SOUTH AFRICA Law and Practice Contributed by: Michael Katz, Matthew Morrison, Madison Liebmann and Sinovuyo Damane, ENS
5.2 Market Practice on Timing The market practice on the timing of any of the dis - closures discussed in 5.1 Requirement to Disclose a Deal does not differ from the legal requirements described there. However, in a “friendly” transaction where it is market practice to combine the offeror and offeree circular, although the time periods to post the combined circu - lar are equally applicable in such an instance, in prac - tice, these periods may be, and are usually, extended The target company is under no legal obligation to give a bidder the right to conduct a due diligence. The entitlement to conduct a due diligence and its scope must accordingly be negotiated between the parties to the transaction. Due diligence exercises usually cover legal, financial and tax issues. The extent of these investigations will differ from transaction to transaction, and may con - tain particular focus areas depending on the industry within which a target operates. with the approval of the TRP. 5.3 Scope of Due Diligence The extent of the due diligence disclosure by the tar - get company may be limited by statutory restrictions on the sharing of personal information and competi - tively sensitive information, as well as existing con - tractual confidentiality undertakings. In particular, the nature of the information being disclosed, as well as the group of persons to whom it is disclosed, may be constrained if the bidder is a competitor of the tar - get company. In these situations, information-sharing protocols may need to be put in place to ensure that certain competitively sensitive information is either not shared with the bidder or is only shared with a “clean team” of the bidder’s representatives. In situations where transactions are subject to the Takeover Regulations (usually in the listed public com - pany sphere), it is important to be cognisant of Regu - lation 92, which regulates the equality of information amongst bidders. In this regard, the target company is obliged, on request, to provide the same information equally and as promptly to a less welcome, but bona fide, offeror or potential offeror.
In addition, any transactions which involve listed securities are subject to the “insider trading” provi - sions of the Financial Markets Act, 2012, as amended (FMA). In this regard, any information must be pro - vided with full awareness (by both the target company and the bidder) of the legal requirements regarding insider trading. In M&A transactions, environmental, social and gov - ernance (ESG) due diligence investigations are said to be becoming a standard part of the process. This involves evaluating the target company’s ESG practic - es – such as its carbon footprint, labour practices, and governance structures – to identify potential risks and opportunities. The result of this due diligence can then be used to inform negotiations and deal structures. 5.4 Standstills or Exclusivity Standstills and exclusivity arrangements are common in SA, and exclusivity arrangements are the more fre - quently seen of the two. Due to the transaction risks and high costs entailed in a public offer, a bidder ordi - narily tends to seek certain levels of assurance from the offeree that it will have exclusivity (at least for a certain period of time). However, the extent to which the target’s board of directors can agree to exclusiv - ity and non-solicitation undertakings is subject to their fiduciary duties to act in the best interests of the target company. The board of directors of the target may therefore agree not to “shop” the company (or its assets), but this will always be subject to the direc - tors’ fiduciary duties, which would require them not to fetter their discretion and to engage with unsolicited bidders. 5.5 Definitive Agreements “Friendly” Transactions In “friendly” transactions, even though it is not nec - essary, and it does not happen in every case, it is very common for the target’s board and the bidder to enter into a transaction implementation agreement. This agreement may be entered into as early as the due diligence stage, prior to the bidder submitting a binding offer to the target, or as late as when the bid - der is ready to submit a binding offer. The purpose of a transaction implementation agreement is generally to set out the procedure to be followed in order to close
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