| Click for the Finfacts Ireland Portal Homepage |

Finfacts Business News Centre

Home 
 
 News
 Irish
 Irish Economy
 EU Economy
 US Economy
 UK Economy
 Global Economy
 International
 Property
 Innovation
 
 Analysis/Comment
 
 Asia Economy


Finfacts changes from 2015

RSS FEED


How to use our RSS feed

Follow Finfacts on Twitter

 
Web Finfacts

See Search Box lower down this column for searches of Finfacts news pages. Where there may be the odd special character missing from an older page, it's a problem that developed when Interactive Tools upgraded to a new content management system.

Welcome

Finfacts is Ireland's leading business information site and you are in its business news section.

Links

Finfacts Homepage

Irish Share Prices

Euribor Daily Rates

Global Cost of Living

Irish Tax - Income/Corporate

 

Feedback

 

Content Management by interactivetools.com.

News : Global Economy Last Updated: May 13, 2015 - 7:46 AM


Gates Foundation loses in Swiss family's shares coup
By Matthew Allen, swissinfo.ch
May 12, 2015 - 7:28 AM

Email this article
 Printer friendly page

This month Switzerland’s financial regulator, Financial Market Supervisory Authority (FINMA), rejected the Bill & Melinda Gates Foundation’s appeal against the Burkard family's right to invoke a controversial opt-out clause over the sale of shares in Sika, a Swiss construction industry firm, to Saint-Gobain, a French conglomerate. The family, descendants of Sika’s founder, owning just a 16.1% stake but with control of 52.4% of all votes, in 2014 secretly sold their stake at an 80% premium price of CHF2.75bn ($2.85bn) over the market price but Saint-Gobain refused to pay a premium to the rest of the shareholders.

Matthew Allen of swissinfo.ch wrote the following article last December.

The cantankerous takeover bid for one of Switzerland’s most successful family firms, Sika, can be put down in part to a quirk in legislation governing the sale of companies. It also raises questions about the fairness of the Swiss shareholding structure.

Concerns centre on plans by the descendants of Sika’s founder to sell their 16% stake to French conglomerate Saint-Gobain at a premium price of CHF2.75 billion ($2.85 billion). What makes this unusual is that the Burkard clan’s stake comes with 52% of the voting rights while an obscure “opt-out” clause in the takeover law allows them to freeze other shareholders out of the deal.

These conditions have created the perfect storm for non-family shareholders, who own 84% of the firm but have seen share prices tumble since the deal was made public. It also appears to go against the commonly perceived, though perhaps romantic, notion that the bloodline of a family company will defend their “baby” against the greed of the market.

“Privileged voting shares exist to protect companies and their core shareholders from hostile takeover bids,” Roby Tschopp, chief executive of shareholder rights group Actares, told swissinfo.ch. “In this case, the people who should be the guardians of the temple are those who are giving away the company. This is quite disturbing.”

It is not uncommon for Swiss firms to issue shares that offer dividends but limited, or no, voting rights – a so-called “dual class” shareholding structure. It is also a growing trend among new media technology start-ups such as Google and Alibaba.

It may well suit investors more interested in reaping dividends than influencing company strategy, says Nadine Kammerlander of the Swiss Research Institute of Small Business and Entrepreneurship at the University of St Gallen.

“There can be advantages to buying non-voting shares. They can cost less, come with higher dividend payments and expose owners to less liability in the event of bankruptcy,” she told swissinfo.ch.

However, the Sika case also reveals the pitfalls of concentrating voting power. Before buying shares, investors should check whether companies have well-functioning family offices that act as arbitrators in dynastic disputes and take the needs of other shareholders into account, Kammerlander advises.

Legal loophole

But it is a deliberate loophole in the Swiss takeover laws that has really set tongues wagging and alarm bells ringing. This could allow the five Burkard siblings to pocket an estimated 80% mark-up on their shares while the vast majority of the company’s equity owners get precisely nothing from the deal.

Swiss law stipulates that an automatic takeover bid is triggered if one party accumulates more than a third of a company’s voting rights. Similar purchase terms must then be tendered to all shareholders, giving everyone a share of the spoils.

However, obscure opt-out and opt-up clauses were inserted in the 1998 Stock Exchange Act, reputedly to appease a significant number of powerful families that controlled some of Switzerland’s most prestigious brands.

These loopholes allow companies to either raise the threshold level for an automatic takeover from a third of shares to a higher proportion (many firms, such as Hayek family-controlled Swatch Group, have a 49% threshold), or to bypass the condition altogether – as Sika can.

Ethos Foundation, which manages pension fund investments and campaigns for fairer financial markets, has clearly had enough of this system, calling for companies to withdraw voluntarily from opt-outs.

“If [descendants] are really devoted to their companies, they don’t need opt-outs,” Ethos chief executive Dominique Biedermann told the SonntagsZeitung newspaper. “It only ensures their personal financial benefits.”

The Sika case has also led to some politicians, among them Pirmin Bischof of the centre-right Christian Democrats and Jean Christophe Schwaab of the centre-left Social Democrats, to call into question the validity of the current takeover system.

Legal reforms

By coincidence, politicians and other interested parties are currently discussing wide-ranging changes to shareholder rights laws that are due to go before parliament in the near future. The issues of dual-class shareholdings and the opt-out clause have not so far been discussed in the reform package, but some observers believe they now should be added to the legislative review.

But the current system also has supporters. The Swiss Business Federation, economiesuisse, recently looked at including the “one share, one vote” principle in its voluntary Swiss Code of Best Practice for Corporate Governance. But it found no evidence that the system worked any better than the dual-class structure and so left it out.

Daniel Daeniker, managing partner of the Homburger law firm and a specialist in takeovers, finds the Sika case “troubling” but also an exception to an otherwise well-functioning system.

“Is this an outlier that warrants a change of rules? I do not think so,” he told swissinfo.ch. “Swiss law generally has been known as being flexible towards the idiosyncrasies of individual companies. It would be a shame to take away this flexibility as a result of an announced transaction that clearly tested the limits.”

And others point to the fact that while the system may not be perfect, it is at least transparent and well sign-posted.

“The [Sika] board’s huffing and puffing is well-meaning but little else. What did they think protected the public shareholders? Family honour? Sika’s feudal structure is indeed frightful. But it is too late to object after the aristocrats have done to the peasants what aristocrats always do to peasants,” the Financial Times said in an editorial.

Sika sale saga

On December 5, the Sika board and management were first alerted to the Burkard family’s deal to sell its 16.1% equity stake (that carries 52.4% of voting rights) to Saint Gobain. Several board members and managers immediately spoke out against the deal, resulting in the Burkards calling an emergency general meeting to replace dissenting board members with hand-picked replacements.

“I was shocked when I heard about the sale,” Sika board member Monika Ribar told the Blick newspaper. “Neither the board of directors nor the management had anticipated such a move by the main shareholders.”

The family decision to sell was made all the more surprising by the family appearing to give its long-term commitment to Sika on the occasion of the firm’s 100th anniversary in 2010. But that commitment appeared to wane after the chief author of that statement, family matriarch Franziska Burkard-Schenker, died in 2013.

Since the proposed sale of the family stake was announced, stories have emerged in the Swiss media of conflict and jealousies between the five Burkard siblings — the fourth-generation descendants of Sika founder Kaspar Winkler. Such stories suggest that differences of opinion may have hastened the family’s decision to sell up and walk away from the company.

Related Articles


© Copyright 2015 by Finfacts.ie

Top of Page

Global Economy
Latest Headlines
Strong Swiss franc gloom deepens for exporters
Global investors shift focus to China; EM outflows surge to $1tn in 13 months
Global oil glut will continue into 2016
Stable growth momentum in OECD area but slowing expected in China
Prices for major food commodities in July lowest since September 2009
Global manufacturing in July weakest level in two years
US, China and UK lead top 25 target countries for foreign direct investment
Budget surpluses rare in developed countries from 1980s; Italy, France, Greece had none in 60 and 40 years
Singapore, London and Shanghai top cities for new FDI projects in 2014; Dublin in 11th place
Exchange rates shuffle as Dublin ranked 49th most expensive city; Paris at 46; Berlin at 105
Western consumer groups under pressure in China and India
Developing countries facing “structural slowdown” likely to last for years
OECD BEPS Tax Project: Amazon books UK sales in UK; Australia proposes up to 100% in penalties
Emerging Markets Index falls to 12-month low in May as manufacturing contracts
US and world economies slowing in 2015 — OECD
Global manufacturing production rose slightly in May; Trade flows weak
GDP growth in OECD area slowed to 0.3% in the first quarter of 2015
Only one quarter of workers worldwide have stable employment contracts
Automatic Exchange of Tax Information: OECD says countries won't be able to game system
Gates Foundation loses in Swiss family's shares coup
Minimum wage levels in OECD countries
Brent oil benchmark over $68 a barrel - up almost 50% in 2015
Global growth slows and manufacturing dips to 21-month low
Family-controlled firms dominate European business
Top 10 of world’s 250 largest consumer products companies account for 30% of sales
Nine of world's 20 fastest growing economies in Africa
Globalisation maybe stalling as trade growth remains weak
Global growth prospects uneven across major economies says IMF
Emerging markets growth lowest since 2009; Global growth at 30-year average
China's economic rebalancing hitting Latin American economies
New York, London, HK & Singapore top global financial centres index; Dublin recovers
Global growth in modest expansion from low oil prices/ monetary easing says OECD
Composite leading indicators point to positive change in growth momentum in the Eurozone
Global labour market trends portend paradise for some but uncertainty for many workers
Vienna remains top of World Quality of Living Rankings in 2015; Dublin at 34
Zurich and Geneva overtake Singapore to become world's most expensive cities
HSBC Switzerland and Falciani: How it happened
Global economic power to continue shift from advanced economies
Global food price index falls in January; Cereal output set for record
Global debt has risen $57tn or 17% of world GDP since 2007