1. Trends

1.1 M&A Market

The M&A market in South Africa (SA) has picked up to pre-COVID levels (with a number of deals announced in the last quarter); however, the country's stagnant economy and political uncertainty are still putting a damper on M&A activity generally.

1.2 Key Trends

There were 472 successful listed M&A deals in South Africa in 2021 (up from 389 in 2020 and 458 in 2019) with a total deal value of ZAR927 billion (up from ZAR306 billion in 2020 and ZAR413 billion in 2019). Private equity deals increased, for the third consecutive year, to 149 deals (ZAR32 billion) in 2021 (compared to 132 (ZAR29 billion) in 2020 and 95 (ZAR10 billion) in 2019) (Source: Dealmakers 2022).

1.3 Key Industries

The real estate sector leads as a key industry, with technology, financial services mining and logistics following. Technology transactions accounted for just over 20% of the deals by deal value. South Africa continued to experience distressed asset disposals in a number of different industries (many as a result of the impacts of COVID-19), particularly in the retail, hospitality and transportation sectors. 

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 (Companies Act)) is the most popular means of acquiring control in a public company in SA and is proposed by the board of a 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 the 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 (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 holders of shares of regulated companies;
  • ensure the provision of necessary information to shareholders to the extent required to facilitate the making of fair and informed decisions, and adequate time for regulated companies and shareholders 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 a fair and informed decision by shareholders.

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 of undertaking of the company;
  • an amalgamation or merger;
  • a scheme of arrangement;
  • an announced intention to acquire the remaining shares of the company not already held by that person or persons acting in concert with that person; and
  • a mandatory offer.

Johannesburg Stock Exchange (JSE)

The listings 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 listings department of the JSE will be conducted through a sponsor. The JSE 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 de-listing of the shares of the target 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 "merger" as defined in the Competition Act No 89 of 1998 (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 South African Reserve Bank

The Financial Surveillance Department of the South African Reserve Bank, assisted by authorised dealers, acting in terms of the Exchange Control Regulations GNR 33926 of 14 January 2011 (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

Certain industries and sectors are subject to their own sector-specific regulators which have an impact on public takeovers and mergers. These include mining, broadcasting, telecommunications, banking and insurance.

Originally published by Chambers Global Practice Guides on the 21st of April, 2022.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.