Protection of Holders of Securities in the Offeree Regulated Company During Affected Transactions: General Offers and Schemes of Arrangement
| Jurisdiction | South Africa |
| Citation | (2014) 26 SA Merc LJ 560 |
| Author | S M Luiz |
| Pages | 560-586 |
| Date | 16 August 2019 |
| Published date | 16 August 2019 |
PROTECTION OF HOLDERS OF SECURITIES
IN THE OFFEREE REGULATED COMPANY
DURING AFFECTED TRANSACTIONS:
GENERAL OFFERS AND SCHEMES OF
ARRANGEMENTS
SM LUIZ*
Senior Research Associate, School of Law, University of KwaZulu-Natal
I INTRODUCTION
A takeover of a company is a common commercial transaction and may
be launched in order to gain, consolidate, or achieve total control of a
company. The definition of an ‘affected transaction’,
1
as takeovers are
called in the Companies Act 71 of 2008 (‘the Companies Act 2008’),
covers a variety of transactions and reveals that a takeover can be
structured in a number of ways. One way would be for an offeror to
make a general offer to acquire the remaining voting securities of a
company that the offeror does not already hold, potentially followed by
the compulsory acquisition of securities from those holders who do not
accept the offer.
2
Another would be to use a scheme of arrangement to
acquire control.
3
Whatever the method used, an affected transaction gives rise to a
number of potential conflicts of interest. For example, there may be
a conflict between the offeror who is attempting to acquire offeree
company securities at the best price and the existing holders of those
securities who wish to secure the highest price. Conflict could arise
between an existing majority holder of securities in the offeree company
and minority holders. Further, members of incumbent management of
the offeree company might attempt to secure their own positions rather
than act in the best interests of the company.
In order to guard against these potential conflicts and most notably to
protect the interests of the holders of securities in the target offeree
company, the Companies Act 2008 and the Takeover Regulations
* BA LLB (Natal) LLM (Cantab) HDip Co Law (Wits) LLD (Unisa). Senior Research
Associate, School of Law, University of KwaZulu-Natal, Durban.
1
See s 117(1)(c) of the Companies Act 2008 for the definition of ‘affected transaction’.
2
See s 117(1)(c)(v) read with s 117(1)(c)(vii) of the Companies Act 2008.
3
See s 117(1)(c)(iii) of the Companies Act 2008.
560
(2014) 26 SA Merc LJ 560
© Juta and Company (Pty) Ltd
regulate ‘affected transactions’.
4
Persons are prohibited from making an
offer that would result in an affected transaction unless they comply with
all the applicable reporting or approval requirements, except if they are
exempted by the Takeover Regulation Panel (‘the Panel’) and no person
is entitled to give effect to the transaction unless either a compliance
certificate has been issued or an exemption granted.
5
Evidence suggests that the scheme of arrangement is by far the most
popular way to structure an affected transaction. The Takeover Panel
Annual Report for the 13 months ended 31 March 2013 indicates that of
the 45 affected transactions regulated and approved, 19 were schemes
of arrangement and only one was in the form of a general offer.
6
Although the statistics reflect a preference for the scheme of arrange-
ment as a structure, a cursory study of the regulations that apply to
affected transactions indicates that these were drafted with the idea that a
general offer would be the main approach adopted by offerors.
7
The
question therefore arises as to whether the protections afforded by
the Companies Act 2008 and the regulations are equally applicable and
effective, irrespective of the method used.
The purpose of this analysis is first to highlight the protections
afforded to holders of securities in the offeree company, the target of a
takeover. This will be followed by a consideration of the protections such
holders receive where the affected transaction is structured as a general
offer for the acquisition of all the securities in the target company that
the offeror does not already hold (subject to the condition that it be
accepted by at least 90% of the holders of the class of securities to whom
the offer is made). Thereafter the position of the holders of offeree
company securities where the offeror uses a scheme of arrangement to
4
See Chapter 5 of the Companies Act 71 of 2008 (‘the Companies Act 2008’) and Chapter 5
of the Companies Regulations 2011 published in GG 34239 of 26 April 2011. The Takeover
Regulations (which form part of the Companies Regulations 2011) are regulations made by
the Minister in consultation with the Takeover Regulation Panel (‘the Panel’) (see s 1 read
with s 120 and s 223 of the Companies Act 2008).
5
See s 121 of the Companies Act 2008.
6
See Annexure 1 to the Takeover Regulation Panel Annual Report for the 13 months ended 31
March 2013 at 39. See Jennifer Payne ‘Minority shareholder protection in takeovers: A UK
perspective’ (2011) 8(2) European Company and Financial Law Review 145 at 152–153 where
the author discusses the use of a scheme of arrangement as an alternative to a takeover offer in
the context of UK law. In Re Expro International Group plc [2010] 2 BCLC 514 at 519 it is
stated that ‘[a]part from conventional bids the most commonly used alternative structure is a
scheme of arrangement’.
7
See, for example, regs 99–105 of the Companies Regulations 2011 dealing with the
approach, the cautionary announcement, the firm intention announcement and the timeline.
PROTECTION OF HOLDERS OF SECURITIES 561
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