Authored by Stephen Kennedy-Good and Talia Rajah
Takeovers of listed companies in South Africa are subject to a dense regulatory framework designed to ensure market efficiency and protect shareholders, particularly minority shareholders. For bidders and targets alike, understanding both the structuring options and the regulatory triggers is critical to executing a successful transaction.
The takeover regime is anchored in Chapter 5 of the Companies Act, 2008 read with the Takeover Regulations. The JSE (Johannesburg’s Stock Exchange) listings requirements must be complied with by the target company in the context of a takeover bid. The Takeover Regulation Panel, which is an independent body with statutory functions, is responsible for regulating any affected transaction or offer. The Panel must act without regard to the commercial advantages or disadvantages of any transaction or proposed transaction to ensure the integrity of the marketplace and fairness to the holders of securities of regulated companies. No person may give effect to a public takeover bid unless the Panel has issued a compliance certificate or exempted a transaction. The Panel may initiate or receive complaints, conduct investigations, and issue compliance notices with respect to any affected transaction or offer. A compliance notice may, among other things, prohibit or require any action by a person or order a person to divest of an acquired asset or account for profits.
A takeover can be implemented by way of a scheme of arrangement (which is the most commonly used structure), by way of a general offer or by a merger or amalgamation. In the case of a scheme of arrangement, the board of the target must propose the transaction to its shareholders. By implication, the cooperation of the board is required. In order to implement the scheme, it must be approved by 75 percent of the votes cast at the relevant meeting by shareholders (in person or by proxy) who are entitled to vote on the scheme. Alternatively, a general offer may be made directly to the shareholders of a target. That offer will be open to any shareholder to accept, but acceptances must be received for 90 percent of the shares to which the offer relates in order to squeeze out the minority and delist the company. It is for this reason that general offers are uncommon in South Africa. The statutory merger or amalgamation provisions of the Companies Act are seldom used in public takeover bids as they require all known creditors of the target to be notified of the transaction (and creditors can intervene even after the transaction has been approved by shareholders and a merger agreement has been signed). Furthermore, creditors can apply for leave to have the merger reviewed by the courts, which could substantially delay implementation even if the creditors’ review application should fail.
An independent expert must be appointed to provide a “fair and reasonable” opinion in respect of the proposed transaction. The opinion is made available publicly in that it is attached to the circular that is sent to shareholders for consideration whether to support the deal.
No matter the form of the take-private, where the consideration is wholly or partly in cash, the bidder must provide the Panel with an irrevocable unconditional guarantee issued by a South African registered bank, or an irrevocable unconditional confirmation from a third party that sufficient cash is held in escrow to provide security for payment of the consideration. Confirmation must be in a form approved by the Panel and must be provided both at the time that the firm-intention announcement is made and on posting of the offer circular to shareholders. The Panel has issued guidelines setting out the form of the bank guarantees and cash confirmations that must be adopted in this context.
There are a number of additional rules and principles that must be taken into account when preparing or conducting a public takeover bid in South Africa, including rules in relation to:
- disclosure of share acquisitions;
- insider dealing and market manipulation (the so-called market abuse rules contained in the Financial Markets Act, 2012 (FMA));
- the supervision and control of the financial markets, as contained in the FMA;
- offers of securities to the public and their admission to trading (where applicable); and
- the merger control regime contained in the Competition Act, 1998.
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