A seemingly interminable dispute over Sika AG’s voting rights appears to have finally reached an end. The Swiss specialty chemicals company announced this morning that an amicable solution had been found with the Burkard family and Saint-Gobain. An EGM will be called for June 11 for shareholders to sign off on certain changes necessitated by the agreement.
THE PAST
In December 2014, a bitter battle broke out after the founding Burkard family’s heirs sold their stake in the company through investment vehicle Schenker-Winkler Holding to its competitor Saint-Gobain for a substantial premium. The share packet equated to around 16% of the company’s share capital; however it gave Saint-Gobain a controlling stake over the voting rights due to Sika’s dual-class capital structure. The executive committee and free-float representatives on the board of directors immediately sounded the alarm that they had not been consulted on the sale, did not support the change of control. They expressed grave concerns about the loss of shareholder value through free-float shareholders missing out on a premium, and about the future of the company with a competitor gaining a controlling stake.
The fuse was lit when the majority-independent board enacted a provision in the company’s articles, which limited the voting rights of the controlling shareholder to 5% on a number of AGM proposals and effectively blocked changes to the composition of the board. Subsequent general meetings were dominated by squabbles between Schenker-Winkler and the board and shows of support for the free-float representatives by employees and other stakeholders.
Schenker-Winkler initiated a number of legal proceedings against the company, but appeared to be running out of options as courts kept ruling against their claims. Despite the substantial disruption caused by the takeover battle, business was booming with the company posting record profits and its share price more than doubling. This raised hopes that a deal may be possible through which Saint-Gobain could save face without losing value on its investment.
THE DEAL
The company announced that Saint-Gobain would acquire the Burkard family’s stake at a price of CHF 3.22 billion, which represents an increase of CHF 500 million over the original agreed price. The Company will purchase its own shares equating to 6.97% of its issued share capital from Saint Gobain for CHF 2.08 billion, which represents a CHF 795 million premium over their market value; these shares will then be cancelled. Saint-Gobain will retain 10.75% of the company’s issued share capital, which it commits to hold for at least two years with the company having first refusal in case of an intended sale. Sika then proposes to convert all shares into a single share class (thus removing the special voting rights) and to remove the share transfer restriction which had been used to limit the controlling voting rights stake. The representatives of the Burkard family on the board will resign, all ongoing litigation will be terminated and Sika will propose to shareholders that the ongoing special audit also be halted.
THE FUTURE
With the agreement, it also appears that the business relationship between Sika and Saint-Gobain will be expanded, although Sika has reiterated its position that the preservation of its economic and legal independence is imperative. The conclusion of the deal should also open up the possibilities of the management team under new CEO Paul Schuler, who took over last July, with rumours of potential takeover targets already starting to spread.
One large point of focus will also be the company’s governance practices and the composition of its board. Since the introduction of the Minder Initiative in 2014, Swiss companies have been facing growing scrutiny and shareholder opposition as the requirements for increased transparency and annual binding votes on the composition of the board and compensation of management simultaneously highlighted governance deficiencies and allowed shareholders to raise their concerns through the ballot box. This has led to rapidly evolving best practice in Switzerland and a significant increase in dialogue with investors on governance themes. With the board’s focus diverted, it now has a fair bit of catching up to do.
While the board is likely to be granted some leeway to get its house in order, shareholder focus will now shift to ensure the creation of a modern, transparent, and effective corporate governance structure to safeguard shareholder interests as the company embarks on a new chapter in its history.