SOUTH AFRICA Law and Practice Contributed by: Michael Katz, Matthew Morrison, Madison Liebmann and Sinovuyo Damane, ENS
TRP to implement, inter alia, the following “frustrat - ing” actions: • issue any authorised but unissued securities; • sell, dispose of or acquire assets of a material amount (except in the ordinary course of business); • enter into material contracts (except in the ordinary course of business); and • make a distribution that is abnormal as to the tim- ing and amount. 9.3 Common Defensive Measures At the outset, a board of a target company is restricted from implementing certain defensive measures during an offer period (as discussed at 9.2 Directors’ Use of Defensive Measures ). If Section 126 applies, the board of a target becomes limited in the defensive measures that it may undertake. Common defensive measures include the following. • Creating a “staggered or classified” board whose members are elected in different years; this limits the ability of a shareholder to remove directors other than for cause in terms of Section 71 of the Companies Act (which is a lengthy process) – the acquirer will not have control over the board initial - ly, and therefore will not have the power to change the management of the target. • Golden parachutes – these are employment agree - ments that provide for large severance payments to management in the event of a change of control of the target/a hostile bid (this makes the acquisi - tion more expensive for a potential bidder and may deter them from making an offer). • Declaring increased dividends to shareholders; this should take place before an offer is made or before the target board believes that a bona fide offer is imminent. • Appealing to regulators (eg, Competition Com - mission or BEE (Black Economic Empowerment) Commission) – a target may appeal to regulatory authorities to prevent the offer from taking place where the target is a “strategic” SA company, which may be acquired by a foreign company. A target can also raise the impact that the potential transaction will have on BEE.
• Including change of control clauses in material agreements. • Attempting to approach a favourable third party (a “white knight”) to make a competing bid against an “unfavourable” bidder; this defence entices an auc - tion for the target and secures the highest price for shareholders but is not commonly used to prevent an acquisition. 9.4 Directors’ Duties Directors are required to adhere to all statutory and common law duties (as discussed at 8.1 Principal Directors’ Duties ). In the context of defensive meas - ures and after receipt of an offer, directors are required to: • act in the best interests of the company – they are only required to bring an independent mind to bear on the merits and demerits of a particular offer and are not obliged to positively seek other offers against which to compare the offer received; • give shareholders all necessary information to enable them to make an informed decision as to whether to accept or reject the offer; • adhere to rules of “independence” (as discussed in 8.2 Special or Ad Hoc Committees ) and procure the establishment of an independent board; • obtain independent advice from expert advisers (as discussed at 8.4 Independent Outside Advice ); and • comply with their directors’ duties (see 8.1 Princi- pal Directors’ Duties ). 9.5 Directors’ Ability to “Just Say No” The directors do not have to provide a potential bid - der with company information that is not in the pub - lic domain and can reject a request from a bidder to undertake a due diligence of the target company. The directors, however, are not entitled to favour one bid - der over another. Information provided to a preferred/ recommended bidder must therefore also be provid - ed, on request, to a competing (bona fide) bidder or potential bidder. Directors are not entitled to reject an offer from a potential bidder outright. The directors have a duty to act in the best interests of the target company. As such the directors are obliged to assess each
1188 CHAMBERS.COM
Powered by FlippingBook