NEWS : Rebels poke holes in solid Swiss front

SWISS corporations, like the country itself, have for decades been protected from foreign threats by mountainous defences. But the laws that restrict hostile takeovers from abroad are proving less effective at holding back local discontent, as Uni on Bank of Switzerland is discovering to its directors' dismay. The cosy warmth of Swiss boardrooms may never be the same again.

UBS, the country's largest bank, has seen its stock tumble by more than a fifth in three months under an assault from the largest shareholder, Martin Ebner. The clash between Mr Ebner and Nikolaus Senn, the bank's chairman, together with Paul Studer, itschief executive, peaked at the weekend, as an avalanche of accusations, investigations, and legal actions rumbled down the Alpine slopes towards Zurich.

Leading Swiss and German newspapers have questioned whether a share deal worth Sfr450m (£215m) was an attempt to bribe one of Mr Ebner's clients to support the UBS board of directors in a critical vote unifying its share structure. UBS, in turn, stops just short of pointing its finger at Mr Ebner's BZ Bank for leaking to the press (in breach of Switzerland's strict banking secrecy laws) the name of Karl-Heinz Kipp - the retired businessman who sold it the shares for substantially more than they are nowworth.

Both sides strongly deny any wrongdoing. "In no case did we influence the vote," Mr Senn said. Mr Ebner refused to comment publicly on any aspect of the situation, but sources close to him said neither he nor his companies leaked the name. The Zurich Stock Exchange Commission is now investigating the share deal, while the canton's public prosecutor is probing the leak.

The rancorous dispute would be unusual anywhere, but is unprecedented in Switzerland, where managers and owners rarely disagree, and certainly not publicly.

It began last year, when Mr Ebner called for the bank to concentrate on profitable asset management rather than costly domestic retail banking. He hoped this would boost the bank's return on equity from about 6 per cent to 15 to 20 per cent. He also demanded that the board be slimmed from 23 directors to nine.

To back up his demands, he began gathering support from shareholders - taking a law that was supposed to protect companies from foreign takeover and turning it to his advantage. Like many Swiss corporations, UBS had a two-tier share structure - bearer shares with a par value of Sfr100 and registered shares at Sfr20.

Both classes have the same voting rights, but only Swiss citizens and residents are allowed to own the cheaper registered shares - meaning Swiss shareholders can "buy" votes more cheaply than foreigners.

"The whole point of the existing structure was of a protectionist nature,'' said Alison Deuchars, an analyst with Lehman Brothers in London. "But it was based on the premise that any hostile interest would come from a non-resident. What's happened is that the rules have been used by a Swiss investor to put significant pressure on the company."

UBS retaliated by proposing to unify its share structure. Bearer shares would be swapped for 10 unified shares, while registered shares would be worth two. The bank said the move was in anticipation of a change in the law due to take effect next month, which would allow it to keep the word "Swiss" in its name without having to prove domestic control.

Mr Ebner and his allies complained they were not offered compensation for the loss of their voting rights, which had given registered shares a pro rata premium of up to 40 per cent over the bearer shares. They were confident they would be able to block management's proposal at an extraordinary general meeting on 22 November. But there, Mr Senn won approval for his proposals by 65,500 votes out of 31.6 million, a margin of just 0.2 per cent. His opponents claim it was Mr Kipp's 1.45 million registered shares that made the difference. He had previously sold them to UBS, but on a forward basis, which allowed him to vote them until this summer.

The circumstances surrounding the share purchase are the subject of hot dispute. One argument centres on exactly when the transaction took place. Was it on 17 October, when the price was Sfr311, as UBS says? Or was it on 28 October, when the bank reported the transaction and the shares were 13 per cent lower?

The fight is now before the Zurich district court where BK Vision, the investment fund of which Mr Ebner is chairman, has won an injunction blocking the new share structure and plans to file its objections with the court this month. The bank has counter-sued, asking for the injunction to be lifted and for Sfr150m (£75m) in damages.