Corporate and Commercial

Mergers & Acquisitions: basic understanding of takeover regulations

Posted 01 April 2020

Kishen Basdewo

In South Africa, Mergers & Acquisitions are regulated by the Companies Act (71 of 2008), more specifically, Chapter 5, known as the "Takeover Regulations". The Takeover Regulations specifically apply to a "regulated company".

In terms of s117(1)(i), s118(1) and s118(2) of the Act; a regulated company is defined as:

  • a public company; or
  • a state-owned company (unless it has been exempted); or
  • a private company, but only if-
    1. the percentage of the issued securities of that company that have been transferred, other than by transfer between or among related or interrelated persons, within the period of 24 months immediately before the date of a particular affected transaction or the offer exceeds 10%;
    2. the Memorandum of Incorporation of that company expressly provides that the company and its securities are subject to Takeover Regulations and the Takeover Regulation Panel.

After determining whether the transaction in question falls within the ambit of a: "regulated company", as defined, it is necessary to determine whether the transaction is an "affected transaction".

In terms of s117(1)(c) of the Companies Act, an affected transaction is:

  • a transaction or a series of transactions amounting to the disposal of all or the greater part of the assets or undertaking of a regulated company;
  • an amalgamation or merger, should it involve at least one regulated company;
  • a scheme of arrangement between a regulated company and its shareholders;
  • the acquisition of, or announced intention to acquire, a beneficial interest in any voting securities of a regulated company;
  • the announced intention to acquire a beneficial interest in the remaining voting securities of a regulated company not already held by a person or persons acting together;
  • a mandatory offer; or
  • a compulsory acquisition.

Parties who wish to enter into transactions often see regulators as disobliging administrators who stand in the way of multimillion-rand transactions. However, their role is to protect the investing public.

The Takeover Regulation Panel (TRP) was created in terms of s196 of the Companies Act to regulate M&A transactions and to offer protection. In terms of s201 of the Companies Act, it is the TRP's responsibility to:

  • regulate affected transactions and offers;
  • investigate complaints with regards to affected transactions and offers;
  • apply for a court order to wind up a company; and
  • consult with the Minister with regards to additions, deletions or amendments to the Takeover Regulations.

Furthermore, in terms of s119 of the Companies Act, the TRP should not have regard for the commercial advantages or disadvantages of a particular transaction but should rather endeavour to:

  • ensure market integrity and fairness to the holders of the securities of regulated companies;
  • ensure that all holders make a fair and informed decision by acquiring all the necessary information, as well as allowing them enough time to provide advice; and
  • prevent actions by a regulated company designed to impede or defeat an offer, or make an informed decision by the holders of that company.

The procedure pertaining to Mergers and Acquisitions tends to be complicated; however, the TRP is in place to ensure that parties comply with the applicable provisions. Regulations and laws cannot always protect investors from risks. Investors, therefore, must be aware that regulators such as the TRP have limitations.

That being said, investors should find some solace in knowing that, should an offence be committed, the TRP is empowered in terms of s170 of the Companies Act to initiate legal proceedings in the name of a shareholder, or alternatively refer a matter to the National Prosecuting Authority.

This offers some form of shield for investors, who may rest assured that their rights are protected.

Article published in Without Prejudice April 2020