SOUTH AFRICA Law and Practice Contributed by: Michael Katz, Matthew Morrison, Madison Liebmann and Sinovuyo Damane, ENS
ances by holders of more than 50% of the target’s voting shares. 6.6 Requirement to Obtain Financing In transactions that are regulated by the TRP (known as “affected transactions”), a cash offer cannot be conditional on the bidder obtaining financing. This is because the bidder is required to provide a suitable confirmation as to its ability to satisfy the required cash commitments prior to the implementation of the transaction (see 6.3 Consideration ). Nonetheless, transaction-specific conditions which are relevant to financing are permitted. A typical example of such conditions would be an approval from the exchange control authorities, which may be necessary for the desired financing to be provided. 6.7 Types of Deal Security Measures A bidder is able to seek a break fee. The payment of break fees is permitted by the TRP, but the TRP has issued a guideline limiting break fees to an amount that is equal to 1% of the total transaction value. The target may agree not to shop the company or its assets, but this is subject to the directors’ fiduciary duties (see 5.4 Standstills or Exclusivity ). In addition, in terms of Section 126 of the Compa - nies Act, the board of the target company is prohib - ited from taking certain actions which may result in the offer being frustrated (see 9.2 Directors’ Use of Defensive Measures ). This provides bidders with some additional comfort. Furthermore, the bidder can also seek irrevocable undertakings from shareholders as well as non-solicitation undertakings from the tar - get board (see 6.11 Irrevocable Commitments ). It is worth mentioning that the scope of material adverse change clauses, which are commonly includ - ed as either a suspensive condition or as an operative clause in transaction agreements, are now usually the subject of lengthy negotiations around whether pan - demics and epidemics (and governmental responses thereto) are included or excluded. Most transactions are predominantly delayed by the competition approval process (see 6.1 Length of Pro- cess for Acquisition/Sale ), and the timing expectation
of competition approval is almost always used as the benchmark date for the expiry of the interim period. 6.8 Additional Governance Rights It is common for bidders to seek representation on the board of directors of the target company. The bidder can seek to require the amendment of the target com - pany’s constitutional documents to contain additional governance rights for the bidder at both a board and a shareholder level. In addition, certain contractual rights in favour of the bidder can be included in the transaction agreements, which may or may not sur - vive the implementation of those agreements. 6.9 Voting by Proxy Shareholders are permitted to vote by proxy in SA. 6.10 Squeeze-Out Mechanisms In terms of the “squeeze out” provisions in the Com - panies Act, if an offer has been accepted by 90% of the offeree shareholders of the class to whom the offer was made (excluding the bidder and any affiliates of the bidder) within four months of the opening date, the bidder may, on notice to the remaining shareholders, acquire their shares on the same terms as the original offer. A shareholder who does not accept the original offer may apply to court within 30 business days fol - lowing the squeeze-out notice for an order prohibit - ing the squeeze-out or imposing conditions on the squeeze-out acquisition which are different to those of the original offer. 6.11 Irrevocable Commitments It is quite common for a bidder to obtain “irrevoca - ble undertakings” to accept or vote in favour of an offer once it is made. In such cases, the bidder will be required to disclose the identity of, and shares held by, any person from whom it has received an irrevo - cable commitment to accept or vote in favour of the offer. The practice has become so common in SA that the TRP has issued guidelines regulating the manner in which irrevocable commitments may be obtained. According to these guidelines: • only shareholders holding 5% or more of the shares of the target can be approached; • no more than five separate shareholders of the target can be approached;
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