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December 2018: Schenker-Winkler Holding vs. Sika – QE Leads Way to Settle Europe’s Nastiest Takeover Battle

December 2018

Quinn Emanuel represented and facilitated a favorable settlement for the owners of Schenker-Winkler Holding
AG (SWH), the majority stakeholder of Swiss construction chemicals maker Sika AG (Sika) – a $20 billion market cap company – in what The Economist described as “Europe‘s nastiest takeover battle.” The New York Times noted that the case was “more than just another activist battle, showing how things in Europe look more and more American,” now already reminiscent of the dispute surrounding American broadcaster CBS and its controlling shareholder.

The saga began in December 2014, when the fourth generation of family owners, who bundled their shares in Sika in SWH told the Sika board of directors that they had agreed to sell their shares in SWH, and thus indirectly their controlling stake in Sika, to Saint-Gobain for CHF 2.75 billion. The controlling stake consisted of only approx. 17per cent of the share capital but carried more than 53 per cent of the voting rights because of the special voting power associated with SWH’s registered voting shares as provided under Sika’s articles of association.

Following the announcement of the planned transaction by SWH, Sika’s majority independent board of directors decided to oppose the transaction and restricted SWH’s voting rights based on a broad interpretation of a provision in Sika’s articles of association, which allowed the board to cap voting rights if a shareholder was to acquire a stake in the company in excess of 5%. The board of directors interpreted this provision such that it not only covers direct sales of Sika shares but also indirect sales like in the given case. With SWH’s voting rights restricted to only 5% of their actual share, the family was unable to remove the directors who opposed the transaction and was left unable to close the deal with Saint-Gobain. The question whether the restriction of the voting rights of SWH was lawful became the heart of the ensuing legal dispute, but other legal proceedings were also initiated and pursued aggressively – both sides filed directors’ liability actions against their respective representatives, and the shareholder’s meeting initiated a special audit proceeding to look into the question whether confidential information
was misused by the family holding SWH.

Quinn Emanuel navigated the family through the various legal proceedings. After three and a half years of legal battles, with a final court decision on the legality of the voting rights restriction still years out, the parties agreed to enter into negotiations, which eventually came to a conclusion this June. Under the agreed multi-phase plan, Saint-Gobain acquires SWH and its controlling stake from the family for now CHF 3.2 billion. In order to accommodate the concerns of the majority of the Sika board of directors and certain minority shareholders that opposed the transaction, led by the Bill and Melinda Gates Foundation and its investment vehicle Cascade, announced in December 2014, Saint-Gobain agreed to sell a 7% stake of SWH’s approx. 17% stake back to Sika and made a commitment to agree that the special voting rights associated with the registered voting shares held by SWH will be abolished at an extraordinary shareholder meeting. Sika paid Saint-Gobain just over CHF 2 billion for the 7% stake and for the commitment to give up the special voting rights associated with the registered voting rights. That price is a CHF 795 millon premium on the market value of the respective shares per May 4, 2018. The settlement agreement thus allows Saint-Gobain to make a profit on the deal while retaining 10.75% of Sika shares. The companies have agreed a two-year lock-up and some stand-still obligations – Saint-Gobain’s stake in Sika will remain at up to 10.75% for four years and up to 12.875% for the following two years, and, in the case of an intended sale, these shares will first be offered to Sika up to 10.75%. At the same time, the deal allows the family to exit the company and to sell its stake taking in an additional CHF 500m above what was offered to the family for their stake in 2014. This, in the end, was a win-win-win situation for the parties involved in this groundbreaking takeover battle.

The case is a forceful reminder that special voting rights are a delicate concept. The concept may appeal to founders who do not want to relinquish control on flotation. But such arrangements are difficult to unwind and can come back to haunt the company and other shareholders when the founders are no longer involved. The episode also highlights the protection of rights of different shareholder categories and serves as a lesson for the many companies with multiple share categories that it is often not enough to merely comply with minimum legal standards when it comes to good corporate governance.