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The M&A Perspective - I/2014

04 March 2014

Restructuring Law Amended – More Certainty for Distressed M&A Deals
On 1 January 2014, the newly amended Swiss Debt Enforcement and Bankruptcy Act came into force. Among other things, the new law provides that a distressed M&A deal that was approved by the composition judge or by the creditors' committee during a composition moratorium (Nachlassstundung; sursis concordataire) may no longer be challenged by way of a fraudulent conveyance claim. In the past, the risk that a creditor would bring such a "claw-back action" was a big concern for interested acquirers and often a stumbling block in the efforts to save a distressed company.

With this additional legal certainty, it is now safer to do distressed M&A deals in Switzerland before bankruptcy. Despite the recovery in the global economy and the remarkable perseverance of the Swiss economy, we expect the number and size of this type of transactions to increase.

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Executive Compensation – A New Playing Field for Shareholder Activists?
On 1 January 2014, the ordinance against excessive compensation in listed joint stock companies (VegüV, ORAb) entered into force. The ordinance brings far-reaching new rules on the corporate governance of Swiss public companies with direct effects on executive management, shareholders, pension funds and independent proxies. In particular, the ordinance provides for the election of the chairman of the board and the members of the compensation committee by the shareholders, a mandatory one-year term of office for board members, and, from 2015 onwards, for a binding say-on-pay vote by the shareholders on the compensation of the board and executive management. Furthermore, the institutional voting representation by governing bodies of the company itself and/or custodians is henceforth abolished and the role of the independent proxy is strengthened. Last but not least, as of 2015, pension institutions will be subject to certain voting and disclosure obligations in respect of the shares held by them in Swiss public companies.

These new rules will to some extent change the voting behavior of shareholders, in particular pension institutions. It is expected that as a result, proxy advisors will become more influential in Swiss listed companies. All these well-intended changes also give activist shareholders additional means to "shake up" a listed Swiss company, its board of directors, and/or its management.

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Regulatory Flood in the Finance Industry – Prompting a Wave of Asset Deals?
With an abundance of new laws and regulations (Basel III, AIFM, MiFID, FATCA, FINFRAG, to name just a few) on the horizon or already in force, the cost of doing business in the finance industry, in particular in the Swiss asset management and banking field, is increasing significantly, and there is no sign that this will change soon.

Compliance with these new laws and regulations is time-consuming and costly. As a consequence, smaller and medium sized banks and finance institutions will have to refocus their activity and sell off parts of their business which become unattractive or even unprofitable for them. For a number of reasons, M&A deals in the finance industry often take the form of asset deals. The ongoing regulatory activism has led to a "revival" of the asset deal in 2013 and we expect an increased level of M&A activity, mostly in the form of asset deals, in the Swiss finance industry in the near future.

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