In the reply submitted by the Swiss Association for the Protection of Investors (SASV) on 28 August 2024, it becomes clear that an in-depth judicial review of the exchange ratio and the associated obtaining of a court expert opinion on the value of Credit Suisse as at 19 March 2023 are unavoidable in order to preserve the rule of law. Two expert opinions were submitted to supplement the reply. The legal opinion considers it necessary to value Credit Suisse at going concern value and taking into account the agreed merger, in which the synergy effects of the merger must also benefit Credit Suisse shareholders. The valuation report based on publicly available information concludes that the value of Credit Suisse was far higher than the takeover price of around CHF 3 billion paid by UBS.
On 28 August 2024, the Swiss Association for the Protection of Investors, submitted its replication to the proceedings against UBS under Art. 105 of the Swiss Merger Act (FusG) within the deadline.
In the reply, written jointly with the Zurich-based law firm Niedermann Rechtsanwälte, we draw particular attention to the need for a judicial review of the exchange ratio. In a ‘normal’ merger, extensive company valuations are carried out and both a merger report and an audit report are prepared. The latter is ‘usually’ submitted to the general meeting for a vote. These protective mechanisms provided for in the Merger Act are intended to ensure that the exchange ratio is appropriate. In the context of the takeover of Credit Suisse by UBS, these mechanisms were eliminated by emergency ordinance, which is why the exchange ratio has not been audited by any independent body to date. A detailed examination of the exchange ratio by the Commercial Court is therefore urgently required in the present case.
In contrast to the aforementioned protective mechanisms, the possibility of a judicial review of the exchange ratio pursuant to Art. 105 FusG was not excluded in the emergency ordinance. Apparently, the authorities involved were of the opinion that such a judicial review should also - or even more so - be possible under the circumstances described. From the perspective of the rule of law, a detailed judicial review of the exchange ratio is also required.
In order to determine the appropriate exchange ratio, a comprehensive company valuation of Credit Suisse and UBS as at 19 March 2023 is necessary. It must be recognised that all relevant circumstances must be taken into account in the valuation of the companies involved. In addition to the fact that the merger had already been decided at the valuation date of 19 March 2023, this also includes the foreseeable consequences of the merger. If, for example, the merger results in advantages for one or both companies, which can generally be assumed, these must be taken into account in the company valuation on a pro rata basis. The same applies to foreseeable synergies resulting from the merger.
In a judgement from 2007, the Cantonal Court of Graubünden stated this principle with reference to legal doctrine as follows:
(Translation) ‘This [the circumstances to be taken into account] includes the medium and longer-term monetary development potential, the synergies resulting from the restructuring, reduction of redundant operating costs, development of new business areas, the proportional allocation of a merger-related assumed increase in added value to the merger partners and, in general, all actual circumstances of the restructuring that can be determined in terms of value (Dieter Dubs, Basler Kommentar 2005, N 15 f., 20 on Art. 105 FusG; Eugster, loc. cit., N 96-101).’ (KGer GR PZ 07 99 of 16 August 2007)
(Original: «Darunter [unter die zu berücksichtigenden Umstände] fallen die mittel- und längerfristigen geldwerten Entwicklungspotentiale, die sich aus der Umstrukturierung ergebenden Synergien, Reduktion redundanter Betriebskosten, Entwicklung neuer Geschäftsfelder, die proportionale Aufteilung einer fusionsbedingt angenommenen Erhöhung des Mehrwerts auf die Fusionspartner und überhaupt alle wertmässig festlegbaren tatsächlichen Gegebenheiten der Umstrukturierung (Dieter Dubs, Basler Kommentar 2005, N 15 f., 20 zu Art. 105 FusG; Eugster, a.a.O., N 96-101).» (KGer GR PZ 07 99 vom 16. August 200))
In other words, the decisive factor is ultimately what Credit Suisse was worth as a future part of UBS on 19 March 2023. This value is likely to be significantly higher than the isolated value of Credit Suisse on Friday, 17 March 2023 in the amount of the market capitalisation of CHF 7.4 billion; and thus many times higher than the approximately CHF 3 billion paid. This is because Credit Suisse's business suddenly increased in value with the signing of the merger agreement and the associated support from the Federal Council (additional liquidity assistance, government default guarantee, guarantee to UBS of CHF 9 billion for potential losses from risks in connection with the transaction), as the loss of confidence suffered by Credit Suisse no longer applied. The merger also resulted in numerous synergies, as UBS itself has stated on various occasions.
This is confirmed by the available figures: Both the badwill of around USD 34.8 billion recognised by UBS and the steady rise in UBS's share price since the merger indicate that Credit Suisse as a future part of UBS was worth significantly more than the approximately CHF 3 billion paid. Under the Merger Act, Credit Suisse shareholders, just like UBS shareholders, have a right to participate in the added value created by the merger.
Together with other plaintiff groups, the SASV commissioned a legal opinion from Prof. Dr iur., LL.M. Harald Bärtschi on the exchange ratio in the takeover of Credit Suisse by UBS. In addition, an auditing company specialising in company valuations carried out a valuation of Credit Suisse based on publicly available information. The values determined range between CHF 2.30 and CHF 9.17 per share, depending on the valuation method used. The SASV is aware that this value range does not necessarily reflect the value of Credit Suisse as at 19 March 2023, as a final assessment would have to be based on a large amount of internal information from Credit Suisse and UBS. This internal information is not available to the SASV. However, the calculated value range is a further strong indication that the takeover price of around CHF 3 billion was significantly below the actual value of Credit Suisse. The actual value of Credit Suisse as at 19 March 2023 will ultimately only be determined by an expert appointed by the court, who will be granted comprehensive access to all relevant internal information.
In view of the fact that to date there has been no detailed independent review of the exchange ratio and in view of the clear indications that the takeover price of around CHF 3 billion did not correspond to the actual value of Credit Suisse, a detailed judicial review of the exchange ratio and the associated obtaining of a judicial expert opinion on the value of Credit Suisse as at 19 March 2023 is unavoidable. Otherwise, Credit Suisse shareholders would effectively be deprived of their only remaining protection mechanism in the Merger Act, which would not be justifiable under the rule of law.
About the SASV:
The Swiss Investor Protection Association (SASV) represents over 2,000 former shareholders of Credit Suisse in the lawsuit against UBS and is committed to transparency on the Swiss capital market and the promotion and enforcement of investor rights in Switzerland. Its purpose is to protect the interests of investors with regard to financial investments and to support them in the enforcement of their corporate and economic interests. In this context, the Association will also promote the action of security holders with the aim of enforcing rights against companies, their governing bodies and major and majority shareholders. This includes special audits, liability actions against the management for damages due to unfaithful business management or due to the pursuit of self-interest. In this way, a counterweight to the board of directors and major shareholders of listed companies is to be formed to protect investors' rights.
The aim is to ensure good corporate governance and transparency on the Swiss capital market. The SASV is non-profit-oriented organisation.