CMS Expert Guide to Public Takeovers in South Africa

Yes - the South African Companies Act No. 71 of 2008 ("Companies Act") and the Companies Regulations, 2011 ("Companies Regulations"), which incorporate the South African Takeover Regulations ("Takeover Regulations") primarily regulate public mergers, acquisitions and takeovers.

A number of other statutes and regulations may also be applicable, including:

• the Financial Markets Act 2012 ("FMA"), which regulates the financial markets and insider trading;
• the Exchange Control Regulations, which are enforced by the Financial Surveillance Department of the South African Reserve Bank;
• the Competition Act 1998, which requires mergers of a certain size to be approved by the relevant competition authorities; and
• certain industry specific laws and regulations, for example in the banking, mining and communications sectors.

In addition, public companies with shares listed on the Johannesburg Stock Exchange ("JSE") are required to adhere to the JSE Listings Requirements ("JSE Listings Requirements") in the context of a takeover offer.

The Takeover Regulation Panel ("TRP") is the regulatory body empowered under the Companies Act to, inter alia, regulate any affected transaction or offer,

• Takeover offers;
• Acquisitions which result in the acquirer holding all or a greater part of a target company's assets or undertaking;
• Partial offers.

• Other than for the target company, the parties involved in a takeover offer are not required to enlist specific advisers. However, it is common practice for both the offeror and the target company to engage legal and financial advisers to aid with the transaction, as well as strategic communications and/or management consultants in some cases;
• As for the target company, the independent board is required to seek advice from an independent expert to form an opinion on the offer and convey that to shareholders. Auditors may be needed to prepare pro forma accounts or assist with financial disclosures. Additionally, the parties involved in some transactions may require the assistance of sector-specific technical experts, such as those in the mining, telecommunications, and real estate sectors and competition law advisors (if applicable);
• Broad-Based Black Economic Empowerment ("B-BBEE") advisors may also be engaged if a proposed transaction has a B-BBEE component.

A mandatory offer is triggered when a person acquires shares in the target company equal to or greater than 35% of the total issued voting shares in that company. When either of the following events occurs, the requirement is triggered:

• the target company acquires any of its own shares; or
• any person acting alone, two or more related persons, or two or more persons acting in concert acquire shares in the target company,

where this results in any person owning at least 35% of the target company's issued voting shares. The person who has acquired at least 35% of the target company's shares must, within one business day of such acquisition, notify the target company’s remaining shareholders of an offer to acquire all of the target company’s remaining shares.

However, the following exceptions may apply:

• the obligation to make a mandatory offer as a result of a target company issuing shares as consideration for an acquisition, a cash subscription for shares in the target company, or a rights offer by the target company may be waived if independent shareholders holding more than 50% of the target company's shares agree to waive the benefit of such mandatory offer; and/or
• the mandatory offer requirement does not apply to, and is not triggered by, the acquisition of non-voting preference shares
• the TRP may also exempt the offeror from making a mandatory offer.

• General offer (also known as a tender offer or public offer) – in which the proposed offeror makes an offer to the shareholders of a public company, with or without the co-operation of the target company's board of directors, to acquire all of the target company's shares not already held by the offeror, subject to the offer being accepted by at least 90% of the target company’s shareholders. The offeror may then acquire the shares of the remaining non-accepting shareholders compulsorily (on the same terms and conditions as the accepting shareholders).
• Statutory amalgamation/merger – under the Companies Act a statutory amalgamation/merger is permissible but can only be concluded between two or more South African companies. Similar to a scheme of arrangement, a statutory amalgamation/merger requires the co-operation of both companies’ boards of directors and approval from the shareholders of both companies by a majority of at least 75%;
• Scheme of arrangement – which is proposed by a target company's board of directors as an agreement between the target company and its shareholders that requires the approval of at least 75% of the shareholders in a general meeting. A scheme of arrangement does not require prior court approval unless at least 15% of the voting rights cast on the resolution were opposed to the implementation of the scheme of arrangement, in which case the company is required to seek court approval for the implementation of the transaction, subject to certain requirements being met.

Prior to a takeover offer being announced, all negotiations between the target company's board and the offeror must be kept confidential and price-sensitive information may be provided to select persons on a confidential basis. Where it is reasonably foreseeable that a leak has taken place in relation to price sensitive information in relation to a listed company then the disclosure of this information shall be made immediately in a cautionary announcement through the JSE's stock exchange news service ("SENS").

A takeover offer is made public through the release of a "firm intention announcement" which must contain, among other things:

• the terms of the offer;
• the identity of the offeror and any concert parties;
• the details of significant holders of shares in the target company. Generally, significant holders refers to persons holding not less than 5 (five) percent of shares in the target company;
• all material conditions to which the offer is subject; and
• details of any arrangements which exist between the offeror and the target company or any concert party of either of them.

The announcement must be made immediately when the target company board of directors receives a formal written offer, or where a mandatory offer is required (see question 4 above) and the announcement must be published in the press and on the SENS.

When the target company's board of directors receives a formal written offer, then the target company is responsible for making the announcement, and in the case of a mandatory offer, the offeror is responsible for making such announcement. In addition, a circular in relation to the transaction will then need to be published and must contain all the information prescribed by the Takeover Regulations.The target company has up to 30 days from the date of the firm intention announcement to post the circular to its shareholders. The circular will usually be jointly issued by the target company and the offeror for efficiency and to provide a more coherent and comprehensive picture of the transaction for shareholders.

For any negotiations between the offeror and the independent board of directors of the target company, confidentiality rules apply. This means that confidentiality must be always observed prior to a cautionary announcement or firm intention announcement being published. Please see questions 6 and 7 above for further details.

The offer consideration may be in cash or shares, or a combination of cash and shares.

When the offer consideration is wholly or partly in cash, the offeror must provide the TRP 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, as security for payment of the consideration, at the time that the firm intention announcement is made and also on posting of the offer circular to shareholders.

Without the approval of the South African Reserve Bank's Exchange Control Department, an offeror cannot offer shares in a foreign company that is not listed on the JSE as consideration. The Exchange Control Department allows this type of consideration but will almost certainly impose conditions on the sale of the shares and the repatriation of the proceeds of the sale.

Yes - if within the six-month period preceding the start of the offer period the offeror (or any person acting in concert with an offeror) acquired securities in the target company, the minimum offer price must be (i) identical to, or where appropriate, similar to, the highest consideration paid by the offeror for those acquisitions, and (ii) accompanied by a cash consideration, at not less than the highest cash consideration paid if shares that carry 5% or more of the voting rights were acquired for cash. If the offeror believes that the highest consideration for historic acquisitions should not apply in a particular case, it may seek approval from the TRP to adjust the offer consideration.

For 6 months following the later of (i) the offer’s closing date or (ii) the date on which the offer became unconditional, the offeror may not make a second offer to target company shareholders on more advantageous terms than those offered under the original offer.

No, in South Africa, all holders of the same class of shares must be afforded equivalent treatment, and all holders of voting rights must be afforded equitable treatment. This means that generally, all shareholders should be offered the same deal.

There are no specific rules governing due diligence investigations, however, any information made available by the target company to one offeror will have to be made available to all other competing offerors.

Offerors may implement deal protection measures, such as break fees and exclusivity arrangements. However, these measures are subject to TRP regulation, and break fees may not exceed more than 1% of the total value of the offer Notwithstanding the fact that the target company has concluded an exclusivity arrangement, its board is obliged to consider any competing offer made to it before the implementation of the first offer.

As an offer may only be made to the board of the target company, the identity of the offeror must be disclosed upon which the target board may request reasonable evidence to prove that the offeror can implement the offer in full in accordance with the terms of the offer.

Once a firm intention letter is delivered to the board of a target company, the Takeover Regulations come into effect with a regulatory timetable (see question 18 below). It is the responsibility of the target company's board to promptly publish a firm intention announcement upon receipt of the firm intention letter and engage with the offer.

Under the Companies Act, there is a general rule against frustrating action which prohibits the board of directors/independent board of a target company from engaging in any conduct aimed at undermining a genuine offer or concluding certain transactions without the prior written approval of the TRP. However, there are some measures that a target company can take to prevent the successful completion of a transaction which do not violate the law, including:

• the board raising legal/technical/procedural objections with the relevant regulatory authorities to the offer and/or make any regulatory process difficult for the offeror; and/or

• despite an independent expert opinion indicating that an offer is fair and reasonable, an independent board of the target company may issue an opinion advising shareholders to vote against it. There must be a clear basis for the expression of such an opinion (such as raising concerns about the transaction's anti-competitive nature), but this does not guarantee that the offer will not be successful.

Yes, the TRP prohibits any dealings in the shares of the target company during the offer period, which begins when the potential offeror announces its firm intention to make an offer or when the target company is informed of the potential offer, whichever occurs first, and ends when the offer lapses, is withdrawn or becomes unconditional.

There are certain exceptions to this rule, such as dealings in the ordinary course of business, dealings with the target company for the purposes of the offer, or dealings with the TRP for regulatory purposes. However, any dealings that fall outside of these exceptions may be viewed as insider trading and may be subject to penalties and legal action.

Offerors are allowed to approach significant shareholders of the target company to obtain irrevocable undertakings or letters of support for the proposed offer. An offeror may approach up to 5 shareholders who hold 5% or more respectively of the equity shares in the target company, subject to applicable confidentiality obligations, in accordance with guidelines published by the TRP.

During an offer period, if there are favourable conditions attached that are not being extended to all holders of the relevant securities, an offeror must not make arrangements with any holders of the relevant securities in the target company and must not enter into arrangements to deal in securities of the target company. The offeror must also not enter into arrangements which involve acceptance of an offer.

There are specific rules regarding the disclosure of share dealings during a takeover offer. The TRP mandates the disclosure of all share dealings in the target company by those who have an interest in the outcome of the takeover offer, including shareholders, directors, management, the potential offeror, and its associates. During the offer period, which starts on the announcement of a potential offer, the TRP also requires the daily disclosure of all share dealings. Additionally, parties involved in the takeover offer must disclose any agreements made regarding the target company's securities, such as agreements to buy or sell shares.

Dealing in securities by the offeror during the offer period is subject to specific rules designed to prevent any improper practices, and must be disclosed to the TRP and published on the SENS. Under the Companies Act, anyone who acquires or disposes of a beneficial interest in the target company's securities and crosses a 5%, 10%, or further multiple of 5% threshold must disclose it to the target company within 3 business days, and the target company must then announce the beneficial interest to the market.

Although regulatory approvals will often drive timing, the standard timetable for general offers, in accordance with the Takeover Regulations, is as follows:

• D – 20: date of publication of firm intention announcement - the offeror's offer circular or combined offer circular (for a recommended offer) must be posted within 20 business days after the publication of the firm intention announcement.
• Day 0: the date the offeror posts its offer circular or combined offer circular is considered the opening date. The offer must remain open for at least 30 business days after the opening date.
• Day 20: the independent board of the target company must post the target response circular (in the case of a hostile offer).
• Day 45: an announcement must be made that the offer either is unconditional as to acceptances or has been terminated.
• The consideration for the offer must be settled within 6 business days after: (i) the date the offer becomes or is declared wholly unconditional; or (ii) the date of acceptance of the offer by sufficient target company shareholders, whichever is the later.

The general timeline for a scheme of arrangement:

• Date of publication: the combined offer circular by the target company and offeror must be posted within 20 business days after the publication of the firm intention announcement.
• No later than 15 business days before the target company shareholder meeting, written notice must be sent to target company shareholders informing them of the date and time of the meeting at which the resolution to approve the scheme of arrangement is to be voted on.

If the court does not need to be approached by the target company for approval (i.e., where there are no dissenting shareholders wishing to exercise their appraisal rights under the Companies Act), the scheme of arrangement will become effective following the passing of a special resolution.

However, where a dissenting shareholder exercises their appraisal rights, then the timeline for the scheme of arrangement will be extended as follows:

• written notice of objection to the resolution by the dissenting shareholder must be given prior to the resolution being voted on at the meeting.
• on the date of the meeting where the resolution is proposed for approving the scheme of arrangement is proposed,  the dissenting shareholder must vote against the resolution.
• within 10 business days after the meeting, the company must deliver a notice to the dissenting shareholder informing him/her that the resolution was adopted/passed ("Resolution Notice").
• within 20 business days after either:
  • the date of the dissenting shareholder receiving the Resolution Notice; or
  • the dissenting shareholder becoming aware the resolution was adopted/passed (if no Resolution Notice is sent),

delivery by the dissenting shareholder of a written notice to the target company demanding that the company repurchase his/her shares in the company and that the company must pay him/her the fair value of those shares. A copy must also be delivered to the TRP.

• Within 5 business days of the later of:
  • the action approved by the resolution becoming effective;
  • the end of the 20 business day period from receipt of the Resolution Notice by the dissenting shareholder (if applicable); and
  • the end of the 20 business day period from the dissenting shareholder learning that the resolution was adopted/passed by the company,

the Company must make an offer to purchase the shares from the dissenting shareholder.

• Within 30 business days thereafter
  • the dissenting shareholder accepts the offer made by the company to purchase the dissenting shareholder shares; or
  • applies to court to determine fair value of dissenting shareholder shares. If the company fails to make an offer, the dissenting shareholder is entitled to approach the courts for an order compelling the board of the company to make an offer.

• Within a period of 10 business days after the dissenting shareholder takes the required steps to transfer the shares to the company, the purchase consideration for the dissenting shareholder shares must be paid by the company to the dissenting shareholder.

Some of the key documents required in include:

• Non-disclosure agreements;
• Exclusivity Agreements;
• Implementation agreements (not applicable to hostile offers);
• Irrevocable undertakings or letters of support from significant shareholders of the target company;
• Cash confirmation in a form approved by the TRP;
• Firm intention letter;
• Firm intention announcement;
• Offeror’s offer circular and target company’s response circular which complies with prescribed requirements under the Takeover Regulations..

TRP approval is required before publishing any circular or announcements related to an offer.

Yes – the Takeover Regulations state that:

• if the board of the target company believes that a bona fide offer might be imminent, or has received such an offer, the target company board must not take any action in relation to the affairs of the company that could result in a bona fide offer being frustrated;
• where a target company has given any information to a preferred offeror, they must also provide the same information as promptly to a less welcome, but bona fide, offeror upon request; and.
• if a firm intention to make a competing offer has been announced, the original offeror will be entitled to extend the time periods of its offer to coincide with the time periods applicable to the competing offeror's offer.

Following the receipt of a competing offer, an offeror is entitled to increase its offer (but is not allowed to reduce the original offer) by announcing an increase in the original announced offer consideration or an alternate consideration to the original announced offer consideration which must comply with the requirements of a firm intention announcement and be posted to the target company. The revised offer must remain open for at least 15 business days after the date on which the revised offer is announced.

An offeror is only entitled to withdraw (or lapse) its offer if one of the conditions to its offer is not satisfied within the relevant time period. In practice, it is extremely difficult to invoke the material adverse change conditions in order to lapse an offer so the only practical ways for an offeror to lapse its offer are to invoke the acceptance condition (where not enough acceptances have been received by a closing date) or if a regulatory clearance has not been received.

If a takeover offer is accepted by 90% of the target company's shareholders, excluding the offeror, within four months, the offeror may, on notice, compulsorily buy the shares of the non-accepting shareholders at any time within the next two months. Within 30 business days, a non-accepting shareholder may applyto the court for an injunction prohibiting the forcible acquisition or "squeezing out" or placing conditions on it. If no application has been filed with the court, or if the application is denied, the offeror will acquire the outstanding shares after paying the consideration to the appropriate shareholder.

In the context of a scheme of arrangement, if the scheme is approved by the requisite majority of 75% of the shareholders present and voting, the scheme will be binding on all shareholders, including those who did not vote or who voted against the scheme. In such cases, if the scheme is approved and becomes binding on all shareholders, minority shareholders holding at least 15% of voting rights and who opposed the resolution to the implementation of the scheme of arrangement might seek recourse through their appraisal rights and have their shares acquired by the company at fair value.

Under the Companies Act, an offeror and its related parties are not allowed to make another offer or trigger a mandatory offer for the same target company within 12 months if their initial offer fails or is withdrawn.

A listed target company must apply to the JSE for de-listing, which the JSE may allow provided certain conditions are met and finalised.

The target company must provide the JSE with a circular that complies with the JSE Listing Requirements and ensure that (i) it has obtained approval for the de-listing from target company shareholders in a general meeting; (ii) provide the JSE and shareholders with the reasons for the de-listing, which must be clearly stated; (iii) provide target company shareholders with a de-listing offer with the terms and conditions fully set out in the circular; and (iv) provide to the JSE and the target company shareholders a confirmation from the board of directors of the target company that the offer is fair to the shareholders and that the board has been so advised by an independent expert (in the form of a fairness opinion, acceptable to the JSE).

Over 50 percent of all shareholders present or represented by proxy at the general meeting must vote in favour of the de-listing resolution. However, shareholder approval for the de-listing is not required, and no circular is required to be given to shareholders when the de-listing is to take place as a result of:

• a takeover offer, when the offeror has given notice of its intention to de-list the company in the initial offer document sent to shareholders; or

• the completion of the scheme of arrangement, with the JSE satisfied that the company no longer qualifies for listing.