Dispute over CS purchase price: This is how star lawyers take action against small shareholders

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It is one of the most influential commercial law firms in Switzerland: Bär & Karrer, based on the site of the former Hürlimann brewery in Zurich. The lawyers worked for UBS for many years. When Credit Suisse ended a year ago, Bär & Karrer acted as legal advisor to UBS.

As can be read on Bär & Karrer’s website, the team was led by Rolf Watter (66), perhaps the most powerful commercial lawyer in Switzerland. He was assisted by 17 more lawyers. With Watter’s help, the big bank implemented a deal that turned out to be extremely lucrative: The price of UBS shares has risen steadily since the takeover. On Friday, shares reached a new high, rising above 27 francs per share.

That’s little consolation to Credit Suisse’s former shareholders. To get the UBS certificate as part of the transaction, you had to give up 22.48 CS shares. Or calculated another way: CS shareholders received 78 cents per share; The value of the bank was only three billion francs. This is less than half the market value on Friday evening, March 17, 2023, when the stock entered the weekend at 1.86 francs. And best of all, it is much less than the bank’s real value, which amounts to around 30 billion francs.

Thousands of Credit Suisse shareholders are resisting this cold expropriation. They filed a lawsuit with the Zurich Commercial Court last year. UBS’s response to the lawsuit came recently. The article was written by Bär & Karrer, which represented UBS in court a year after the deal of the century. It is presented to the eye.

A bank in decline

Advocates have long painted a picture of a bank whose collapse, in retrospect, was inevitable. By the weekend of March 18th and 19th, it was clear to everyone involved that CS Group could no longer avoid bankruptcy. Had it not been rescued, the bank would have collapsed on Monday, creating not only “a total loss for shareholders but also a global financial crisis,” Bär & Karrer write on behalf of UBS.

In many ways, the lawyers justify the 78-cent offer. The “rescue merger” is also said to be a big risk for UBS. And the bank was never interested in a “gift,” as the shareholder lawsuits try to imply.

Conversely, UBS is portrayed as generous, as any price above zero would be appropriate. It could also be a symbolic franc for CS. It is “legally unfounded” for CS shareholders to now object to the exchange rate. The article discusses in detail how companies should be valued according to merger law. In the prevailing view, the valuation based on the intrinsic value method used by the complainants is essentially unsuitable for determining the going concern value of a company. It is “unrealistic” to claim compensation based on intrinsic value.

But – and UBS admits – “bailout mergers” with state participation are not an everyday occurrence. But lawyers insist that CS shares are no longer worth anything because the bank would be bankrupt anyway. Whatever assets they had on their books, the value would be zero.

The last paid stock exchange price is also “not meaningful”. This value cannot be “automatically” equated with the “true” value of the company. The defense is on thin ice here. What would prices have been if it had been leaked on Friday that the federal government was backing Credit Suisse with a sweeping 250 billion franc bailout? It would definitely rise quickly.

“Irrelevant” 250 billion bailout package

But for UBS, this 250 billion package is “insignificant”. Some plaintiffs claim the measures would entitle them to a higher exchange rate. The answer succinctly states, “This claim is unfounded.” Bär & Karrer argues that the rescue measures are linked to the completion of the merger. Therefore, the value of rescue measures cannot be assessed in isolation; This is a highly controversial point.

The plaintiffs also point to an increase in the price of UBS shares. Overall, UBS’s stock market valuation has increased by 30 billion francs in the last twelve months. This almost corresponds to the intrinsic value of Credit Suisse that CS shareholders claim for themselves. For them, this price evolution is evidence of a massive wealth transfer from CS to UBS.

Bär and Karrer’s argument is not entirely correct here. The response to the lawsuit states that UBS shares “reacted unobtrusively” and that the market “neutrally valued the merger.” However, this was only valid for the first three months. Shares then surged sharply, reaching a new 16-year high on Friday.

Source :Blick