The role of the Takeover Regulation Panel in protecting investors

By Madimetja A Lucky Phakeng

This article briefly discusses the regulation of mergers and acquisitions in terms of the Companies Act 71 of 2008 (the Act). It is generally accepted that legal protection of the investing public in a country encourages development of financial markets. In countries that have well-functioning legal rules, outside investors are willing to invest by providing funding to firms and are willing to participate in financial markets. On the other hand, where investors are not protected the development of financial markets may be retarded. Shareholders and creditors feeling that their rights are protected are willing to pay more for financial assets including equity and debt, with the recognition that they will be repaid in the form of either dividend or interest rather than losing their investment to expropriation; investors may be willing to pay more. Share prices may increase. This in turn, may lead to investors putting more money in the financial markets and subsequent expansion of the financial markets. (R La Porta, F Lopez-De-Silanes, A Shleifer and R Vishuy ‘Investor Protection and Corporate Valuation’ (2002) 57 The Journal of Finance 1147 (http://onlinelibrary.wiley.com/doi/10.1111/1540-6261.00457/pdf, accessed 30-1-2015). By improving protection for investors’, confidence in financial markets is improved. 

The role of regulators is often not well appreciated by some market participants. Their role is often misunderstood by the general public. Some professionals view regulators as obstructive bureaucrats’ who are intent on delaying and interfering with their mega deals. The general public often overestimate the powers and mandates of these bodies. The fact that the powers of these bodies are circumscribed in some cases is also missed by the general public. This may lead to investors failing to take additional measures to safeguard their investments. There is little doubt that the investing public needs protection. However, the amount of protection is often debatable. In certain instances a light touch approach may be required – lest one interferes with the efficient workings of financial markets – while in others, a more robust approach may be required. A balance is needed. 

Regulation of mergers and acquisitions in South Africa is undertaken by a number of regulators. These regulators consider each mergers and acquisition from a different regulatory mandate. For instance the Competition Commission considers mergers and acquisitions with a view to promoting and maintaining competition in South Africa. To achieve these objectives, it has powers to investigate, control and evaluate restrictive business practices, abuse of dominant positions and mergers, in order to achieve equity and efficiency in the South African economy. Its purpose is to promote and maintain competition in South Africa. It carries out its mandate in terms of the Competition Act 89 of 1998. 

The Takeover Regulation Panel (panel) is another regulator of mergers and acquisitions. The panel has a different mandate. It carries out its mandate in terms of the Act. In particular, ch 5 of the Act and ch 5 of the regulations (the takeover provisions). The mandate of the panel is triggered when certain companies (defined as ‘regulated companies’) undertake particular transactions (defined as ‘affected transactions’ or ‘offers’). The rationale for regulating affected transactions and offers is to protect minority shareholders by ensuring that during affected transactions or offers such shareholders will have access to certain information. The information include financial reports and valuations of their shares. By having access to this information, shareholders can make informed decisions about their investments.

The panel is responsible for –
• regulating affected transactions or offers; 
• investigating complaints in respect of affected transactions or offers;
• applying to court to wind up a company where appropriate; and
• consulting with the Minister of the Department of Trade and Industry in respect of deletion, amendments or additions of the takeover provisions.

The panel may also –

• consult with any person on application of the provisions; 

• attend to representations by any person; or

• issue, amend or withdraw information on policy on affected transactions and offers. 

In the main, the protection offered is by –
• ensuring the integrity of the marketplace and fairness to the shareholders of the regulated companies;

• ensuring the provision of necessary information in adequate time to shareholders to facilitate the making of fair and informed decisions; and

• preventing actions by regulated companies designed to impede, frustrate, or defeat an offer, or the making of fair and informed decisions by shareholders.

The panel must further ensure –

• that no person may enter into an affected transaction unless that person is ready, able and willing to implement that transaction;

• that all shareholders are treated equally and equitably;

• that no relevant information is withheld from shareholders;

• that all shareholders receive the same information from all parties; and

• that shareholders are provided sufficient information, and permitted sufficient time, to enable them to reach a properly informed decision.

In furtherance of its mandate the panel may –

• require the filing, for approval or otherwise, of any document with respect to an affected transaction or offer;

• issue compliance certificates;

• initiate or receive complaints, conduct investigations, and issue compliance notices, with respect to any affected transaction or offer; or

• issue a compliance notice which notice, may prohibit or require any action by a person; or order a person to divest of an acquired asset or account for profits.

The panel may also wholly or partially, and with or without conditions, exempt an offer to an affected transaction or an offer from the application certain provisions relating to affected transactions and offers.

The powers of the panel are limited in that it must not express a view or opinion on the commercial advantages or disadvantages of affected transactions or offers.

The regulations provide detailed requirements and how the requirements must be complied with. Directors of companies undertaking these transactions need to be aware of their obligations in terms of the takeover provisions to ensure that they stay within the law.

The investing public needs to be aware that regulators have limitations. No number of laws or regulations can adequately protect the investing public against all risks, despite the diligence and good intentions of the regulators. In general, the principles set out in the Act are benchmarked against international best practice, and offers protection mechanisms, which have been practised internationally. However, this does not mean that the responsible regulator should be content. The increasing globalisation, and resultant complex cross-border mergers and acquisitions requires continuous vigilance, adaptation and improvement.
While the role of the panel may not be immediately visible, it nevertheless plays an important role in creating confidence among investors. Investors should be comforted in knowing that should there be a takeover of their company, they would be entitled to protection in terms of the takeover provisions.

Madimetja A Lucky Phakeng LLM MBL (Unisa) is a non-practicing attorney, notary and conveyancer and Executive Director of the Takeover Regulation Panel. He writes in his personal capacity.