Sika clash is more than just an acrimonious takeover battle

Shareholders gather during the Sika Extraordinary General Meeting, held during turbulent times for the company Keystone

The words “building trust” are written in large letters above the reception desk at the research and production facilities of Sika, the Swiss chemicals group, on the banks of Zurich’s Limmat river.

Anywhere else, the slogan might seem anodyne. At SikaExternal link it has particular irony. An attempt by family owners to sell their controlling stake has thrown them into a bitter battle with the company’s directors and workers – and incensed international shareholders.

“Nobody was really prepared when they sold. That was the moment when the trust was broken,” says Christian Eyholzer, a specialist in rubber adhesives who chairs Sika’s Zurich works council.

But Sika is being watched globally as more than just an acrimonious takeover battle. The long-running fight over the company, which had net sales of CHF4.1 billion ($4.1 billion) in the first nine months of 2015, is a test case for Swiss shareholders’ rights. The family stake – 52 per cent of voting rights but just 16 per cent of the share capital – is being bought by Saint-GobainExternal link, the French industrials group, which has not made a comparable offer to other investors.

“Fifteen years ago, the idea of an owner occupier shopping around for the highest bidder without the board’s knowledge, let alone consent would have been unthinkable,” says R James Breiding, author of Swiss Made, the story of Switzerland’s economic success.

Third-quarter results on Thursday showed Sika increased net profits 9 per cent to CHF338.2 million in the first nine months of 2015, despite tough conditions in emerging markets. But the controversial takeover could be a warning for investors in other Swiss family-held groups, which form the affluent Alpine economy’s industrial backbone.

Long process

Sika was founded in 1910 by Kaspar Winkler, an Austrian who developed concrete waterproofing used in the St Gotthard tunnel. The decision by his successors to sell out was a long process, says Urs Burkard, a fourth-generation family member. Mr Burkard, his brother and three sisters finally decided to sell after their mother died in 2013, when it was clear the next generation of family members was not interested in running the company, which serves the construction and car industries.

“We wanted to sell to someone who had an interest in Sika’s long-term future,” says Mr Burkard. The family could have obtained a higher price from a financial investor, such as a private equity firm. “But what would have happened to Sika? It might have been broken up. He adds: “We have not done anything illegal or unfair or immoral.”

Under the deal unveiled last December, Saint-Gobain agreed to pay CHF2.75 billion for the family’s holding – a premium of almost 80 per cent over the pre-deal share price. The transaction was blocked, however, by legal challenges on two fronts.

First, other shareholders – angered by the family’s decision – challenged Sika’s “opting out” clause, which exempted Saint-Gobain from having to make them a similar public offer. The Bill & Melinda Gates Foundation Trust, and Cascade Investment, which own more than 5 per cent of Sika’s share capital, argued the transaction was “an affront to good corporate governance”.

“Opting out” clauses are common in Switzerland. They allow family owners to increase stakes inexpensively. Those close to the Burkard familiar say the international shareholders were fully aware of the clause when they bought the shares. “Nobody can claim they didn’t know about opting out,” says one.

In September, the Swiss administrative court ruled in favour of the family and Saint-Gobain.

Unresolved legal issue

But the second legal issue remains unresolved. This is over whether Sika’s board can limit the family’s votes at shareholder meetings – as it has since the Saint-Gobain deal was announced, using a “restriction of voting rights” clause in the company’s statutes. Also common in Switzerland, such clauses are intended to protect against unwanted suitors.

Sika’s top managers fear control by Saint-Gobain with just 16 per cent of the share capital would damage the company. They warn of a culture clash between the two companies, dispute the French company’s claims of synergies, and argue the change of ownership would hamper its own plans for worldwide expansion.

“If we had not restricted the voting rights, then the public shareholders would probably have taken legal action against us – for not acting in the interests of the company,” says Paul Hälg, Sika board chairman. He had no idea until just hours before the deal was announced that the family wanted to sell, he says.

A court ruling on the restriction of voting rights is not expected until next year. Until then, Sika’s fate will remain uncertain. At the Zurich plant, Mr Eyholzer complains that “Dialogue between the different sides has frozen”.

Copyright The Financial Times Limited 2015