| Tue 24 Feb 2004, 12:32 | | RULING OF THE SECURITIES REGULATION PANEL |
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JSE Securities Exchange South Africa - Announcement
RULING OF THE SECURITIES REGULATION PANEL
IN THE APPEAL BEFORE THE SECURITIES REGULATION PANEL
in the matter between:
MULTI-DIRECT INVESTMENT 180
(PROPRIETARY) LIMITED First Appellant
SAFIKA HOLDINGS (PROPRIETARY) LIMITED Second Appellant
MINEWORKERS INVESTMENT COMPANY
(PROPRIETARY) LIMITED Third Appellant
INVESTEC BANK LIMITED Fourth Appellant
CAPRICORN CAPITAL PARTNERS HOLDING
COMPANY (PROPRIETARY) LIMITED Fifth Appellant
and
THE EXECUTIVE DIRECTOR:
SECURITIES REGULATION PANEL First Respondent
THE EXECUTIVE COMMITTEE:
SECURITIES REGULATION PANEL Second Respondent
DECISION AND RULING
1. This is an appeal against the Ruling, dated 17 December 2003, of the
Executive Committee of the Securities regulation Panel (SRP) in relation to an
offer (Tiso offer) by the Appellants to acquire securities in New Africa
Investments Limited ("NAIL"). That Ruling was given on appeal from a ruling
dated 14 October 2003, by the Executive Director of SRP.
2. The facts relevant to this decision are mainly set out in the ruling by
the Executive Committee and need not be repeated here. Those facts referred,
inter alia, to evidence adduced before the Executive Committee which was
available to the Panel for the purposes of this appeal.
3. The Appellants were represented by Senior and Junior Counsel and we are
indebted to them for the lengthy argument which was presented to us. Some
additional evidence was adduced at the hearings before us and the facts of the
matter appear not to be in dispute.
4. At my request Counsel dealt with the question of whether or not there
was an onus upon the Appellants to satisfy us that the ruling of the Executive
Committee was not correct. Counsel argued that the proceedings before the Panel
were of the nature of an investigation by us, on which we would make a finding
but without the Appellants having to discharge an onus. The argument went as
far as to suggest that the Panel had to satisfy itself that the Appellants were
acting in breach of the SRP Code and that if we were in doubt we could not find
that there had been such a breach. We believe that may be stating the position
too strongly.
5. We have found it unnecessary to decide the point, particularly because
no objector was present or represented to place other argument or facts before
us. Our decision in this matter, therefore, does not create any precedent for
the SRP on the issue of onus. We find that if there were an onus, the
Appellants have discharged it.
6. There is no doubt that the Appellants concluded an agreement "inter se"
in regard to the assets of NAIL and the future disposal of some or all of those
assets. That agreement did not form part of the general offer to shareholders
although it was disclosed in the circular to shareholders. However Counsel
argued successfully, that on a proper construction of Section D Rule 13 of the
SRP Code those arrangements did not breach Section D Rule 13 because it was not
an arrangement which required acceptance of the Tiso offer made to the holders
of the relevant securities, namely shares in NAIL. The agreement between the
Appellants was not made between them to induce them to accept the Tiso offer.
They were the offerors, not offerees.
7. Counsel referred us to the decision, dated 21 November 2003 of The Panel
on Takeovers and Mergers of London (the Takeover Panel) which applies the City
Code and the Rules Governing Substantial Acquisition of Shares. That decision -
In re Canary Wharf Group PLC - dealt with the interpretation of General
Principle1 and Rule 16 of the City Code, (corresponding to our General Principle
1 as set out in Section C2.1 of our Code) and Section D Rule 13).
8. There are minor textual differences between the two Codes which in our
opinion do not affect the interpretation thereof. It must be borne in mind that
our Code was based upon the City Code and the minor differences were, no doubt,
made by the draughtsman of the SRP Code for the sake of clarity.
9. The Canary Wharf decision was one on appeal from a decision of the
Executive of the City Panel and is, in effect, the last word on the matter in
the United Kingdom since the Court there has previously stated its reluctance to
interfere in the decisions of that Panel. The decision was published after the
Executive Director had made his decision in regard to the Tiso offer and was
also probably not known to the Executive Committee when it made its Ruling.
10. In the course of it"s ruling the Takeover Panel made crisply the
following point: -
"A genuine offeror is a person who alone or with others, seeks to obtain control
of an offeree Company and who, following the acquisition of control can expect
to exert a significant influence over the offeree company, to participate in
distribution of profits and surplus capital and to benefit from an increase in
the value of the offeree company, while at the same time bearing the risk of a
fall in its value resulting from the poor performance of the company"s business
or adverse market conditions."
11. The ruling proceeded to describe the criteria which the Executive of
the Takeover Panel had developed when considering such offers, but in the
interest of brevity we do not propose to repeat them here. They are to be found
in Paragraph 16 of The Takeover Panel"s ruling. Suffice it to say that we found
that the Appellants in this matter qualified as offerors and are not hit by the
provisions of Rule D 13 of the SRP"s Code in relation to the arrangement made by
them inter se in connection with the Tiso offer to the holders of securities in
NAIL
12. We are of course not bound by the decisions of the The Takeover Panel
applying the City Code but we regard them as highly persuasive and have decided
to follow and to apply the Canary Wharf Ruling in this case.
13. It is, however, necessary to give special consideration to the position
of Phaphama Holdings (Pty) Limited ("Phaphama") which at the time of the offer
held 52.5% of the issued ordinary share capital of NAIL as well as some of its
"N" shares. Altogether Phaphama controlled in excess of 48% of the voting power
over NAIL.
14. Phaphama was clearly not an offeror in this matter but an offeree.
However we have been satisfied that by agreement with the Appellants and for
their benefit alone, Phaphama agreed not to accept the offer made to all
shareholders but to grant a call option to the Appellants to acquire its shares
subsequently at the offer price plus only interest on the offer price calculated
from the date on which the offer to the other holders of securities became
unconditional to the offer. That interest was to have been payable at a call
rate plus 2% per annum. There were other conditions imposed for the benefit of
the Appellants as offerors.
15. On the facts proved, Phaphama must be held to have acted in concert
with the Appellants but that was not in any way a benefit to it. In this
connection we were referred to the decision of the Australian Takeovers Panel in
the matter of PowerTel Limited (NO.3) 2003 A.T.P.28 which also dealt with an
allegation of a Bid tainted by an alleged offer to a shareholder on a beneficial
basis not available to the remaining shareholders. The Australian Code states
in paragraph 602 (c)
"as far as practicable, the holders of the relevant class of voting shares or
interest all have a reasonable an equal opportunity to participate in any
benefits accruing to the holders under any proposal under which a person would
secure a substantial interest in the company body or scheme."
The similarity in effect to our General Principle 1 is manifest.
16. The other facts in that case are quite different from those before us
but after an examination of Australian cases and judgment, the Australian Panel
at paragraphs 49 & 51 stated:-
"49. Accordingly, the balance of judicial authority (including the reasons of
the majority of the High Court in "Sagasco") and the basis of the Panel
decisions which have considered the issue of benefits in C.A. s623 supports
"net benefits" approach looking at the commercial balance of advantages flowing
to or from the non bidder from a transaction which is sought to be impugned"
"51. On that approach, we must consider all advantages and disadvantages of
the transaction for the shareholder to determine whether the advantages of the
relevant transaction outweigh the detriments suffered in connection with the
relevant transaction so as to constitute a net benefit." (We have omitted the
balance of this paragraph for the sake of relevance and brevity).
17. The benefit to Phaphama in this case, if it is considered to be a
benefit at all, was simply to compensate it for its lost time value of the offer
price because it had agreed not to accept the offer. There were two reasons for
Phaphama having so agreed. Firstly the Appellants sought to avoid the delays
occasioned by reporting the takeover to the Competition Commission on the ground
that there would not be a change of control. We understand however that the
Commission decided (with respect, we believe correctly) that its jurisdiction
was not ousted by the device. The second reason was to enable Phaphama to
ensure that the arrangements between the Appellants - inter se - were carried
out.
18. The only possible benefit which accrued was a possible excess over
other shareholders caused by the interest rate of a call rate plus 2%. Some
shareholders might not have achieved the extra 2%. In our view, however, that
possible benefit was so small as to fall within the ambit of the maxim "de
minimis non curat lex.
19. The South African Constitution encourages us to have regard to other
legal systems and we have no hesitation in this case of applying and following
the City Panel judgment in the Canary Wharf case. However, we do not
necessarily subscribe to the net benefit principle applied in Australia and it
should not be regarded as a precedent for the SRP, bearing in mind again that
contrary argument has not been advanced due to the absence of an objector or
complainant. However if it is applicable it reinforces the "de minimis" factor
which we have applied.
20. In the premises, the Appeal is upheld and the decisions of both the
Executive Director and the Executive Committee are set aside.
21. We requested Counsel for the Appellants to deal with the question of
costs and his submission was that in view of the position of the SRP as a
regulator it would be fair in the circumstances for the Appellants to bear the
costs of the members of the Panel in dealing with the matter.
22. We interpret that as comprising the fees and expenses paid to our
members who presided at the meetings of the Executive committee and on this
appeal, together with the costs of recording and preparing the transcripts which
were essential for our deliberations. However in view of the apportionment of
costs at the Executive Committee level, i.e. 40% to be borne by the Kagiso
Consortium, we order the same apportionment at the Executive Committee level,
but the Appellants to bear the balance of the costs as described above.
Dated and signed this 18th day of February 2004.
C A JAFFE
N BHANA
F DWINGER
N MATLALA
M SIMELANE
Date: 24/02/2004 11:45:51 AM Produced by the JSE SENS Department
