1. Trends
1.1 M&A Market
Although the M&A market in South Africa (SA) has picked up to pre-COVID levels, there has been a decrease in M&A activity in 2023. In the period from January to September 2023, deal activity decreased by 26% year-on-year, and almost 40% when compared with deal activity in 2021.
1.2 Key Trends
From January to September 2023, there were 214 successful deals by exchange-listed companies with a total value of ZAR312.539 billion. This marks a decline from 2022, where 278 successful exchange-listed deals were recorded within that same period, although the value of these deals amounted to ZAR337.736 billion. It is interesting to note that of the 214 deals recorded, South African domiciled exchangelisted companies were involved in 40 crossborder transactions.
In addition, a number of companies have delisted from the Johannesburg Stock Exchange (JSE) with an average of 25 companies exiting each year over the past six years (excluding 2023). One of the reasons identified for this loss of listings is private equity, providing financing in softly regulated private markets. New listings have also reduced in number, for example, in 2017 there were 21 new listings on the JSE compared to only three listings in 2023.
1.3 Key Industries
Deal activity in 2023 was dominated by the real estate sector, which accounted for 35% of the successful listed deals in that year, followed by technology and general industries, both accounting for 9% respectively.
2. Overview of Regulatory Field
2.1 Acquiring a Company
The preferred means of acquiring control of a public company in SA are as follows.
Scheme of Arrangement
A scheme of arrangement (in terms of the Companies Act 2008, as amended ("Companies Act")) is the most popular means of acquiring control of a public company in SA and is proposed by the board of a target company as an arrangement between the company and its shareholders. This requires the approval of at least 75% of the shareholders eligible to vote at a general meeting and, as such, cannot be used for hostile bids.
The main advantage of a scheme of arrangement is that the shares of all the shareholders are acquired upon approval of the scheme of arrangement by the requisite majority, including the shares of those shareholders who may have voted against it. Unlike in other comparable jurisdictions, court approval for a scheme of arrangement is only required if the scheme resolution was opposed by at least 15% of voting rights exercised on the resolution. Any person who voted against the resolution may, if the court grants the person leave, make an application to the court for approval of the transaction.
A shareholder, who voted against the resolution and notifies the company in advance of their intention to do so, may exercise their "dissenting shareholders appraisal rights" and may demand that the company pay to the shareholder the fair value of their shares in the company. If the dissenting shareholder's appraisal rights are successfully exercised, that shareholder is excluded from the scheme of arrangement and attains the right to be paid the fair value of the shares that they hold and no other consideration (their shares are nevertheless transferred to the bidder).
General Offer
This involves an individual offer to each shareholder of the target company. Unlike a scheme of arrangement, shareholder approval is not required, nor does it require the support of the target board, and can therefore be used in a hostile takeover. If the offer is accepted by at least 90% of the shareholders, the bidder may then compulsorily acquire the shares of the remaining non-accepting shareholders (on the same terms and conditions as the accepting shareholders). Partial offers are also permitted, where control is acquired but the amount is less than 100%. A key advantage to a general offer is that it does not trigger an appraisal right for dissenting shareholders, which is particularly useful when all or part of the consideration is not cash.
2.2 Primary Regulators
Takeover Regulation Panel
Takeovers and mergers in relation to "regulated companies" (both public and private companies meeting certain criteria) are regulated by the Takeover Regulation Panel (TRP) in accordance with the Companies Act and the Takeover Regulations published thereunder (the "Takeover Regulations"). The TRP is empowered to regulate any affected transaction or offer, without regard to the commercial advantages or disadvantages of the transaction, so as to:
- ensure the integrity of the marketplace and fairness to the holders of securities of regulated companies;
- ensure the provision of (i) necessary information to holders of securities of regulated companies, to the extent required to facilitate the making of fair and informed decisions, and (ii) adequate time for regulated companies and holders of securities to obtain and provide advice with respect to offers; and
- prevent actions by regulated companies that are designed to impede, frustrate or defeat an offer or the making of fair and informed decisions by the holders of that company's securities.
A transaction which is subject to the Takeover Regulations may not be implemented prior to the TRP issuing a compliance certificate in relation thereto.
The Takeover Regulations and the relevant provisions of the Companies Act will be triggered when there is an offer proposal which, if accepted, would result in an "affected transaction" in respect of a regulated company. Affected transactions include:
- a transaction or series of transactions amounting to the disposal of all or the greater part of the assets or undertakings of the company;
- an amalgamation or merger;
- a scheme of arrangement;
- an announced intention to acquire the remaining voting securities of the company not already held by that person or persons acting in concert with that person;
- a mandatory offer; and
- compulsory acquisition.
Johannesburg Stock Exchange (JSE)
The Issuer Services Division of the JSE regulates the conduct of listed companies, mainly through the sponsor of the relevant listed company. All submissions and communications with the JSE will be conducted through a sponsor. The JSE Listings Requirements (the "Listings Requirements") apply to target companies whose shares are listed on the JSE and/or to bidders whose shares are also listed on the JSE, and these entities must accordingly comply with these requirements when conducting M&A activities. Any delisting of the shares of the target company as a result of the takeover offer or the listing of any consideration shares as part of that offer will be regulated in accordance with the continuing obligations and listing criteria set out in the Listings Requirements.
Competition Commission and Competition Tribunal
A notifiable "merger" as defined in the Competition Act No 89 of 1998 (as amended) (the "Competition Act") is reportable and cannot be implemented without the prior approval of the Competition Commission (and, in the case of large mergers also the Competition Tribunal) (see 2.4 Antitrust Regulations for further discussion).
Financial Surveillance Department of the SARB
The Financial Surveillance Department of the South African Reserve Bank (SARB), assisted by authorised dealers, acting in terms of the Exchange Control Regulations GNR. 1111 of 1 December 1961 (as amended) (the "Exchange Control Regulations"), enforces certain controls on the purchase and sale of currencies to stabilise the economy by limiting the flow of currency into and out of SA (see 2.3 Restrictions on Foreign Investments for further discussion).
Other Industry-Specific Regulators
2.3 Restrictions on Foreign Investments
The Exchange Control Regulations place certain limitations on the manner and extent to which SA resident shareholders (both institutional and private) may hold shares in a foreign company. The effect of these limitations is such that SA resident shareholders are usually not in a position to either accept an offer of foreign shares at all or are only able to accept that offer in part. If the foreign bidder already has, or together with its offer will procure, a secondary or inward listing of its shares on a stock exchange in SA, then there will be no limits on the manner and extent to which SA resident shareholders may accept inward listed foreign shares as consideration.
As a result of the above, a foreign bidder offering consideration in the form of shares in a foreign company will usually provide a cash alternative for those shareholders not able to accept and hold the foreign share consideration.
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Originally Published by Chambers And Partners
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