South Africa

Takeover Guide
Contacts
Ezra Davids and Paul Schroder
Bowman Gilfillan
e.davids.@bowman.co.za
p.schroder@bowman.co.za

Contents

Page

INTRODUCTION

THE REGULATION OF TAKEOVERS

AFFECTED TRANSACTIONS

GENERAL PRINCIPLES THAT GOVERN THE PROCESS

COMPANIES TO WHICH THE CODE APPLIES

HOSTILE BIDS

RESTRICTIONS ON FRUSTRATING ACTION:

RESPONSIBILITIES OF DIRECTORS AND FINANCIAL

ADVISERS

PREBID:

BREAK FEES

COMMITTED FUNDING BEFORE ANNOUNCING AN OFFER

ANNOUNCING AND MAKING THE OFFER:

TIMETABLE FOR TAKEOVER OFFERS:

TIMETABLE FOR SCHEMES OF ARRANGEMENT

CONDITIONS THAT MAY BE ATTACHED TO A TAKEOVER

10

DOCUMENT RECEIVED BY THE TARGET SHAREHOLDERS

10

RESTRICTIONS FOLLOWING THE ANNOUNCEMENT OF THE

OFFER

11

CONSIDERATION IN AN OFFER AND A MANDATORY OFFER

12

POSTBID:

12

REPEATED BIDS

13

TARGETS RESPONSE

13

RESTRICTIONS FOLLOWING THE ANNOUNCEMENT OF THE

OFFER

13

OTHER CONSIDERATIONS

14

RECENT DEVELOPMENTS AND REFORM

16

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INTRODUCTION
This guide is aimed at providing a brief overview regarding the manner in which takeovers
may occur in South Africa. It is prepared as at 15 February 2007.
Main means of obtaining control of a public company
In practice there are 3 ways of obtaining control of a public company, being a scheme of
arrangement, a takeover offer or a sale of the business.
A scheme of arrangement (section 311, Companies Act)
This is the most commonly used method of obtaining control in a recommended offer
scenario. A scheme of arrangement is a statutory procedure whereby a company makes
an arrangement or compromise with its member or creditors (or any class of them). This
arrangement or compromise can be about anything on which the company and its
members or creditors can properly agree. A company can bring about almost any kind of
internal reorganisation, merger or demerger using a scheme; provided that the necessary
approvals have been obtained (which include court approval). A scheme of arrangement
requires the consent of shareholders holding at least 75% of the relevant class of shares
of the target present and voting (in person or by proxy) at the meeting convened to
consider the scheme.
A takeover offer (sections 440A 440N, Companies Act)
This method is most commonly used where the offer is not recommended by the target
(that is, in a hostile bid situation). In order to acquire all the shares for which the offer is
made (compulsory acquisition), the offer must be accepted by shareholders holding at
least 90% of the shares (not merely those present and voting at any meeting) which are
the subject of the offer. This is a high acceptance threshold, but no court approval is
required.
A sale of business (section 228, Companies Act)
This is where control (of the whole or substantially the whole) of the undertaking or the
greater part of the assets of a public company is obtained by an offerer, or a vehicle set
up for that purpose, by purchasing the assets of the target rather than the shares in it.
Such transactions must be approved by a 75% majority of the targets shareholders in
general meeting present and voting (in person or by proxy), certain of whom may be
excluded from voting by the Securities Regulation Panel.
If the target is listed then a disposal by the target of assets (such that the consideration is
25% or more of the market capitalisation of the offerer) will require the approval of a
simple majority of the targets shareholders in general meeting present and voting (in
person or by proxy).

THE REGULATION OF TAKEOVERS

Takeovers are governed by the Panel in terms of the Securities Regulation Code on
Takeovers and Mergers (Code) and the Rules of the Panel. The Panel is a regulatory
body, whose function is to regulate, as it may deem necessary and appropriate, all
affected transactions.
Its membership comprises, among others, representatives of the Registrar of companies,
the Commissioner of the Competition Commission, the JSE Limited and the Banking

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Association (South Africa), lawyers and investment bankers representative of the relevant
interests in the regulation of securities.
The Code applies to all transactions:

which result in a change of control of a target; or

where one shareholder (or a group acting in concert) increases its holdings in a
target to 100%.

The Code is largely based on the UK City Code on Takeovers and Mergers. The Code is
statutory and is enforced by the courts, as it has the force of law, rather than through
selfregulation.
In addition to the Code, there are other regulations which apply to public takeovers,
including the following:

the Companies Act, which governs:

the compulsory acquisition of minority shareholdings when an offerer acquires

90% of the shares in the target;

schemes of arrangement; and

disposals by a company in a sale of business;

the Securities Services Act which, among other things, houses the South African
insider trading and market manipulation legislation;

the Listings Requirements (Listings Requirements) of the JSE Limited (JSE)

which apply if:

the offerers or targets shares are listed on the JSE. Under the Listings
Requirements, the offerers shareholders must approve an acquisition if the
offer consideration is larger than 30% of the market capitalisation of the
offerer; or

shares of an offerer are being offered as part of the consideration. The

offerer may have pre-approval from its shareholders for this but will require a
specific approval if the new shares constitute 30% or more of the shares of
the offerer;

the Competition Act which requires mergers of a certain size to be approved by

the Competition Commission or the Competition Tribunal before they may be
implemented;

the Exchange Control Department of the South African Reserve Bank (SARB)
which is responsible for regulating exchange controls; and

certain industry specific regulators, for example in the banking and

communications industries.

AFFECTED TRANSACTIONS
An affected transaction occurs where there is a change of control of a company with the
result that the acquirer is obliged to make a mandatory offer to the shareholders whose
shares it did not acquire.

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An affected transaction is one which has or will have the effect of:

vesting control of any company in any person, or persons acting in concert, in

whom such control did not vest prior to the transaction concerned. Control is the
holding of securities with 35% or more of the voting rights at general meetings of
the target; or

where any person, or persons acting in concert, acquires all of the securities of a
particular class of the target: or

every time a shareholder with 35% or more of the voting rights at general
meetings of the target acquires during any 12 month period a further 5%, until
such shareholder has 50% or more of the voting rights; or

a disposal of the whole or substantially the whole of the undertaking or greater

part of the assets of the company. In this instance, there is no obligation to make
a mandatory bid, but the other obligations apply.

In applying the Code the SRP does not, in the first instance, look to ultimate control in
deciding whether or not a transaction is an affected transaction. The SRP looks at the
existing control as an entity and should whatever constitutes that entity change, the SRP
will consider that change in determining whether or not there is an affected transaction.
The concert party concept is not without difficulty in South Africa and the circular
definitions in the Code are not helpful. The Code is not as detailed as the City Code on
this issue. For example, there is no presumption that a financial adviser is a concert party
of its client.

GENERAL PRINCIPLES THAT GOVERN THE PROCESS

During the course of an offer, all holders of the same class of securities of a target must
be treated similarly by an offerer. Likewise, information must be furnished to all and not
only some of the holders of the relevant securities, except with the consent of the Panel.
An offerer may only announce an offer, or its intention to make one, after careful and
responsible consideration. The offer should only be announced after the offerer has
proper grounds for believing that the offer will be implemented. The holders of relevant
securities must be given sufficient information and advice to enable them to reach a
properly informed decision and should have sufficient time to do so. No relevant
information may be withheld from them.
Any document or advertisement addressed to the securities holders containing
information or advice from an offerer or the board of the target or their respective advisers
must be prepared with the highest standards of care and accuracy. All parties to an offer
must take all reasonable steps to prevent the creation of a false market in the securities
of an offerer or the target. Parties involved in offers must take care that statements are
not made which may mislead holders of relevant securities or the market.
After a bona fide offer has been communicated to the board of the target, or after the
board of the target has reason to believe that a bona fide offer might be imminent, the
board may not take any action without the approval of the holders of the relevant
securities in general meeting, in relation to the affairs of the company, which could
effectively result in any bona fide offer being frustrated or in the holders of relevant
securities being denied an opportunity to decide on its merits.
Directors of an offerer and the target must at all times, in advising the holders of relevant
securities, act only in their capacity as directors and not have regard to their personal or
family shareholdings or to their personal relationships with the companies. It is the

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interests of holders of relevant securities taken as a whole which are considered when
the directors are giving advice.
All shareholders are entitled to dispose of interests on comparable terms to those of the
affected transaction.

COMPANIES TO WHICH THE CODE APPLIES

In order to determine whether or not the Code applies in a takeover situation, the nature
of the target is relevant. The Code applies where the target is a public company
incorporated in South Africa, whether listed or not. It also applies to a private company
incorporated in South Africa where the shareholders interests and shareholders loan
capital exceeds ZAR5 million (approximately US$700,000) and there are more than 10
beneficial shareholders in the private company. The Executive Director of the Panel may
exempt any transaction affecting a private company if satisfied that there can be no
prejudice to the minority shareholders.
The Code may apply in a takeover that occurs outside South Africa where a change of
control takes place and the offshore target is a so-called pyramid company. In such
situations the offerer must also make a comparable offer to holders of the relevant
securities of the company controlled by the pyramid company. A pyramid company is
one which:

holds 50% or more of the equity securities capital of another company (the
controlled company); and

derives more than 75% of its total attributable income before tax from the
controlled company, or whose shareholding in the controlled company represents
more than 50% of its total assets; or

which, in the opinion of the Panel, holds or acquires or proposes to acquire a

shareholding in another company (the controlled company) which shareholding:

gives or will give de facto control of the controlled company; and

represents or will represent 50% or more of its total assets or produces or will
produce 50% or more of its total attributable income before tax.

If at the time of the creation of the pyramid company the holders of the securities in the
controlled company were offered securities in the pyramid company (in proportion to their
holdings in the controlled company on the same terms as applicable to the holders of the
controlling interest in the controlled company), there will be no obligation on the offerer to
also make a comparable offer to holders of the relevant securities of the controlled
company.

HOSTILE BIDS
Hostile bids are not common in South Africa. This is probably due to the relatively small
market rather than because of any legal, regulatory, or political obstacle. Among the
takeover mechanisms, a scheme of arrangement and a disposal of assets cannot be
done without the co-operation of the board of the target.

RESTRICTIONS ON FRUSTRATING ACTION:

To prevent the target frustrating an offer, the target may not:

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issue any new securities;

issue or grant options for new securities;

create or issue any securities convertible into other securities;

sell, dispose or acquire assets of a material amount;

enter into contracts otherwise than in the ordinary course of business; or

pay any dividend which is abnormal as to timing and amount.

Any dealings by the target in its own securities must be disclosed.

RESPONSIBILITIES OF DIRECTORS AND FINANCIAL ADVISERS

The boards of the offerer and the target (and their respective advisers) have fiduciary
duties to act in the best interests of the company. The Code also imposes duties on the
boards to act in the best interests of the security holders and ensure compliance with the
Code.

PREBID:
Due Diligence
Recommended Bid
As with most jurisdictions, the scope of the due diligence enquiry usually depends on the
time available to conduct the investigation and the need to preserve secrecy and prevent
leaks about the proposed transaction. The scope of the due diligence ranges from limited
to comprehensive. A comprehensive due diligence will include an investigation into
ownership of assets, liabilities, significant contracts, employment and pensions, litigation
and environmental and regulatory issues. Besides the importance of understanding the
target, it is important to understand the potential impact of a takeover on the legal
relationships of the target.
Hostile Bid
Due diligence investigations are usually very limited as there is no obligation on the target
to allow an offerer to conduct a due diligence investigation. In a competitive process any
information given to one offerer must, on request, be furnished to any less welcome but
bona fide offerer or potential offerer (only once a public announcement of the existence of
the potential offerer has been made).
The following information is publicly available for public companies:

the memorandum and articles of association (constitution);

the share register, which is kept at its registered office and includes details of the
targets issued share capital and shareholders;

details of the companys directors;

interim and audited annual financial statements, as well as directors and

auditors reports;

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any prospectus or circular which the target has previously published; and

any research published by investment banking analysts.

If the target is listed on the JSE it also has a continuing obligation under the Listings
Requirements to disclose:

anything likely to have a significant financial effect on the target;

any new developments which are not public knowledge and which may lead to
significant movements in the targets share price; and

any significant acquisition or disposal.

Rules relating to secrecy that must be maintained until the bid is made
Secrecy must be observed by the offerer before the announcement of a firm intention to
make an offer. Any person aware of confidential information (price sensitive or otherwise)
concerning an offer or potential offer must treat that information as secret and must act in
a way that minimises the chances of any information being leaked. The target has
additional obligations under the JSE Listings Requirements regarding material price
sensitive information. The Securities Services Act prohibits insider trading and other
prohibited trading practices (including manipulative, improper, false or deceptive trading
practices).
Irrevocable undertakings from key shareholders to sell their shares
It is common for the offerer to seek irrevocable undertakings of acceptance from major
shareholders of the target and, in a recommended bid, from those directors who are
shareholders. The undertakings generally require the acceptance of the offer and a
prohibition against taking any action that could prejudice its success.
Irrevocable undertakings are generally subject to:

the offer being made within a certain period; and

a more favourable offer not being received.

Undertakings to vote for, accept or otherwise support the bid, must be disclosed in the
announcement of an offer and in the documents sent to shareholders of the target.
There are limits to the number of shareholders who can be approached before the offer is
announced. The prior clearance by the Panel is required if any of the following
requirements are not met:

only minority shareholders holding 5% or more of the aggregate of all the relevant
securities held by all the minority shareholders can be approached;

not more than 5 minority shareholders can be approached; and

the relevant minority shareholders must sign an acknowledgement, before they

are given any significant information relative to the proposed offer, that they will
not disclose or use that information prior to the public announcement of the offer.

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Where an offerer decides to build a stake in the target before announcing the bid
There are no thresholds which trigger the compulsory disclosure of the acquisitions of
shares. However, a listed company must disclose shareholdings of more than 5% in its
annual reports and its shareholder circulars.
In addition, a nominee shareholder must disclose to the target the identity of the
beneficial holder of the shares it holds every three months. The target can also oblige the
nominee shareholder to disclose the identity of the beneficial holder at any time on notice.
In practice, this is somewhat academic as multiple layers of registered shareholders can
be used to frustrate any effort of a target to identify the beneficial shareholder.
Agreement between the offerer and target
Merger agreements are becoming more commonly used. Merger agreements usually
provide for a period of exclusivity during which the target undertakes not to solicit a
competing offer. Where the merger is implemented by a scheme of arrangement, the
merger agreement also sets out how the target will conduct the scheme which is
proposed by the offerer (in other words, make sure the necessary court applications are
lodged and the scheme meeting is convened).

BREAK FEES
Break fees have become common market practice.
The Panel, in practice has imposed 1% of the offer consideration as a cap.

COMMITTED FUNDING BEFORE ANNOUNCING AN OFFER

When an offer is wholly or partially for cash, the offer document must state both that:

an irrevocable guarantee or other proof by an appropriate third party (for

example, the offerers bank or financial adviser) has been given in favour of the
relevant targets shareholders; or

sufficient resources are available to the offerer to satisfy full acceptance of the
offer.

In practice, the Panel will be satisfied with a cash confirmation from the financial advisor
or other suitable advisor. The Panel has accepted cash confirmations from non-South
African financial advisers who are reputable international banks and who consent to the
jurisdiction of local courts in these matters. Provided a financial adviser has acted
responsibly and has taken all reasonable steps to assure itself that the cash will be
available, the financial adviser will not be expected to produce the cash itself.

ANNOUNCING AND MAKING THE OFFER:

The approach
The bid (even a hostile bid) must be notified, in writing, to the targets board or its
advisers. There is no requirement for earlier notification to the Panel. The Panel is only
required to be notified when a cautionary announcement or a firm intention
announcement is made, although the Panel encourages the parties to consult with it
before then. The offer document must be approved by the Panel before it is posted to the
targets shareholders.

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The identity of the offerer must be revealed where the offer is made by its representative.
Before the offer is made a cash confirmation to the satisfaction of the Panel is required.
Cautionary announcement
A brief announcement may be required before the offer is announced. A so-called
cautionary announcement may be required to preserve the integrity of trading in a targets
shares on the JSE, both before and during negotiations concerning an offer.
The cautionary announcement usually only states that either:

talks are taking place, and that a potential offerer is considering making an offer;
or

an announcement is pending which could have a material effect on the price of

the offerers or the targets shares.

A cautionary announcement must be made by the target when an offer is under

discussion and:

the target is the subject of rumour and speculation or there is an abnormal

movement in the price of the targets shares traded; or

negotiations or discussions are to be extended beyond a restricted number of

persons; or

the target acquires knowledge of any material price sensitive information and:

the necessary degree of confidentiality of the information cannot be

maintained; or

the target suspects that confidentiality may have been breached.

The name of the offerer should be disclosed in the cautionary announcement, however
the Panel will ordinarily dispense with this requirement.
Firm intention announcement
An announcement of a firm intention to make an offer must be made when the targets
board has been notified in writing of a firm intention to make an offer from a serious
source. The target is responsible for making the announcement. It is published in the
press and on the JSE news service and must contain:

the terms of the offer;

the identity of the offerer;

the details of any existing holding or rights to securities in the target of the offerer;

all material conditions to which the offer is subject; and

the details of any arrangements which exist between the offerer and target or any
concert party of the offerer or the target.

Following the firm intention announcement, the offerer is obliged to proceed with the offer
in 30 days, unless the posting of the offer is subject to a condition which has not been
fulfilled (for example, approval of the bid by the offerers shareholders or the competition
authorities).

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TIMETABLE FOR TAKEOVER OFFERS:

The Codes impose a strict timetable for takeover offers, both recommended and hostile:

the timetable begins when the firm intention announcement is published. The
offerer has 30 days to post the offer document to the targets shareholders.

the offer must initially be open for acceptance for at least 21 days after the offer
document is posted;

the targets board must advise its shareholders of their views of the offer within
14 days of the posting of the offer document;

the offer must be declared unconditional as to acceptances (that is, that all the
necessary acceptances have been received) within 60 days from the posting of
the offer document, or the offer will lapse;

once the offer has been declared unconditional as to acceptances, the offer must
remain open for a further 14 days;

the consideration payable to the offerer must be posted to those shareholders of

the target who have accepted the offer within 7 days of the offer becoming or
being declared unconditional, or the offer being accepted, whichever is the later;

if an offer is revised, it must remain open for a further 21 days following the
posting of the revised offer document. The consent of the Panel is required to
revise an offer and it usually does not allow offers on less favourable grounds (for
example, an additional condition to the offer). Shareholders who have accepted
the original offer must receive the revised offer.

TIMETABLE FOR SCHEMES OF ARRANGEMENT

The timing set out in the Code also largely applies to a scheme of arrangement, in
particular:

the scheme document convening the scheme meeting must be posted within 30
days of the firm intention announcement being published;

21 days notice must be given to the shareholders for the scheme meeting;

once the statutory majority (75%) is obtained at the scheme meeting and all the
other conditions are met, an application to court can be made to approve the
scheme (which takes about 2 weeks);

the court order approving the scheme must then be registered;

the consideration is paid to the scheme members after the court order is
registered.

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CONDITIONS THAT MAY BE ATTACHED TO A TAKEOVER

Takeover offers and schemes of arrangement must be approved by certain regulatory
bodies. These approvals can operate as conditions to the offer, the most common being
approval from the:

the competition authorities; and

the SARB.

In addition to these conditions, takeover offers that are not made by way of a scheme are
usually subject to the condition that either:

90% of the targets shareholders accept the offer, where the offerer intends to
obtain 100% of the targets shares; or

more than 50% of the targets shareholders accept the offer, where the offerer
only intends to obtain control of the target.

Offers can be made subject to the fulfilment of certain objective conditions provided these
are clearly communicated. Offers can also be subject to the offerer obtaining the
necessary shareholder approval to make the offer.

DOCUMENT RECEIVED BY THE TARGET SHAREHOLDERS

Takeover offer
In addition to the firm intention announcement, in both recommended and hostile
takeover offers, the offerer must post an offer document to the targets shareholders.
This document must state, among other things:

the reasons for the offer, and the intentions of the offerer in relation to the
continuation of the business and the continuation in office of the targets
directors;

financial and other information on the target and the offerer;

the offerers holdings in the target;

whether directors remuneration will be affected by the acquisition of the target or

by any other associated transaction;

the terms and mechanics of the takeover offer;

the ultimate owner of the shares to be acquired; and

arrangements, undertakings or agreements between the offerer and the target in

relation to the takeover offer.

In the 14 days following the posting of the offer document, the targets board must
circulate its views on the takeover offer (and make any alternative offers known) to the
targets shareholders. The targets board must set out:

any external advice given to the targets board;

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the targets boards comments on the statements in the offer document in relation
to the offerers intentions for the target and its directors;

the holding of any shares in the offerer by the target;

whether the targets directors intend to accept or reject the offer in respect of their
own holdings;

material particulars of the service contracts of the directors;

disclosures of any arrangements, undertakings or agreements between the

offerer and the target.

In practice, in a recommended bid, all this information will be in the offer document
prepared jointly by the offerer and the target.
The offer document and the targets board document must satisfy the highest standards
of accuracy and the information given must be adequately and fairly represented. In all
cases, the documents must be approved by the Panel before posting.
If the offer is revised, an updated offer document must be sent to the targets
shareholders. This document must contain details of any material changes in information
previously published by, or on behalf of, the parties during the offer period.
Scheme of arrangement
The document convening the scheme meeting must be posted to the targets
shareholders by the board of the target. This document must set out all the information
required in an offer as set out above.

RESTRICTIONS FOLLOWING THE ANNOUNCEMENT OF THE

OFFER
The Code requires that:

the bidder and its concert parties may not sell any shares in the target without the
consent of the Panel;

acquisition of shares in the target by the bidder and its concert parties must be
disclosed and, if any acquisition of shares is at a price in excess of the offer price,
the offer price must be increased by the bidder accordingly; and

all dealings in the bidders shares or the targets shares by either the bidder or
the target (or any of their concert parties) for their own account or on behalf of
clients must be disclosed.

Mandatory offer
As set out above, for most affected transactions a mandatory offer must be made.
The Panel may waive the requirement to make a mandatory offer if the holders of a
majority of the independent shares of the target (in other words, excluding shares held by
the offerer and its concert parties) agree.
A mandatory offer is to be made within 30 days of the affected transaction occurring.
Such offers must comply with the disclosure requirements and timetables set out above.

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CONSIDERATION IN AN OFFER AND A MANDATORY OFFER

Forms of consideration commonly offered
An offerer can offer cash, shares or other securities, or a mixture of any of these, as
consideration for an offer. However, where the offerer, or its concert parties, acquires for
cash, shares in the target carrying 10% or more of the voting rights in the 3 month period
before the offer being made, the offer must be in cash (or accompanied by a cash
alternative) at not less than the highest price paid by the offerer in that 3 month period.
Minimum level of consideration
The offer price cannot be lower than the price paid by the offerer or its concert parties for
any shares in the 3 months leading up to the beginning of the offer period.
The Panel can also require the offer price to be no lower than the price paid for any
shares bought by the offerer before this time, if it considers this necessary to ensure all
the targets shareholders are treated equally. Also, if the offerer, or a concert party of the
offerer, buys shares above the offer price during the bid, it must increase its offer price to
all shareholders.
Consideration from a foreign offerer
An offerer may not offer securities in a company which is not listed on the JSE as
consideration, without an independent valuation of such securities from an expert and, in
the case of securities of a non-resident of South Africa, the approval of the SARB. The
SARB is unlikely to allow this form of consideration and, if it did, strict conditions would be
imposed governing the sale of the shares and the repatriation of the proceeds of the sale.
Foreign companies may list on the JSE. South African individuals are able to invest in
these shares and South African asset managers may do so subject to certain limits.
South African shareholders are able to accept shares as acquisition consideration and to
exercise their rights in terms of a rights offer. If this results in a South African asset
manager exceeding its foreign investment allowance, that asset manager will have 12
months in which to re-align its portfolios. These rules will be amended soon to allow
asset managers to hold non South African shares without restrictions, subject to certain
prudential requirements.
The cash consideration paid to shareholders residing in South Africa must be paid in
South African Rand. Therefore, if the consideration is offered in any other currency, it
must first be converted into South African Rand.

POSTBID:
The squeeze out
Where a Section 440K takeover offer is made and 90% of the targets shareholders
accept the offer, the bidder can compulsorily purchase the shares of the non-accepting
shareholders.
A nonaccepting shareholder can apply to court within six weeks of the posting of the
compulsory acquisition notice for an order to prohibit it or make it subject to certain
conditions. The shareholder can prevent the compulsory acquisition by convincing the
court that, on the balance of probabilities, the offer is unfair or that there are special
circumstances that require the court to make an order.

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The offer document must state whether the bidder intends to invoke the compulsory
acquisition. Conversely, where the compulsory acquisition is not invoked by the bidder, a
shareholder who did not accept the offer can force the bidder to acquire its shares in the
target.
Where the takeover is affected by scheme of arrangement, once the scheme of
arrangement has been approved by 75% of the targets shareholders represented at the
scheme meeting and by a court, the shares of those shareholders who voted against it at
the scheme meeting are compulsorily acquired by the bidder. Dissenting shareholders
are entitled to attend or be represented at the court hearing in order to argue against this.

REPEATED BIDS
Where an offer has not become or been declared unconditional, and has then been
withdrawn or has lapsed, neither the bidder nor its concert parties can for 12 months
following the date on which the offer is withdrawn or lapses (except with the consent of
the Panel):

make an offer for the target; or

acquire any shares of the target which will result in a mandatory offer being
required.

TARGETS RESPONSE
Once a targets board receives a genuine offer or believes that a genuine offer may be
imminent, its actions are restricted. Company decisions which could result in any
genuine offer being frustrated, or the targets shareholders being denied an opportunity to
decide on its merits, must be approved by the holders of the relevant shares in a general
meeting.
In practice, the targets board tends to try to impose as many regulatory hurdles on the
offer as possible while it lobbies shareholders for support.
The targets board needs to be careful to comply with its fiduciary duties and the
additional limitations imposed on it by the Code.

RESTRICTIONS FOLLOWING THE ANNOUNCEMENT OF THE

OFFER
The Code requires that:

the bidder and its concert parties may not sell any shares in the target without the
consent of the Panel;

the acquisition of shares in the target by the bidder and its concert parties must
be disclosed and, if any acquisition of shares is at a price in excess of the offer
price, the offer price must be increased by the bidder accordingly; and

all dealings in the bidders shares or the targets shares by either the bidder or
the target (or any of their concert parties) for their own account or on behalf of
clients must be disclosed.

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OTHER CONSIDERATIONS
Transfer taxes
A transfer tax on a sale of shares in a company that is incorporated in South Africa is
generally payable at 0.25% of whichever is highest out of:

the sale consideration; or

the market value of the shares.

The transfer duty is called stamp duty in relation to unlisted shares, and uncertificated
securities tax in relation to listed shares. It is generally not possible to avoid payment of
transfer duty in a takeover offer or a scheme of arrangement. The bidder must pay the
transfer duty in relation to the shares being purchased.
Tax legislation exempts the payment in certain specific circumstances involving corporate
restructuring.
There are obviously many other tax implications to consider in a takeover situation.
These are beyond the scope of this article.
Competition considerations
Takeovers generally require prior merger approval from the South African competition
authorities before they can be implemented. The competition authorities describe the
transactions as mergers. Small mergers may be implemented without merger approval.
The competition authorities may investigate small mergers within six months of
implementation but this is unusual.
Takeovers that occur outside of South Africa which trigger the merger requirements of the
South African competition legislation, will require the approval of the South African
competition authorities before they can be implemented in South Africa.
A large merger is a transaction which both:

the combined annual turnover or assets (or a combination of turnover and assets)
of the acquiring companies and the target companies in, into or from South Africa
in the previous financial year, was R3,5 billion or more; and

the combined annual turnover, in, into or from South Africa, or the asset value of
the target companies in the immediately previous financial year, was R100 million
or more.

An intermediate merger is a transaction in which both:

the combined annual turnover or assets (or a combination of turnover and assets)
of the acquiring companies and the target companies, in, into or from South
Africa in the previous financial year, was R200 million or more; and

the combined annual turnover, in, into or from South Africa or the asset value of
the target companies in the immediately previous financial year, was R30 million
or more.

Small mergers are those that fall below the intermediate merger threshold.

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Due to the need to preserve secrecy and prevent leaks about the proposed transaction,
the offer is usually announced subject to competition approval being obtained.
In a scheme of arrangement, court sanctioning of the takeover is usually postponed until
merger approval has been obtained.
Exchange controls
In addition to the restrictions on an offerer which is not from a South African company
offering its securities that are not listed on the JSE as consideration, there are certain
other exchange control-related restrictions that need to be observed.
Foreign ownership of shares
In general, there are no restrictions on foreign ownership of shares in South African
companies. However, certain specific industries (including banking, insurance and
broadcasting) have specific statutory restrictions on the percentage of holdings that a
foreign shareholder can hold in a South African company.
In addition, all dealings in, and registration of, shares in which non-residents of South
Africa are involved are governed by the exchange control regulations.
A person cannot transfer any shares to a non-resident without the approval of SARB,
which must be obtained through an authorised bank. An authorised bank is a bank in
South Africa specifically authorised by the SARB for the purposes of regulating foreignowned shares. Approval is usually given, provided that the authorised bank is satisfied
that fair consideration for the shares has been received in South Africa.
The consideration for the shares must be channelled through an authorised bank, and the
share certificate must be endorsed non-resident by an authorised bank. If the share
certificate is not endorsed non-resident by an authorised bank, the shares must not be
registered in the name of a non-resident and dividends cannot be paid to a non-resident.
Restrictions on repatriation of profits for foreign companies
Dividends declared by South African companies are remittable to a non-resident
shareholder in proportion to the non-residents percentage shareholding, provided that
the share certificate has been endorsed non-resident.
To transfer the dividend to the non-resident shareholder, the company must produce an
auditors report to an authorised bank confirming that the amount to be transferred arises
from realised or earned profits on investments owned by the non-resident shareholder.
Local financial assistance restrictions
There are general restrictions in relation to the granting of local financial assistance to
affected persons and non-residents. An affected person is a body corporate, foundation,
trust or partnership operating in South Africa in which either:

75% or more of the capital, assets or earnings can be used for payment to, or for
the benefit of, a non-resident; or

75% or more of the voting shares, voting power, power of control, capital assets
or earnings are directly or indirectly controlled by a non-resident.

The restrictions on local financial assistance prohibit non-residents from borrowing more
than 300% of the Rand value of funds introduced into South Africa from abroad. In the
case of an affected person, the permitted local financial assistance ratio is calculated by a

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formula which takes into account the percentage of the non-residents interest in the
affected person and expresses the permitted borrowing as a percentage of the effective
capital of the affected person.

RECENT DEVELOPMENTS AND REFORM

An important amendment to the Companies Act recently enacted, provides that the sale
by a company of the whole or greater portion of its assets will require a special resolution
of the shareholders of the target which requires 75% of the shareholders present and
voting to approve the resolution with more onerous notice and quorum requirements. The
anti-financial assistance provisions of the Companies Act have also been amended to
provide for a whitewash provision if such financial assistance receives a 75% majority
approval from targets shareholders and a liquidity and solvency test for the target has
been met.
A new companies bill was recently released which seeks to modernise South African
company law. It is not likely to come into effect until 2010. The bill includes provisions
for:

genuine mergers where two corporate entities amalgamate into one (as opposed
to the current provision where one company must acquire the other); and

the introduction of a remedy for compulsory acquisition of minority shareholding

in a takeover scenario; and

the introduction of a remedy of appraisal rights for dissenting minority

shareholders to schemes of arrangement, the disposal of substantially all of its
assets or undertaking, or a merger or amalgamation. In particular, such
fundamental transactions will require court approval only if there was a significant
minority (at least 15%) opposed to the transaction, or the court grants leave to a
single shareholder on the grounds of procedural irregularity or a manifestly unfair
result.

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