ZURICH, Switzerland - Non-Swiss shareholders may hold the key to Union Bank of Switzerland's efforts to fend off dissident shareholder BK Vision AG.
The battle involves Switzerland's biggest bank and one of the world's largest money managers, with an estimated $245 billion in assets under management globally at the end of 1993, according to InterSec Research Corp., London. UBS' U.K. pension unit, PDFM Ltd., is the second-largest manager of U.K. pension assets, at 32.6 billion ($52.8 billion). Its London unit also manages $1 billion for U.S. pension funds.
Holding an estimated one-third to one-half of UBS' bearer shares, non-Swiss shareholders may possess the swing vote. But investors are on the horns of a dilemma. Do they support UBS, whose proposal apparently will give them greater voting rights at no cost? Or, should they oppose the bank because of its tactics in trying to avert a supposed takeover?
Some Swiss bank analysts think UBS - Switzerland's biggest bank - ultimately will win shareholder approval to convert the bank's registered and bearer shares into a new class of bearer shares. Others say the vote is too close to call.
A special shareholder meeting on the plan is slated for Nov. 22.
The vote comes at a turning point for Swiss companies, as they are starting to tear down tough anti-takeover rules. The contest may have important repercussions for other major Swiss companies that have split their shares between registered and bearer form.
"We generally would agree and support such a proposal" eliminating restrictions on voting shares, said Stanley Dubiel, analyst with Institutional Shareholder Services Inc., Bethesda, Md. "But in this case, we can't agree with the method they are using."
Mr. Dubiel said UBS' action of trying to thwart BK Vision - and the lack of compensation offered for the loss of value on registered shares from the share conversion - make the proposal untenable, unless UBS is able to offer a better explanation.
Despite the bank's maneuvers, Eric Sarasin, chairman of Sarasin Asset Management Ltd., Basle, Switzerland, said he will support UBS. "I think it's a good move. I wish it had been done without pressure from" Martin Ebner, chairman of Zurich-based BZ Group Holding and its BK Vision investment company.
Mr. Ebner denied he wants to take over UBS. Instead, the chairman of the upstart Swiss banking group said in an interview he wants to protect against "the castration of registered shareholders." Mr. Ebner also believes shareholders are better off with a major investor who will invest the time and effort to represent their interests.
Mr. Ebner has said he wants to improve UBS' return on equity by removing inefficiencies. He denied he has ever proposed selling off the bank's prized retail banking network. He added, however, if the bank keeps the network, UBS "would have to make it profitable."
He also said if the bank engages in riskier undertakings such as proprietary trading, it should apprise the market beforehand and not let it "be surprised after the fact."
UBS' earnings fell 28% to 929 million Swiss francs in the first half, mostly from plummeting trading income. But Mr. Ebner added it's the job of the board - not owners - to set strategy for the bank.
UBS' return on equity in 1993 was 11.5%, up from 7.31% in 1992. Salomon Brothers International Ltd., London, estimates the bank's 1994 ROE will be 8.82%.
UBS officials say Mr. Ebner's criticisms of the bank's retail bank network and his desire to concentrate the bank's strategies are misguided.
"To demand a return on equity of 15% to 20% from a Swiss bank is nothing short of ridiculous," UBS President Robert Studer told a press conference. With the Swiss market's low inflation rate, "a return on equity of 10% is already fairly ambitious, even quite aggressive." Foreign banks with higher returns on equity also have experienced much more volatile earnings records, he said.
Mr. Studer added returning capital to shareholders would force the bank to "give up lending to small and medium-sized borrowers together with the bulk of our mortgage lending activities."
UBS officials further rejected Mr. Ebner's demand that registered shareholders be allowed to vote separately on the proposal, or be allowed to elect a representative to a seat on UBS' board. Furthermore, changes in Swiss banking law that go into effect Jan. 1 should alleviate concerns that the bank will become more vulnerable to a foreign takeover, officials said.
At issue is UBS' share structure. In 1975, UBS introduced a class of registered shares available only to Swiss citizens and residents. While carrying the same voting power as bearer shares, they had a par value only one-fifth as much. The idea was to prevent a takeover by a foreign entity.
Ironically, that share structure has led to the very problem UBS sought to avoid.
Because the registered shares represent only 17.3% of UBS' share capital but 51.1% of the voting rights, they offered an easy way for a domestic shareholder to make a move on the bank.
Mr. Ebner targeted UBS in 1990 as the Swiss bank with the greatest earnings potential. Since then, he has been a thorn in its side.
BK Vision has invested 80% of its assets in UBS stock. Together with its allies, it has acquired 18.1% of UBS' registered shares - representing 5.6% of UBS' capital, or 2.1 billion Swiss francs. BK Vision and a sister fund also own 5% of the bank's bearer shares.
The problem, Mr. Ebner said, is that UBS bylaws cap his total voting rights at 5% - even though he controls 8.6% of the bank's capitalization. He dismissed contentions by UBS officials that he has a disproportionate influence.
Meanwhile, Mr. Ebner's involvement has caused the registered shares to trade at a premium up to 40% over the bearer shares this year. This premium has eroded to less than 20% since UBS proposed Sept. 29, in response to Mr. Ebner's growing role, converting the registered shares, with a par value of 100 Swiss francs, and the bearer shares, with a par of 20 francs, into a new class of 257.5 million bearer shares with a par of 10 francs.
In a letter to shareholders, UBS said the change would create a more liquid class of stock, would enhance voting rights for owners of bearer shares - many of whom are foreign investors - and would prevent a small group of registered shareholders from influencing the bank's direction or strategy.
The effect of the proposal would be to reduce drastically the voting rights for Mr. Ebner and his allies.
UBS has offered no compensation for the loss in voting rights, a point Mr. Ebner and others have seized upon. Mr. Ebner said the proposal represents "a gross violation of the requirement for equal treatment of shareholders." He has threatened legal action if he loses the vote.
To block UBS' proposal, Mr. Ebner has to win the vote of one-third of the combined registered and bearer shares who attend the special Nov. 22 meeting.
Some analysts think this places huge pressure on UBS, but others say it won't be easy for BK Vision to defeat the proposal. The Swiss banking establishment is expected to oppose Mr. Ebner, whom they view as a threat. "Politically, UBS is too strong," said Philippe Rezzonico, financial analyst with Ferrier Lullin S.A., Geneva.
Almost all of the bearer shareholders - with 48.9% of the voting rights - are expected to vote in favor of the proposal because it will enhance their voting rights at no cost.
But the key is getting these shareholders to show up; otherwise, their votes can't be cast - except, of course, where they are UBS clients and the bank holds the proxy. UBS officials are courting their foreign shareholders, who analysts believe may hold up to one-quarter of the voting rights.
Only about 47% of UBS' shares were cast at the bank's last annual meeting>