Trading in Sika shares highlights Swiss risk

The Swiss company Sika AG was founded 105 years ago by Kaspar Winkler, who invented a waterproofing product that catapulted the company to success when Swiss Rail started using it in 1918 to waterproof Swiss train tunnels.

The company, which now employs over 16,000 staff worldwide and generated CHF 5 billion of revenue in 2014, suspended trading of its shares on the Swiss stock market today. Until today the shares had been performing reasonably well after dropping 29% in December 2014 after a controversial deal to buy a controlling stake in the company was announced.

The drama began when the heirs of the founder, the Burkard family, agreed to sell their 16.1% stake in the company to a rival French company, Saint Gobain at an 80% market premium. The problem was the same deal was not offered to other shareholders, which include the Bill and Melinda Gates foundation. This 16.1% stake comes with turbocharged voting rights of 52%, which probably explains the willingness of Saint Gobain to pay such a premium for it.

The Board were not party to the deal and say this has undermined their confidence in the Burkhard family. In addition they say they do not see many synergies and are concerned Saint Gobain will use the majority voting rights to its own advantage at the expense of other shareholders.

The Burkard family, represented by Urs Burkard says the family is ready for a legal battle and that there are indeed synergies.

In Switzerland it is possible for companies to alter their constitutions to opt out of rules that require a buyer to offer the same deal to all shareholders. In many European countries buying shares that result in ownership of more than a third of a company’s voting rights will trigger this rule. According to The Economist magazine 58 other companies listed in Switzerland have such opt-outs in their company constitutions.

In any case the drama surrounding Sika is set to continue. “All in all, what should have been a simple transaction has taken (on) immense proportions and we cannot see an end to this battle yet.” said IG Bank analyst Laurent Bakhtiari. “It would be very interesting to see how the stock will open tomorrow. The only thing we can say with a high degree of confidence is that there will be a lot of volatility”

Sika share price tracker.