Sand Grove Opportunities Master Fund Ltd and Others v Distell Group Holdings Ltd and Others

• Jurisdiction: South Africa
• Judge: AG Binns-Ward J
• Judgment Date: 13 April 2022
• Docket Number: 6378/2022
• Hearing Date: 25 March 2022
• Court: Western Cape Division, Cape Town
• Citation: 2022 JDR 0821 (WCC)

Binns-Ward J:

[1]

This matter concerns a challenge to a shareholders' special resolution approving a scheme of arrangement.

[2]

Distell Group Holdings Ltd ('Distell'), cited as the first respondent in the proceedings currently before the court, proposed a scheme of arrangement to its shareholders. Heineken

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International B.V. ('Heineken'), the second respondent, and Sunside Acquisitions Limited ('Newco'), the third respondent, were also parties to the proposal. Distell is currently a listed company. It has two classes of issued shares, ordinary shares and B class shares. The company's ordinary shares are traded on the Johannesburg Stock Exchange.

[3]

In summary, the proposed arrangement entails, firstly, and as a preliminary step, the restructuring of Distell's business into two components, described in the proposal as the 'In-Scope Business' and the 'Out-of-Scope Business'. The first mentioned will encompass Distell's cider, ready-to-drink beverages, and spirits and wine business. The Out-of-Scope Business will comprise of the rest of Distell's current operation, including its Scotch whisky business. The arrangement provides for the In-Scope Business to remain as part of Distell, whereas the Out-of-Scope Business will be housed in an unlisted company, Capevin Holdings (Pty) Ltd ('Capevin'), which is currently a wholly owned subsidiary of Distell but will cease to be such when the scheme is implemented.

[4]

The In-Scope Business is the primary target of acquisition by Heineken under the scheme of arrangement proposal. As mentioned, it is to remain in Distell, which will become a wholly owned subsidiary of the newly incorporated entity, Newco, currently wholly owned by Heineken and in which, upon implementation of the scheme, Heineken will hold a minimum of 65% of the issued share capital. Heineken will move its current South African and other sub-Saharan African operations [1] into the restructured business operation under Newco. Newco is, and will remain, an unlisted company. Distell will be delisted.

[5]

The essential workings of the proposal were summarised in the introduction to the combined circular issued by Distell's independent board and by Heineken and on behalf of

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Newco in terms of s 112 (3) of the Companies Act 71 of 2008 ('the Act') and the Takeover Regulations [2] as follows:

•

Distell will declare a dividend in specie of Capevin Ordinary Shares for distribution to the Distell Shareholders on a one-for-one basis;

•

Heineken will acquire Capevin Ordinary Shares from those Distell Shareholders who accept the Capevin Offer in exchange for cash;

•

Newco will acquire all the Distell Ordinary Shares and Distell B Shares from the Distell Shareholders in exchange for (i) cash, (ii) Newco Shares or (iii) a combination of cash and Newco Shares in a fixed ratio at the election of each Distell Shareholder; and

•

upon successful implementation of the Scheme of Arrangement, the Distell Ordinary Shares will be delisted from the JSE.

(The 'Capevin Offer' was defined in the circular in relevant part as 'the offer by Heineken to acquire the Capevin Ordinary Shares to be acquired by Scheme Participants pursuant to the Capevin Distribution for the Capevin Cash Consideration'. The 'Capevin Distribution' refers to the Capevin shares to be received by Distell shareholders in the forementioned distribution in specie of Capevin ordinary shares.)

[6]

The stipulated cash consideration receivable in terms of the proposal for Distell ordinary shares is R165 per share and for Distell B shares R0.00001 per share. The cash

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consideration receivable for Capevin ordinary shares in terms of the 'Capevin Offer' is R15 per share.

[7]

The scheme includes a mechanism that will, if necessary, limit a Distell shareholder's ability to exchange its ordinary shares for shares in Newco in preference to cash so as to ensure that the forementioned minimum 65% holding by Heineken in Newco is achieved. There is accordingly a possibility, depending on the extent of the uptake by Distell shareholders for shares in Newco, that such a Distell shareholder might have to accept its scheme consideration partly in cash and partly in Newco shares. If this happens a formula will be applied to ensure that all Distell shareholders who elect to take up shares in Newco will be treated equally.

[8]

I shall say more about Distell's B class shares later. It suffices at this point to explain that they are linked to some of the ordinary shares and afford the holder of such linked shares premium voting rights. Remgro Limited is the only holder of B class shares. This has the effect that although Remgro holds just 31% of the total issued ordinary shares in the company with exercisable voting rights, it is able to exercise about 56% of the 'total voting rights' (which is defined in clause 1.1.22 of Schedule 2 to the company's memorandum of incorporation ('MoI') as 'the aggregate of all voting rights which are exercisable by the Holders of all Ordinary Shares (including Linked Ordinary Shares) and B Shares in respect of a matter to be decided on by the Company'). The scheme proposal provided that Remgro's current controlling interest in Distell would, upon implementation of the scheme, be replicated in Capevin, which, as mentioned, will own the contemplated out-of-scope business. Thus, if none of the holders of Distell ordinary shares accept the Capevin Offer, the shareholding composition in Capevin after implementation of the scheme will mirror that in Distell before implementation.

[9]

The scheme of arrangement is a 'fundamental transaction' within the purview of Chapter 5 of the Companies Act 71 of 2008 ('the Act'), s 114 in particular, and it was

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accordingly subject to the approval requirements prescribed in s 115(1) and (2). It is also an 'affected transaction', as defined in s 117(1)(c)(iii), and consequently cannot be implemented without a compliance certificate being obtained from the Takeover Regulation Panel (an independent juristic person established by s 196 of the Act), or exemption by the Panel from that requirement.

[10]

The Panel's function is to fulfil an oversight role in respect of affected transactions. It is charged, amongst other matters, with ensuring (i) that necessary information is provided to holders of securities of regulated companies to the extent required to facilitate the making of fair and informed decisions about proposed schemes of arrangement; (ii) that adequate time is given for regulated companies and holders of their securities to obtain and provide advice with respect to offers (iii) that all holders of any particular class of voting securities of an offeree regulated company are afforded equivalent treatment and (iv) satisfying itself that voting securities of an offeree regulated company are afforded equitable treatment, having regard to the circumstances. See s 119 of the Act. In terms of s 119(4)(a), the Panel is entitled to require the filing for approval or otherwise of any document with respect to an affected transaction or offer if the document is required to be prepared in terms of Parts B or C of Chapter 5 of the Act and the Takeover Regulations. Regulation 117 of the Takeover Regulations makes the submission of such documents for approval by the Panel mandatory.

[11]

On 6 January 2022, the Panel gave written approval for the posting of the circular contemplated in s112(3) of the Act, including the independent expert's report required in terms of s 114(3). The approval letter, signed by the Deputy Executive Director of the Panel, recorded in relevant part that '(o)ur approval is provided on the understanding that all relevant and complete information on the nature of the transaction has been fully disclosed. In approving the circular, and without limitation, we considered the contents of the Independent Board's Responsibility Statement, the Opinions and Recommendations of the Independent

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Board, as well as the contents of the report of the Independent Expert annexed to the circular as annexure 1'. The JSE also notified its approval of the circular for distribution to shareholders. The date by which Distell shareholders had to be recorded in Distell's securities register in order to be able to receive the circular was 7 January 2022. The circular was posted to shareholders on 17 January 2022. The notice convening the meeting to vote on the scheme on 15 February 2022 was included in the circular and also published on the Stock Exchange News Service (SENS).

[12]

In terms of s 115(2)(a) of the Act –

'A proposed transaction contemplated in subsection (1) [including a scheme of arrangement] must be approved-

(a)

by a special resolution adopted by persons entitled to exercise voting rights on such a matter, at a meeting called for that purpose and at which sufficient persons are present to exercise, in aggregate, at least 25% of all of the voting rights that are entitled to be exercised on that matter, or any higher percentage as may be required by the company's Memorandum of Incorporation, as contemplated in section 64 (2)'.

Paragraph (a) of the definition of 'special resolution' in s 1 of the Act provides, insofar as currently relevant, that it means 'in the case of a company, a resolution adopted with the support of at least 75% of the voting rights exercised on the resolution ....(i) at a shareholders meeting'.

[13]

At the meeting convened for that purpose on 15 February 2022, the scheme was approved by Distell shareholders holding 94.03% of the votes exercised on the resolution including votes exercised in respect of both ordinary and B class shares, which were counted together. Holders of 5.97% of the voting rights voted against the resolution...