opting out clause allows, and even has the purpose to allow, controlling shareholders to sell their stake in a company listed in Switzerland at any price and receive a premium of any amount or percentage. Considering that one of the arguments for disallowing the Schindler Clause was the undue reinstatement of the possibility to pay a control premium to the controlling shareholders, the TOB’s reasoning seems inconsistent at first glance. However, the reinstated control premium based on the Schindler Clause would have been limited to a takeover offer which an acquirer of more than 50% of the shares in Schindler would have been obliged to make. Yet, the control premium was explicitly abolished for public takeover offers in 2013. The possibility to pay a premium to a controlling shareholder in connection with opting out clauses, on the other hand, has always been a tolerated side effect of such clauses (see, e.g., decision 569/01 dated 24 June 2014, in the matter of Pretium AG). Even at times, when the SESTA and its implementing ordinances still allowed the payment of a control premium in a takeover situation, an opting out clause went further as it fully released a bidder from observing any minimum price rules and thus did not limit the premium. Having said this, one could ask if the TOB’s considerations in this decision should have an impact on the information requirements for a post-listing introduction of an opting out clause in the articles of association of a company.

Pascal Hubli (
Nadin Schwibs (