New M&A guidelines to end delaying tactics
Competition Commission aims to make hostile takeover process clearer
South African firms targeted for hostile takeovers will not be able to drag out the acquisition process under proposed new guidelines by the Competition Commission.
The department of trade, industry & competition recently gazetted draft guidelines on the filing of merger notifications for hostile transactions.
While hostile takeovers are rare in South Africa, targeted firms often resort to delaying tactics to frustrate the process.
Competition Commission spokesperson Siyabulela Makunga said the guidelines were not aimed at assisting firms to avoid being taken over or allowing them to interfere with the hostile takeover process.
“Rather, the guidelines outline the approach the Competition Commission will adopt in making a decision on whether to permit separate merger notification by the acquiring and target firms.
“The default position in merger notification is that both the acquiring firm and the target firm must file a merger notification jointly,” he said.
Separate merger notifications were permitted in terms of the commission’s rules only if there was a proposed merger and it was deemed just and reasonable for the commission to permit separate notification of a hostile takeover.
“The commission will take into account the submissions made by the acquiring firm and the target firm in making a decision whether to permit a separate filing,” Makunga said.
This would guide the factors the commission would consider when deciding whether a proposed merger was just and reasonable, and therefore that separate merger notifications by the acquiring and the target firm were permissible.
“The guidelines have been prepared by the commission at the request of the Competition Tribunal to guide the parties on the factors the commission will take into account in making a decision whether to permit a separate merger notification.”
The draft guidelines were gazetted earlier this month and make mention of hostile takeovers, outlining a process by which the commission will determine if a merger or acquisition is appropriate in cases where the target firm does not wish to be acquired.
The guidelines stipulate that the commission must investigate after all parties have fulfilled their prescribed notification. It must assess the likely effects of mergers on competition in any market, as well as the public interest, and decide to prohibit the merger or approve it conditionally or unconditionally.
In the case of large mergers it must make a recommendation to the tribunal within 40 days after all parties have fulfilled their prescribed notification requirements under the Competition Act and rules.
Makunga said that while there did not appear to be a proliferation of hostile takeovers in South Africa, there were examples of mergers where separate merger notifications were provided, which raised possible uncertainty for the firms involved and their shareholders.
“With the commission’s experience in the proposed mergers of Caxton and CTP Publishers & Printers with Mpact, and Northam Platinum Holdings with Royal Bafokeng Platinum, it has become clear that various issues related to separate merger notifications require clarification to create certainty for potential merger parties and mitigate the potential for future conflicts between potential merger parties and the commission on the process of separate merger notification,” he said.
Independent analyst Simon Brown said the Competition Commission sought to clarify two matters with the new guidelines: its ability to properly consider mergers and acquisitions, and the duty of all firms involved to submit the necessary documentation. He said that while hostile takeovers are rare in the local market, target companies are known to stymie the process by dragging their feet in terms of sending paperwork. If a target firm does not submit the necessary documentation within 40 days, the documentation can be filed on its behalf, he said.
“I don’t think [hostile takeovers are] being used very often, but there is a glaring loophole [in] that if you don’t do the paperwork around a merger, then there is no due process. Now, if you drag your feet, it can be done on your behalf and that’ sa biggie,” he said.
The benefits of the guidelines to firms would depend on the circumstances of each merger. However, the guidelines could serve shareholders of firms slowing down a merger or acquisition that might be in the shareholder’s best interest.
“It makes it harder for the business being acquired to try and defeat the process by admin, rather than [defeating it] by a vote of shareholders. We don’t have a lot of hostile takeovers in South Africa or the world, but this makes the process smoother and quicker, which is a good thing when it happens,” Brown said.
Lawtons Africa candidate attorney Nicholas De Decker said the commission’s latest guidelines seemed to be a positive step in the right direction, to ease the way in which hostile takeovers are facilitated, possibly enhancing their chances of success.
“In general, hostile takeovers can be extremely difficult to execute, given that the board of directors of a recalcitrant target company will utilise every opportunity available to them to frustrate the transaction, to ensure that it will not succeed.
“This is generally predicated on the fact that after a hostile takeover, the incumbent board of directors is usually replaced. On account of such difficulty, successful hostile takeovers are not particularly common, whether locally or abroad,” he said.