When you talk about mergers and acquisitions (“M&A”) and specifically the regulation thereof in South Africa, a number of regulators need to be considered. Two examples of these regulators are the Competition Commission and the Takeover Regulation Panel. In a previous article we discussed the key aspects relating to the Competition Commission and M&A transactions. In this article, we tackle the second regulator, namely the Takeover Regulation Panel.  

The Takeover Regulation Panel, or TRP for short, has a different mandate to that of the Competition Commission. It carries out its mandate in terms of the Companies Act 71 of 2008 (“Act”), and in particular, Chapter of 5 of the Act together with Chapter 5 of the Takeover Regulations (the “Regulations”).

The mandate of the TRP comes into consideration when certain companies (defined as ‘regulated companies’) undertake certain transactions (defined as ‘affected transactions’ or ‘offers’). The reasoning behind the regulation of affected transactions and offers is, in short, to protect minority shareholders in such regulated companies.  This is done by ensuring that prior to and during affected transactions or offers, these minority shareholders will continuously have access to certain information related to the affected transactions or offers. The latter information can, for example, include financial reports and updated valuations of their shares. 

As noted above, there are two pertinent questions that parties will need to contemplate when assessing whether the TRP will have to consider their M&A transaction. The first question is, whether the company is considered to be a “regulated company”, and the second question is, whether or not the transaction in question indeed constitutes an “affected transaction” as defined in the Act.

In terms of the Act a “regulated company”, is either – 

1. a public company;
2. a state-owned company (unless the state-owned company has been exempted in terms of section 9 of the Act); or
3. a private company, but only if the percentage of the issued securities of that private company that have been transferred (other than by transfer between or among related or inter-related persons, within the period of 24 months immediately preceding the date of that particular affected transactions or offer) exceeds not less than 10% of the issued securities of that private company.

Furthermore, the term “affected transaction” must be unpacked. In terms of the Act and the Regulations, an “affected transaction” is any transaction that relates to the – 

• disposal of all or the greater parts of the assets or undertakings in a company;
• schemes of arrangements between a regulated company and its shareholders (an example of a schemes of arrangement would be the division of securities into different classes in terms of section 114(1)(b) of the Act);
• mandatory offers to shareholders of a regulated company (for example where a company re-acquires its voting securities in terms of section 48 of the Act);
• the acquisition of, or unannounced intention to acquire, a beneficial interest in any voting securities of a regulated company;
• amalgamations or mergers involving at least one regulated company; or
• compulsory acquisitions of remaining shares of a regulated to company (for instance the compulsory acquisition of a class of securities in a company in accordance with section 124 of the Act).

So, what discretion does the TRP have when it comes to “affected transactions”? In order to fulfil its mandate in terms of the Act and the Regulations, the TRP may – 

• require the filing, for approval or otherwise, of any document with respect to an affected transaction or offer;
• issue compliance certificates;
• initiate or receive complaints, conduct investigations, and issue compliance notices, with respect to any affected transaction or offer; or
• issue a compliance notice which notice, may prohibit or require any action by a person; or order a person to divest of an acquired asset or account for profits.

Notwithstanding the above, even if a transaction is considered to constitute an “affected transaction”, the parties to such transaction may still lodge an application to the TRP to have the transaction exempted from the relevant provisions of the Act and the Regulations. Some instances where the TRP will grant the requested exemptions may include:

• Instances where there is no reasonable potential of the affected transaction prejudicing the interests of any existing security holder of a regulated company.
• Cases where the cost of compliance is regarded as disproportionate to the value of the transaction in question.

What the above should demonstrate is that the devil is definitely in the detail when dealing with the TRP, and such detail should not be taken lightly. In our next article we will focus on the practical aspects relating to an application for an affected transaction or applying for an exemption to the TRP, as well as the consequences of non-compliance. If you are involved in or contemplating an M&A transaction, let us know so we can help you assess whether the TRP will need to be approached for your M&A transaction. 



Disclaimer: This article is the personal opinion/view of the author(s) and is not necessarily that of the firm. The content is provided for information only and should not be seen as an exact or complete exposition of the law. Accordingly, no reliance should be placed on the content for any reason whatsoever and no action should be taken on the basis thereof unless its application and accuracy has been confirmed by a legal advisor. The firm and author(s) cannot be held liable for any prejudice or damage resulting from action taken on the basis of this content without further written confirmation by the author(s).