Evaluating the significance of mandatory offers in contemporary corporate finance

• Citation: (2023) 10(1) Journal of Comparative Law in Africa 58
• DOI: https://doi.org/10.47348/JCLA/v10/i1a3
• Published date: 11 September 2023
• Pages: 58–82
• Author: Mudzamiri, J.
• Date: 11 September 2023

58

https://doi.org/10.47348/JCLA/v10/i1a3

EVALUATING THE SIGNIFICANCE OF

MANDATORY OFFERS IN CONTEMPORARY

CORPORATE FINANCE

Justice Mudzamiri*

Abstract

If a regulated company reacquires its voting securities in terms of section 48 of the

Companies Act 71 of 2008 (2008 Act) or if a person, together with related persons

who held less than 35 per cent voting rights before the acquisition attain 35 per

cent of voting rights after the acquisition, they must offer to purchase the remaining

securities within a prescribed period. Transactions that force the acquirer to offer the

remaining securities holders acquisition of their securities as contemplated above

are referred to as mandatory offers. Academics debate whether to retain or dispense

with mandatory offers in corporate finance law. They question the rationales for

mandatory offers. For instance, some academics argue that mandatory offers inhibit

investment. The rationale of using mandatory offers to pursue equal treatment of

securities holders is also challenged for being incompatible with generally accepted

company law principles. It is within this context that this article seeks to reinforce

the pertinence of mandatory offers in the South African takeover regulation regime.

Mandatory offers are of practical relevance and important to achieve equal and fair

treatment of the securities holders of a similar class in line with the overarching

objectives of the 2008 Act read together with the Takeover Regulations, 2011

(2011 Regulations). Mandatory offers also protect minority shareholders from

being forced to retain their investments in a company that has significantly shifted

its securities holding control. This article suggests some amendments to the existing

provisions of the 2008 Act to reinforce the functional purposes of mandatory offers.

Keywords: Mandatory offers; takeovers; triggering percentage(s); affected

transactions; shareholder protection

Résumé

Si une société réglementée rachète ses titres avec droit de vote en vertu de l'article

48 de la Loi 71 sur les Sociétés de 2008 (Loi de 2008) ou si une personne,

ainsi que des personnes liées qui détenaient moins de 35% des droits de vote

avant l'acquisition atteignent 35% des droits de vote après l'acquisition, elles

doivent soumettre l’offre d’achat des titres restants dans un délai prescrit. Les

opérations qui obligent l'acquéreur à proposer aux détenteurs de titres restants

d'acquérir leurs titres comme prévu ci-dessus sont appelées offres obligatoires. Les

universitaires débattent du maintien ou de la suppression des offres obligatoires

dans le droit financier des sociétés. En particulier, ils s'interrogent sur le bien-fondé

* LLB (Fort Hare) LLM (University of Johannesburg) LLD (Fort Hare). Postdoctoral Research

Fellow, Department of Commercial Law, University of Cape Town, South Africa. Email: justice.

mudzamiri@uct.ac.za

(2023) 10(1) Journal of Comparative Law in Africa 58

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EVALUATING THE SIGNIFICANCE OF MANDATORY OFFERS IN

CONTEMPORARY CORPORATE FINANCE 59

https://doi.org/10.47348/JCLA/v10/i1a3

des offres obligatoires. Par exemple, certains universitaires soutiennent que les offres

obligatoires inhibent l'investissement. La raison d'être des offres obligatoires visant

à assurer l'égalité de traitement des détenteurs de titres est également contestée car

elle est incompatible avec les principes généralement acceptés du droit des sociétés.

C'est dans ce contexte que cet article cherche à renforcer la pertinence des offres

obligatoires dans le régime de réglementation des prises de contrôle en Afrique

du Sud. Les offres obligatoires ont une pertinence pratique et sont importantes

pour parvenir à un traitement égal et équitable des détenteurs de titres d'une

même catégorie, conformément aux objectifs primordiaux de la Loi de 2008, lue

conjointement avec le Règlement sur les OPA de 2011 (Règlement de 2011).

Les offres obligatoires protègent également les actionnaires minoritaires contre le

risque d'être contraints de conserver leurs investissements dans une société dont

le contrôle de la détention des titres a changé de manière significative. Cet article

suggère quelques amendements aux dispositions existantes de la Loi de 2008 pour

renforcer les objectifs fonctionnels des offres obligatoires.

Mots-clés: Offres obligatoires; prises de contrôle; pourcentage(s) de

déclenchement; transactions concernées; protection des actionnaires

Introduction

This article argues that takeover regulation regimes must promote equal

and fair treatment of minority shareholders by the acquirers and the

controlling shareholders.1 From the onset, it must be pointed out that the

objective of treating securities equally is contested by some academics who

allege that the said objective is contrary to generally accepted company law

principles.2 For example, in Sammel v President Brand Gold Mining Company

Ltd,3 Trollip J held that the majority shareholder supremacy principle

dictates that minority shareholders, through their contract, undertake to

be bound by lawful corporate decisions. Mandatory offers are part of

affected transactions,4 and these transactions are broadly constitutive of

what is commonly known as company takeovers (takeovers).5 Gullifer

and Payne define a takeover as the acquisition by an external acquirer

1 Davies, Paul L. & Worthington, Sarah Gower Principles of Modern Company Law 10 ed (2016)

919. Cassim, Farouk HI. et al Contemporary Company Law 3 ed (2022) 736–37. Luiz, Stephanie

M. ‘The protection of holders of securities in the offeree regulated company during affected

transactions: general offers and schemes of arrangements’ (2014) 26(3) South African Mercantile Law

Journal 562. See Sammel v President Brand Gold Mining Company Ltd 1969 (3) SA 629 (A) para 678.

2 Davies & Worthington op cit note 1 at 919. Cassim et al op cit note 1 at 736–37. Luiz op cit

note 1 at 562.

3 Sammel v President Brand Gold Mining Company Ltd 1969 (3) SA 629 (A) para 678.

4 Section 117(1)(c) of the Companies Act 71 of 2008 (‘Companies Act, 2008’).

5 Davies & Worthington op cit note 1 at 917–18. Gullifer, Louise & Payne, Jennifer Corporate

Finance Law: Principles and Policy 3ed (2020) 712. Correia, Carlos et al Financial Management 8 ed

(2015) 17–20. Farrar, John H. & Hannigan, Brenda Farrar’s Company law 4 ed (1998) 589. The term

“takeover” will be used throughout the article to refer to transactions that result in a fundamental

shift of control in companies.

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