Sonova Holding AG (SOON), the world’s biggest hearing-aid maker by sales, said it’s under investigation after Chairman Andy Rihs and other top executives sold shares days before the Swiss company cut sales and profit forecasts.
Sonova issued the profit warning too late and failed to impose a timely black-out period that would prohibit company insiders from trading shares and options, said Robert Spoerry, who replaced Rihs as chairman yesterday. Chief Executive Officer Valentin Chapero and Oliver Walker, Sonova’s chief financial officer, resigned and Rihs stepped down from his post while remaining on the board, the company said.
“We were late and we are fully prepared to cooperate with the authorities,” Spoerry, 56, said in an interview yesterday after a press conference in Zurich. An independent probe commissioned by the board over the last two weeks found no evidence of insider trading, he said.
Interim CEO Alex Zschokke, 46, and interim Chief Financial Officer Paul Thompson, 44, also sold shares in the days leading up to the March 16 profit warning, Spoerry told analysts on a conference call yesterday, according to a transcript published on the company’s website today. Holger Schimanke, a spokesman for the company, didn’t immediately respond to a request seeking the dates and size of the trades.
No Trading Ban
Zschokke and Thompson exercised options which vested March 1. They were “not aware” that the company planned to cut its profit forecast and no trading ban was in place at the time, Spoerry said on the call. Sonova fell 23 percent on March 16, when the company lowered its predictions.
They believed their trades, which were placed as early as January, were made in “good faith,” said Daniel Daeniker, a partner at the Zurich-based law firm Homburger AG, which conducted the internal probe.
Chapero and Walker resigned because it was their responsibility to impose the trading ban, Spoerry said, according to the transcript.
The Sonova investigation by stock exchange authorities and a possible probe by the Zurich Prosecutor’s Office come three months after the Swiss government proposed stricter laws on insider trading and market manipulation, which would apply to a broader group of people. Currently, companies found guilty of delaying profit warnings face a fine of as much as 10 million francs ($10.9 million).
“There are still people in corporate Switzerland who lack the sensitivity on what is acceptable and what isn’t,” said Monika Roth, an attorney specializing in corporate law in Binningen, Switzerland. “There are still some shortcomings when it comes to insider information and compliance, and it’s good that the prosecutor is looking at this.”
Swiss law already makes it illegal for company managers, board members and public officials to abuse confidential information for their own financial gain and sets a maximum three-year prison term for the offense. The Zurich Prosecutor’s Office deals with 10 to 12 legal proceedings a year concerning insider trading, said Corinne Bouvard, a spokeswoman.
The proposed changes would bring Switzerland into line with European Union laws, the government said in January. A consultation period on the legislation is set to end April 30.
Sonova fell 0.7 percent to 81.85 francs at the 5:30 p.m. close of Zurich trading, giving it a market value of 5.41 billion francs.
Sonova directors and managers sold about 2.4 million shares and warrants between Feb. 1 and the forecast, according to the SIX Swiss Exchange website.
Rihs, 68, sold the 300,000 shares on March 8 at 125.07 francs each, for a total of 37.5 million francs, according to the company and the exchange website. He is the second-largest shareholder with a 9.5 percent stake, according to Bloomberg data.
The former chairman said he made the trades “in good faith” and has offered to buy back the shares at the original price. He told reporters at the press conference that he would step down as chairman to avoid further damage to the company’s reputation.
“You have to wonder whether the chairman of the board didn’t know how the business is doing, and if so, how is that possible?” said Roth, the corporate attorney in Binningen.
Rihs should stay on the board because “he plays an emotional role with the company,” Spoerry said in the interview. He formed the hearing-aid maker, then known as Phonak Holding AG, in 1985 from a previous company owned by his father, Ernst, who died in 1980, according to Sonova’s website.
He also owned the Phonak cycling team, which disbanded in 2006 after member and Tour de France winner Floyd Landis failed drug tests.
Rihs became chairman in 1992 and was CEO until April 2000, according to the company website. His term on the board expires next year. He had planned to step down this year or next, he said in a 2009 interview with Cash.
The board includes Anssi Vanjoki, executive vice president and general manager of Nokia Oyj (NOK1V)’s mobile solutions unit; Ronald van der Vis, CEO of Esprit Holdings Ltd. (330), Asia’s third-biggest clothier by market value; and Heliane Canepa, the former CEO of Nobel Biocare Holding AG (NOBN), based in Glattbrugg, Switzerland.
The company changed its name to Sonova from Phonak in 2007. It employs more than 7,200 people worldwide as of Sept. 30 and had annual sales of 1.5 billion francs in fiscal 2010, according to Sonova’s website. Sonova specializes in high-end hearing aids with wireless communication systems. It advertises its Lyric hearing aid as “the contact lens for your ear.”
The stock exchange notified the company of its investigation on March 25, Daeniker told investors on the call. Stephan Meier, a stock exchange spokesman, said he couldn’t confirm that preliminary investigations of Sonova have begun, citing exchange policy.
“The SIX Swiss Exchange Regulation is continuing to monitor Sonova’s activities and we note the company’s statement today regarding the delay of the March 16 profit warning,” Meier said by e-mail.
The internal probe by Homburger reviewed more than 200,000 company e-mails and didn’t reveal any evidence that Rihs knew that profit warning would be published a week later, Spoerry said.
The transition of the management team creates an opportunity for competitors to gain market share, Jefferies International Ltd. analysts including Ingeborg Oie wrote in a note.
“It’s quite unusual that all three key people would leave at the same time,” Oie said in an interview.
The company said it’s still estimating any additional costs related to the events but Spoerry told investors on the call it would likely be a single-digit million number.
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