Public mergers and acquisitions in South Africa: overview

A Q&A guide to public mergers and acquisitions law in South Africa.

The country-specific Q&A looks at current market activity; the regulation of recommended and hostile bids; pre-bid formalities, including due diligence, stakebuilding and agreements; procedures for announcing and making an offer (including documentation and mandatory offers); consideration; post-bid considerations (including squeeze-out and de-listing procedures); defending hostile bids; tax issues; other regulatory requirements and restrictions; as well as any proposals for reform.

To compare answers across multiple jurisdictions, visit the M&A Country Q&A tool. This Q&A is part of the global guide to mergers and acquisitions law. For a full list of jurisdictional Q&As visit

Rudolph du Plessis, Bowman Gilfillan Inc

M&A activity

1. What is the current status of the M&A market in your jurisdiction?

There is continued negativity about the South African economy, with a depressed growth outlook and fractious labour relations. However, most commentators predict a marked increase in M&A activity during the second half of 2015. Due to several negative factors, South Africa may not be an attractive option for potential investors. However positive factors, including South Africa's position as a gateway to Africa and the fact that a number of large South African corporations have access to large amounts of monies are hoped to have a positive impact on M&A activity.

During the first quarter of 2015, actual M&A activity has gained momentum, and there appear to be significant deals in the pipeline across all sectors and it is hoped that these opportunities will convert into transactions during the second half of 2015. Much M&A activity in South Africa will also be driven by companies' African expansion plans to stimulate growth prospects. The first quarter of 2015 also saw a substantial increase in transactions by foreign companies in South Africa.

Black Economic Empowerment (BEE) transactions (the acquisition by previously disadvantaged people of direct ownership in an existing or new entity in any sector of the economy) continued to play an important role in the M&A market in 2014. The gazetting of amended BEE codes will probably drive BEE M&A activity and may see the restructuring of existing BEE deals.

Some of the most significant non-BEE transactions included:

  • The offer by British American Tobacco to Souza Cruz minorities for the remaining 24.7% interest in the company at a value of ZAR40.8 billion.

  • Asset swap between Old Mutual and Pareto for stakes in Menlyn Park and Cavendish Square shopping centres.

  • The disposal by Standard Bank to The Industrial and Commercial Bank of China of a 60% stake in Standard Bank Plc at an estimated deal value of ZAR8.4 billion.

  • The disposal by Old Mutual Plc to Heidelberger Leben Group (Cinven and Hannover Re) of Skandia Germany and Skandia Austria at an estimated deal value of ZAR3.2 billion.

  • The acquisition by Acucap Properties from Sycom Property Fund minorities of the remaining 66.1% stakes in Sycom Property Fund at an estimated deal value of ZAR3.05 billion.

  • The acquisition by Steinhoff International from JD Group minorities of up to a 41.2% stake (93, 022, 801 shares) in JD Group at an estimated deal value of ZAR1.8 billion.

  • The disposal by AngloGold Ashanti to QKR Corporation of AngloGold Ashanti Namibia (Navachab Gold Mine) at an estimated deal value of ZAR1.3 billion.

The significant BEE transactions during 2014 and early 2015 were:

  • The disposal by Coal of Africa to BEE consortium Makhado Colliery Community Development Trust and Yoright Investments.

  • The disposal by Rockwell Diamonds to African Renaissance of a 30% stake in Middle Orange operations at an estimated deal value of ZAR1.3 billion.

  • The disposal by PPC to PPC Phakamani Trust of a 5.63% stake (34,480,503 shares) in PPC at an estimated deal value of ZAR191 million.

  • The acquisition by DRDGold from Khumo Gold SPV and The DRDSA Empowerment Trust of a 26% stake in Ergo Mining operations.

2. What are the main means of obtaining control of a public company?

Under the Companies Act No. 71 of 2008 (Companies Act), which came into force on 1 May 2011, the four methods of obtaining control of a public company are:

  • Scheme of arrangement (section 114, Companies Act). This will probably continue to be the most commonly used method of obtaining control in a recommended offer. A scheme of arrangement is a statutory procedure under which a company makes an arrangement with the holders of any class of the company's securities. It can be about anything on which the company and its shareholders can properly agree. A company can bring about almost any kind of internal reorganisation or merger using a scheme. Under the Companies Act, schemes of arrangement no longer automatically require court approval.

  • Takeover offer (section 121 to 127, Companies Act). This method is most commonly used where the offer is not recommended (that is, in a hostile bid situation). To acquire all the shares for which the offer is made (compulsory acquisition), the offer must be accepted by disinterested shareholders holding at least 90% of the shares which are the subject of the offer (see Question 20).

  • Sale of business (section 112, Companies Act). This is where control of a public company is obtained by the bidder, or a vehicle set up for that purpose, by purchasing the whole or greater part of the business or assets of the target (see above).

  • Merger or amalgamation (section 113, Companies Act). This is a statutory mechanism which enables most forms of business combinations to be implemented by way of a single, relatively simple procedure.

All fundamental transactions (which include all of the above other than a takeover offer) require a special resolution (75%) and may require court approval if either:

  • There is a significant minority (at least 15%) opposed to the transaction and any person who voted against the resolution requires the company to seek court approval.

  • The court grants leave to a single dissenting shareholder.

In both instances the court may set aside the resolution on the grounds of procedural irregularity or a manifestly unfair result.

The Companies Act also provides a dissenting minority shareholder with an appraisal right. Where a company seeks to pass a special resolution to enter into a fundamental transaction, appraisal rights may be exercised by any shareholder who:

  • Notified the company of its intention to oppose the special resolution.

  • Was present at the relevant shareholders' meeting and voted against the special resolution.

If the company adopts the special resolution, it must send a notice to that effect to each shareholder who filed an objection. These shareholders can then, within 20 business days after receipt of the notice, demand in writing that the company pay fair value for their shares.


Hostile bids

3. Are hostile bids allowed? If so, are they common?

Hostile bids are allowed but are not common. However, over the last couple of years there have been a number of well publicised hostile bids, notably the successful hostile takeover of Freeworld Coatings by Kansai Paint. This is probably due to the relatively small size of the market rather than any legal, regulatory, political or cultural obstacles.


Regulation and regulatory bodies

4. How are public takeovers and mergers regulated, and by whom?

Takeovers and mergers are regulated by the Takeover Regulation Panel (Panel) (see box, The regulatory authorities) under the relevant provisions of the Companies Act and related takeover regulations (Takeover Regulations).

The Takeover Regulations apply to all affected transactions in respect of a public or state-owned company and a private company where 10% or more of its issued securities have been transferred other than among related or inter-related persons within 24 months prior to the date of the transaction (regulated company). Affected transactions include the types of transactions set out in Question 2 as well as transactions:

  • Where a regulated company buys-back any of its shares, in terms of a scheme of arrangement or otherwise; or where a person (and its related or concert parties) acquires a beneficial interest in shares issued by a regulated company, such that as a result of the acquisition, that person is able to exercise at least the prescribed percentage (currently 35%) of all voting rights attached to the company's shares.

  • Where a person (and its related or concert parties) increases its existing shareholding in a regulated company to 100%.

  • Where a person (and its related or concert parties) acquires a beneficial interest in shares, such that it holds 5% or any multiples of 5% of a particular class of shares of a regulated company (see Question 8).

The Takeover Regulations are largely based on older versions of the UK City Code on Takeovers and Mergers. The Takeover Regulations are statutory and are enforced by the courts rather than through self-regulation.

In addition to the Companies Act and Takeover Regulations, there are other regulations which apply to public takeovers (that is, the types of transactions set out in Question 2), including:

  • The Financial Markets Act No. 19 of 2012 (Financial Markets Act) which, among other things, contains the South African insider trading and market manipulation legislation.

  • The Listings Requirements of the JSE Limited (JSE) (Listings Requirements) (see box, The regulatory authorities), which apply if:

    • the bidder's or target's shares are listed on the JSE. Under the Listings Requirements, the bidder's shareholders must approve an acquisition if the offer consideration is larger than 30% of the market capitalisation of the bidder; or

    • any new shares being offered as part of the bid consideration are to be listed on the JSE.

  • The Competition Act No. 89 of 1998 as amended (Competition Act), which requires mergers of a certain size to be approved by the Competition Commission or the Competition Tribunal (see box, The regulatory authorities) before they can be implemented (see Question 25).

  • The Exchange Control Regulations, which are enforced by the Financial Surveillance Department of the South African Reserve Bank (SARB).

  • Certain industry-specific regulations, for example in the banking, mining and communications industries.



Due diligence

5. What due diligence enquiries does a bidder generally make before making a recommended bid and a hostile bid? What information is in the public domain?

Recommended bid

The scope of the due diligence enquiry usually depends on the time available to conduct the investigation and the need to preserve secrecy and prevent leaks about the proposed transaction. It is also subject to insider trading legislation (mainly the Financial Markets Act) but there are certain limited exceptions. It ranges from limited to comprehensive. A comprehensive due diligence includes a legal and financial investigation into:

  • Significant contracts.

  • Employment and pensions.

  • Litigation.

  • Environmental and regulatory issues.

Hostile bid

Due diligence investigations are usually very limited as there is no obligation on the target to allow a bidder to conduct a due diligence investigation. Due diligence information invariably only comprises information which is in the public domain. The Takeover Regulations, however, provide that all information given to a preferred or potential bidder must, on request, be provided equally and as promptly to a less welcome, but bona fide, bidder.

Public domain

The following information is publicly available:

  • The company's Memorandum of Incorporation.

  • The company's securities register, which is kept at its registered office and includes details of the company's issued share capital and shareholders.

  • Details of the company's directors.

  • Accounts and directors' and auditors' reports of public and certain private companies.

  • Any prospectus or circular which the company has published.

  • Research published by investment banking analysts.

If the target is a listed company, it also has a continuing obligation under the Listings Requirements to disclose:

  • Anything likely to have a significant financial effect on the company.

  • Any new developments which are not public knowledge and which will lead to significant movements in the company's share price.

Any significant acquisitions or disposals must therefore be disclosed. The company must also publish its interim report and its financial results.



6. Are there any rules on maintaining secrecy until the bid is made?

Secrecy must be observed before the announcement of a firm intention to make an offer (Takeover Regulations). Any person aware of confidential information (price sensitive or otherwise) concerning an offer or potential offer must:

  • Treat that information as secret.

  • Act in a way that minimises the chances of any information being leaked.

If secrecy cannot be maintained, a cautionary announcement must be published (see Question 12).


Agreements with shareholders

7. Is it common to obtain a memorandum of understanding or undertaking from key shareholders to sell their shares? If so, are there any disclosure requirements or other restrictions on the nature or terms of the agreement?

It is common for the bidder to seek irrevocable undertakings of acceptance from the target's major shareholders and, in a recommended bid, from directors who hold shares. The undertakings generally require the acceptance of the offer and a prohibition against taking any action that could prejudice its success. They are generally subject to both:

  • The offer being made within a certain period.

  • A more favourable offer not being received.

Undertakings to vote for, accept, or otherwise support the bid must be disclosed in the announcement of an offer and in the offer documents.

Key shareholders are likely to become subject to insider trading legislation on receiving the information or giving the undertaking.



8. If the bidder decides to build a stake in the target (either through a direct shareholding or by using derivatives), before announcing the bid, what disclosure requirements, restrictions or timetables apply?

Under the Companies Act a person who acquires a beneficial interest in shares of 5%, or any multiple of 5%, of a particular class of shares issued by a regulated company, must notify the company within three business days of such acquisition. Similarly, a person must notify the company within three business days if a disposal of securities results in them dropping below a threshold which is a multiple of 5%. A regulated company must notify the Panel and shareholders of such disclosures unless less than 1% of the class was disposed of (Companies Act). Under the Listings Requirements, an issuer must publish the information provided in a disclosure notice within 48 hours on the Securities Exchange News Service. The disclosure requirements apply irrespective of whether the acquisition or disposal was made directly, indirectly, individually or in concert with any other person and option and other interests in securities must be taken into account.

A listed company must disclose shareholdings of more than 5% in its annual reports and its shareholders' circulars (Companies Act and Listings Requirements). In addition, a nominee shareholder (a registered holder of shares in a listed company held on behalf of another person (beneficial holder)) must disclose to the company the identity of the beneficial holder within five business days after the end of every month during which a change has occurred (Companies Act). The company can also compel the nominee shareholder to disclose the identity of the beneficial holder at any time.


Agreements in recommended bids

9. If the board of the target company recommends a bid, is it common to have a formal agreement between the bidder and target? If so, what are the main issues that are likely to be covered in the agreement? To what extent can a target board agree not to solicit or recommend other offers?

Merger agreements are becoming more commonly used. The merger agreement usually provides for a period of exclusivity during which the target undertakes not to solicit a competing offer. Where the merger is implemented by a scheme of arrangement, the merger agreement also usually sets out how the target will pursue the scheme. A formal agreement is mandatory in the context of a statutory merger or amalgamation. The merger or amalgamation agreement must deal with, among other things, the governance of any new company to be formed by the amalgamation or merger and the estimated cost of the amalgamation or merger.


Break fees

10. Is it common on a recommended bid for the target, or the bidder, to agree to pay a break fee if the bid is not successful?

The Panel has indicated that it does not prohibit break fees and they are becoming increasingly popular in large transactions.

Break fees are not formally regulated, but the Panel has developed a common market practice of imposing a break-fee cap of 1% of the value of the transaction. However, as the imposition of a break-fee cap seems closely related to the reasonable costs of the bid (including professional and other advisers' fees), this figure could be lower, as these fees are often comparatively lower in South Africa than in the US or Europe.


Committed funding

11. Is committed funding required before announcing an offer?

When an offer is wholly or partially for cash, the offer document must state that an irrevocable unconditional guarantee has been issued by a South African registered bank or that an irrevocable unconditional confirmation has been obtained from a third party that sufficient cash is held in escrow, in favour of the relevant shareholders of the target for the sole purpose of fully satisfying the cash offer commitments.

In practice, the Panel must be satisfied with the guarantee or other proof (see Question 12).


Announcing and making the offer

Making the bid public

12. How (and when) is a bid made public? Is the timetable altered if there is a competing bid?

The approach

The bid must be notified in writing to the target's board or its advisers (Takeover Regulations). There is no requirement for earlier notification to the Panel. The Panel is only required to be notified when a cautionary announcement (see below, Cautionary announcement) or a firm intention announcement (see below, Firm intention announcement) is made, although it encourages the parties to consult with it before then. However, the offer document must be approved by the Panel before it is posted to the target's shareholders.

The identity of the bidder must be revealed where the offer is made by its representative. The target's board is entitled to be reasonably satisfied that the bidder is, or will be, in a position to implement the offer in full. The Panel must also be satisfied that the bidder has sufficient resources before approving the offer document.

Cautionary announcement

A cautionary announcement is a brief statement published in the press and on the JSE news service. Its aim is to preserve the integrity of trading in a company's shares on the JSE, both before and during negotiations concerning an offer. It usually only states that either:

  • Talks are taking place and that a potential bidder is considering making an offer.

  • An announcement is pending which could have a material effect on the price of the bidder's or the target's shares.

A cautionary announcement must be made by a company if it acquires knowledge of any material price sensitive information and the necessary degree of confidentiality of the information cannot be maintained or the company suspects that confidentiality has been breached.

Firm intention announcement

An announcement of a firm intention to make an offer must be made when the target's board has been notified, in writing, of a firm intention to make an offer from a serious source or where a mandatory offer is required to be made. The target is responsible for making the announcement. It is published in the press and on the JSE news service and must contain:

  • The terms of the offer.

  • The identity of the bidder.

  • The details of any existing holders of shares in the target.

  • All material conditions to which the offer is subject.

  • The details of any arrangements which exist between the bidder and the target or any concert party of the bidder or the target.

Following the announcement, the bidder must proceed with the offer in 20 business days, unless the posting of the offer is subject to a condition which has not been fulfilled (for example, approval of the bid by the bidder's shareholders or the competition authorities). Therefore, an offer should not be announced until the bidder has resources available to satisfy all acceptances.

Timetable for takeover offers

There is a strict timetable for takeover offers, both recommended and hostile, as follows (Takeover Regulations):

  • The timetable begins when the firm intention announcement is published.

  • After publication of the firm intention announcement, the bidder has 20 business days to post the offer document to the target's shareholders. The Takeover Regulations set out the information which must be contained in the offer document (see Question 14).

  • The offer must initially be open for acceptance for at least 30 business days after the offer document is posted.

  • The target's independent board must advise its shareholders of their views of the offer within 20 business days of the posting of the offer document by way of a response circular.

  • The offer must be declared unconditional as to acceptances (that is, that all the necessary acceptances have been received) within 45 days from the posting of the offer document, or the offer will lapse.

  • Once the offer has been declared unconditional as to acceptances, the offeror must announce that fact within one business day and the offer must remain open for a further ten business days after that announcement.

  • Consideration for the offer must be settled within six business days of the offer becoming or being declared unconditional, or the offer being accepted, whichever is the later.

  • An offer may be extended by an announcement made prior to the initial closing date provided that the right to do so has been specifically reserved in the offer document.

  • If an offer consideration is revised (by increasing the original announced offer consideration or providing an alternate consideration to the original announced offer consideration), it must remain open for 15 business days following the date on which the revised offer consideration is announced. Shareholders who have accepted the original offer consideration are entitled to revise their initial acceptance and elect to receive the revised offer consideration.

If a competing offer is announced in respect of the target, both bidders will usually be bound by the timetable established by the competing offer.

Timetable for schemes of arrangement

The timing set out in the Takeover Regulations also largely applies to a scheme of arrangement. The scheme document will need to cater for the convening of a shareholders' meeting to consider the necessary special resolution.


Offer conditions

13. What conditions are usually attached to a takeover offer Can an offer be made subject to the satisfaction of pre-conditions (and, if so, are there any restrictions on the content of these pre-conditions)?

Takeover offers and schemes of arrangement must be approved by certain regulatory bodies. These approvals can operate as conditions to the offer, the most common being approval from the:

  • Relevant competition authorities (see Question 25).

  • Exchange Control Department of the South African Reserve Bank (SARB) (see box, The regulatory authorities), where the transaction requires exchange control approval.

In addition to these conditions, takeover offers are usually subject to the condition that either:

  • 90% of the target's shareholders accept the offer, where the bidder intends to obtain 100% of the target's shares (see Question 20).

  • More than 50% of the target's shareholders accept the offer, where the bidder only intends to obtain control of the target.

Takeover offers can also be subject to the bidder obtaining the necessary shareholder approval to make the offer.

Takeover offers cannot be made subject to conditions which depend solely on the subjective judgment of the bidder or the fulfilment of which the bidder is able to control (Takeover Regulations). However, the completion of a satisfactory due diligence investigation is generally an acceptable pre-condition (see Question 5).


Bid documents

14. What documents do the target's shareholders receive on a recommended and hostile bid?

Takeover offer

In both recommended and hostile takeover offers, the bidder must post the offer document to the target's shareholders. This document must state, among other things (Takeover Regulations):

  • The reasons for the offer, and the intentions of the bidder in relation to the continuation of the business and the continuation in office of the target's directors.

  • Financial and other information on the target and the bidder.

  • The bidder's holdings in the target.

  • Whether directors' remuneration will be affected by the acquisition of the target or by any other associated transaction.

  • The terms and mechanics of the takeover offer.

  • Arrangements, undertakings or agreements between the bidder and the target in relation to the takeover offer.

  • A fair and reasonable opinion from an independent expert.

In the 20 business days following the posting of the offer document, the target's board must circulate its views on the takeover offer (and make any alternative offers known) to the target's shareholders. The target's response circular must set out (Takeover Regulations):

  • The board's comments on the statements in the offer document in relation to the bidder's intentions for the target and its directors.

  • The holding of any shares in the bidder by the target.

  • Whether the target's directors intend to accept or reject the offer in respect of their own holdings.

  • Material particulars of the service contracts of the directors.

  • Disclosures of any arrangements, undertakings or agreements between the bidder and the target.

In practice, in a recommended bid, all this information will be in the offer document prepared jointly by the bidder and the target.

The offer document and the target's board document must satisfy the highest standards of accuracy and the information given must be adequately and fairly presented. In all cases, the documents must be approved by the Panel before posting.

If the offer is revised, an updated offer document must be sent to the target's shareholders. This document must contain details of any material changes in information previously published by, or on behalf of, the parties during the offer period (takeover offer) and the information required by the Companies Act.

Scheme of arrangement

The scheme document convening a scheme meeting must be posted to the target's shareholders by the target's board. This document must set out all the information required in an offer document and the target's board document in a takeover offer (Takeover Regulations) (see above, Takeover offer). In addition, the Companies Act requires the target’s board to retain an independent expert who must prepare a report to the board, which must be distributed to all the shareholders concerning the proposed arrangement, and must include, amongst other things, a description of the material effects of the proposed arrangement.


Employee consultation

15. Are there any requirements for a target's board to inform or consult its employees about the offer?

The Competition Act requires both the bidder and the target to provide a copy of the merger notice (which is submitted to the Competition Commission) in relation to the takeover, to either of the following:

  • Any registered trade union that represents a substantial number of its employees.

  • The employees concerned or their representatives, if there is no registered trade union.

If the implementation of the takeover includes a sale of the target's business as a going concern, then there are no adverse consequences to employees resulting from that sale as the bidder automatically assumes all obligations of the target in relation to the employees. However, if the business or a part of the business is transferred in circumstances other than a sale of business as a going concern or if the takeover involves reducing the number of employees, then the employees must be consulted either directly or indirectly through appropriate forums in terms of the relevant labour legislation.


Mandatory offers

16. Is there a requirement to make a mandatory offer?

A mandatory offer must be made for the rest of the target's shares if a bidder's holding (or its combined holding with any concert party) increases to 35% or more of the voting rights of the target.

Mandatory offers must be made at the highest price paid for the relevant shares in the six months preceding the offer.

A transaction is exempt from the requirement to make a mandatory offer if the holders of a majority of the independent shares of the target (in other words, excluding shares held by the bidder and its concert parties) have agreed to waive the mandatory offer.



17. What form of consideration is commonly offered on a public takeover?

A bidder can offer cash, shares or other securities, or a mixture of any of these, as consideration for a bid. However, where the bidder, or its concert parties, acquires for cash shares in the target carrying 5% or more of the voting rights in the six-month period before the offer is made, the offer must be in cash (or accompanied by a cash alternative) at not less than the highest price paid by the bidder in that six-month period.

18. Are there any regulations that provide for a minimum level of consideration?

Subject to the Panel's discretion, the offer price cannot be lower than the highest price paid by the bidder or its concert party for any shares in the six months leading up to the beginning of the offer period (see Question 17).

19. Are there additional restrictions or requirements on the consideration that a foreign bidder can offer to shareholders?

A bidder must not offer shares in a foreign company which is not listed on the JSE as consideration, without the approval of the Exchange Control Department of the SARB (Exchange Control Regulations 1961 (Regulations)). The Exchange Control Department is unlikely to allow this form of consideration and, if it did, strict conditions would be imposed governing the sale of the shares and the repatriation of the proceeds of the sale.

Foreign companies can list their shares on the JSE. South African private individuals and institutional investors can invest in these shares using their existing foreign investment allowances. South African shareholders can accept these shares as acquisition consideration and exercise their rights in terms of a rights' offer (that is, an offer to all existing shareholders entitling them to subscribe for additional shares pro rata to their existing shareholdings). If this results in a shareholder exceeding its foreign investment allowance, it has 12 months in which to re-align its portfolios.

The cash consideration paid to shareholders residing in South Africa must be paid in South African rand. Therefore, if the consideration is offered in any other currency, it must first be converted into South African rand.



Compulsory purchase of minority shareholdings

20. Can a bidder compulsorily purchase the shares of remaining minority shareholders?

Where a takeover offer is made and 90% of a particular class of the target's shareholders accept the offer, the bidder can compulsorily purchase the shares of the non-accepting shareholders in that class (section 124, Companies Act). A court may in certain circumstances authorise such a squeeze-out despite the fact that less than 90% of shareholders of a particular class has accepted the offer.

A non-accepting shareholder can apply to court within 30 business days of the posting of the compulsory acquisition notice for an order to prohibit it or make it subject to certain conditions.

Where a scheme of arrangement is proposed, once the scheme of arrangement has been approved by special resolution all the shares (including the shares of those shareholders who voted against it at the scheme meeting) are compulsorily acquired by the bidder.


Restrictions on new offers

21. If a bidder fails to obtain control of the target, are there any restrictions on it launching a new offer or buying shares in the target?

Where an offer has not become or been declared unconditional, and has then been withdrawn or has lapsed, neither the bidder nor its concert parties can, for 12 months following the date on which the offer is withdrawn or lapses (except with the consent of the Panel):

  • Make an offer for the target.

  • Acquire any shares of the target which will result in a mandatory offer being required (see Question 16).



22. What action is required to de-list a company?

For a listed company to de-list its shares it must do both of the following (Listing Requirements):

  • Submit an application to the JSE stating the time and date when the de-listing will be effective.

  • Send a circular to all shareholders containing the details and reasons for the de-listing.

The Committee of the JSE will approve the de-listing if both:

  • A general meeting of shareholders approved the decision before the application was made. The decision must be approved by more than 50% of the votes of all shareholders present in person or by proxy, excluding any controlling shareholder.

  • The company states the reasons for de-listing in its written application.

The requirements of shareholder approval and the circular are not necessary in either of the following situations:

  • Following a takeover offer, where the bidder gave notice in the initial offer document, or in any subsequent circular, of its intention to de-list.

  • Where a transaction has been completed, and a circular has been sent to shareholders notifying them of the bidder's intention to de-list the shares and requiring them to vote on the issue. The date for de-listing must be at least 21 business days after the relevant circular is issued.


Target's response

23. What actions can a target's board take to defend a hostile bid (pre- and post-bid)?

The Takeover Regulations require an offer to be considered by an independent board, and the independent board's actions are regulated by what is set out in the Takeover Regulations.

Once a target's board receives a genuine offer or believes that a genuine offer may be imminent, its actions are restricted. Company decisions, which could result in any genuine offer being frustrated or the target's shareholders being denied an opportunity to decide on its merits, must be approved in advance by the Panel and by the holders of the relevant shares in a general meeting.



24. Are any transfer duties payable on the sale of shares in a company that is incorporated and/or listed in the jurisdiction? Can payment of transfer duties be avoided?

Securities transfer tax

Securities transfer tax (STT) is levied, in terms of the Securities Transfer Tax Act, No.25 of 2007 (STT Act) on the transfer of the beneficial ownership of any security (excluding the debt portion in respect of a share linked to a debenture) issued by either:

  • A company or close corporation incorporated, established or formed in South Africa. (A close corporation is a type of legal entity, that still exists, but may no longer be formed under the Companies Act.)

  • A company incorporated, established or formed outside South Africa and listed on an exchange.

The transfer of beneficial ownership of securities is subject to STT, at a rate of 0.25% on the taxable amount of the transfer of the security. For listed securities, the taxable amount is the greater of the consideration for the security declared by the transferee or the closing price of that security. For unlisted securities, the taxable amount is the greater of the consideration given for the security or the market value of that unlisted security. Transfer is defined broadly to include the transfer, sale, assignment or cession, or disposal in any other manner of a security, but excludes any event that does not result in a change in beneficial ownership. The issue of a security, or the cancellation or redemption of a security in the event the issuing company is being wound up, does not amount to a transfer and therefore does not attract STT. If the transfer is implemented in terms of certain tax relief rules, the transfer could then be exempt from STT. For details of recent reforms in this area, see Question 29.

Payment of STT

For listed securities, the stock exchange member or Central Securities Depository (CSD) participant who effects the transaction is responsible for the payment of the STT. For other transfers of listed securities, the person to whom a listed security is transferred is responsible for the payment of the STT. The STT must be paid by the 14th day of the month following the one in which the transfer occurred. For unlisted securities, the company that issued the securities must pay the STT within two months from the end of the month in which the security was transferred. The stock exchange member, CSD participant or company that issued the unlisted security can recover the STT paid by it from the recipient of that security (STT Act).

Exemptions exist for the payment of transfer tax in certain specific circumstances.


Other regulatory restrictions

25. Are any other regulatory approvals required, such as merger control and banking? If so, what is the effect of obtaining these approvals on the public offer timetable?

Intermediate and large mergers

Large and intermediate mergers must obtain prior merger approval from the South African competition authorities before they can be implemented.

A transaction must be notified as an intermediate merger if both:

  • The parties to the merger have combined assets or annual turnover of ZAR560 million.

  • The target firm has assets or turnover of ZAR80 million.

A transaction must be notified as a large merger if both:

  • The parties to the merger have combined assets or annual turnover of ZAR6.6 billion.

  • The target firm has assets or turnover of ZAR190 million.

The filing fees payable to the Competition Commission are:

  • ZAR100,000 for intermediate mergers.

  • ZAR350,000 for large mergers.

Small mergers

Small mergers are those that fall below the prescribed thresholds and can be implemented without competition approval. However, if the competition authorities consider that a small merger might substantially prevent or lessen competition or cannot be justified on public interest grounds, they can require the parties to notify the transaction to the Competition Commission and investigate the small merger within six months of implementation, but this is unusual.

In 2009, the competition authorities issued a guideline for small mergers. This states that the Competition Commission will continue to evaluate whether a small merger requires notification on its merits, but also states that it will require notification of all small mergers which involve any firm or firms within the merging parties groups which are:

  • The subject of an investigation by the Competition Commission.

  • At the time of entering into the transaction, party to pending proceedings referred by the Competition Commission to the Competition Tribunal under Chapter 2 of the Competition Act. Chapter 2 deals with prohibited practices, which include:

    • horizontal agreements, concerted practices and decisions of associations among competitors which substantially prevent or lessen competition in the market;

    • agreements between parties in a vertical relationship which substantially prevent or lessen competition in the market; and

    • abuses of dominance, such as exclusionary and exploitative conduct.

Announcing the offer

Due to the need to preserve secrecy and prevent leaks about the proposed transaction, the offer is usually announced subject to merger approval being obtained.

Certain industries have statutory restrictions on the percentage of foreign shareholdings, and certain exchange control approvals might be required (see Question 26).

26. Are there restrictions on the foreign ownership of shares (generally and/or in specific sectors)? If so, what approvals are required for foreign ownership and from whom are they obtained?

In general, there are no restrictions on foreign ownership of shares. However, certain industries (including banking, insurance and broadcasting) have specific statutory restrictions on the percentage of holdings that a foreign shareholder can hold in a South African company.

In addition, all dealings in, and registration of, shares in which non-residents of South Africa are involved are governed by the Regulations.

A person cannot transfer any shares to a non-resident without the approval of the Exchange Control Department of the SARB, which must be obtained through an authorised bank. An authorised bank is a bank in South Africa specifically authorised by the SARB for the purposes of regulating foreign-owned shares. Approval is usually given, provided that the Exchange Control Department is satisfied that fair consideration for the shares has been received in South Africa.

The consideration for the shares must be channelled through an authorised bank, and the share certificate must be endorsed "non-resident" by an authorised bank. If the share certificate is not endorsed "non-resident" by an authorised bank, the shares must not be registered in the name of a non-resident and dividends cannot be paid to a non-resident (see Question 27).

27. Are there any restrictions on repatriation of profits or exchange control rules for foreign companies?

Dividends declared by South African companies are remittable to a non-resident shareholder in proportion to the non-resident's percentage shareholding provided, that the share certificate has been endorsed as "non-resident" (see Question 26).

To transfer the dividend to the non-resident shareholder, the company must produce an auditor's report for the authorised bank (see Question 26) confirming that the amount to be transferred arises from realised or earned profits on investments owned by the non-resident shareholder.

Either to improve access to domestic credit in the financing of bona fide foreign direct investments in South Africa or for domestic working capital requirements, the Reserve Bank has in recent years relaxed its general restrictions in relation to the granting of local financial assistance to affected persons and non-residents. An affected person is a body corporate, foundation, trust or partnership operating in South Africa in which either:

  • 75% or more of the capital, assets or earnings can be used for payment to, or for the benefit of, a non-resident.

  • 75% or more of the voting shares, voting power, power of control, capital, assets or earnings are directly or indirectly controlled by a non-resident.

However, local borrowing restrictions still apply to affected persons and non-residents who wish to borrow local funds to acquire residential property or for certain other financial transactions (such as portfolio investments, securities lending, hedging, and repurchase agreements).

Authorised banks may now grant or authorise local financial facilities to non-residents and affected persons without restriction.

28. Following the announcement of the offer, are there any restrictions or disclosure requirements imposed on persons (whether or not parties to the bid or their associates) who deal in securities of the parties to the bid?

The Takeover Regulations require that during an offer:

  • The bidder and its concert parties may not deal in the target's shares on favourable conditions that are being extended to all relevant shareholders.

  • The bidder and its concert parties cannot sell any shares in the target unless:

    • the Panel has consented in advance to the sale;

    • the public has been given 24 hours' notice of the sale; and

    • the sale is on the same terms and conditions as the offer.

  • The bidder and its concert parties cannot acquire any shares in the target unless the public has been given 24 hours' notice of the acquisition.

  • For a period of 12 months after the withdrawal or lapse of an offer, the bidder and its concert parties must not acquire shares in the target if that acquisition would result in the requirement to make a mandatory offer.

  • For a period of six months following the closing of an offer or an offer becoming unconditional, the bidder and its concert parties may not acquire shares in the target on more favourable terms than those made under the original offer.

The restrictions in the Securities Services Act relating to insider trading apply and prohibit persons with inside information from trading.



29. Are there any proposals for the reform of takeover regulation in your jurisdiction?

Withholding tax on interest

A final withholding tax on interest paid to a foreign national will become effective as of 1 January 2015. It will apply to interest that accrues or interest that becomes due and payable on or after that date to a foreign national. A withholding tax of 15% will be levied on interest of a South African source to a foreign national. Certain exemptions to the withholding tax on interest will be available, including relief or partial relief under a double taxation agreement (DTA), where applicable. Loans or financing provided by a South African resident would not incur the 15% interest withholding tax. In addition, when cross-border loans or financing are considered, the withholding tax on interest will likely become relevant.

Withholding tax on cross-border service fees

A withholding tax on cross-border service fees (15%) will become effective from 1 January 2016. The withholding tax on service fees will apply to payments (from a South African source) to foreign nationals for services rendered. The South African entity (for example, a subsidiary) paying the service fee would be obliged to withhold and pay the amount to the South African Revenue Service (SARS) upon payment to the foreign national. Certain exemptions will also be available, including relief or partial relief under a DTA (where applicable).

Withholding tax on royalties

Currently a withholding tax of 12% is levied in South Africa on payments of royalties (15% with effect from 1 January 2015) by a South African resident (for example, a subsidiary), in respect of the licensing of intellectual property beneficially owned by a non-resident. Certain exemptions are also available, including relief or partial relief under a DTA (where applicable).

Proposed changes to thin capitalisation rules

When dealing with funding received directly or indirectly from a non-resident connected person, South Africa has thin capitalisation rules that will need to be considered. The thin capitalisation provisions are mainly aimed at limiting the deductibility of interest incurred on loan funding where a company is disproportionately funded with debt.

The thin capitalisation rules previously provided a "safe haven" debt to equity ratio of 3:1. This ratio can no longer be considered as a safe haven and the acceptable amount of debt must be determined on an arm's length basis. The arm’s length amount of the debt is the lesser of the amount that could have been borrowed and the amount that would have been borrowed in a transaction between independent persons dealing at arm's length. However, under the new rules, SARS will consider a variety of factors in addition to the above general principle.

General limitation on interest deductions for the purchase of shares

Under South African tax law, interest on a debt is generally not deductible where the debt was used to finance the purchase of shares for the purpose of earning dividends (as dividend income is exempt from income tax). New rules have been brought into effect to allow a limited deduction for interest in these circumstances. In addition, further rules have been introduced to target what has been viewed as an artificial creation of interest deductions in the context of group reorganisations. These types of reorganisation transaction have been used to create an interest deduction in the context of a share acquisition. In this context, the following recently implemented provisions are relevant:

  • Section 24O of the Income Tax Act, No. 58 of 1962 (Income Tax Act). This was introduced with effect from 1 January 2013. Section24O provides that interest payable in respect of a debt that is used to finance an "acquisition transaction", being the acquisition of a 70% or greater direct or indirect shareholding in an "operating company" (a company carrying on business continuously, providing goods and services for consideration, or a company with a 70% or greater direct or indirect shareholding in such a company), will be deductible. The deduction available in terms of section 24O is now subject to the requirements of section 23N Income Tax Act (see below).

  • Section 23N, Income Tax Act. Section 23N was introduced with effect from 1 April 2014, and replaces the previous section 23K. Under section 23K, a company acquiring a controlling shareholding in an "acquisition transaction" under section 24O must apply to SARS for a directive in order to be entitled to the associated deduction. SARS would exercise its discretion in granting such a directive, subject to a variety of considerations and other requirements. Under the new section 23N, the deduction available under section 24O will now be limited to 40% of the adjusted taxable income of the acquiring company.

  • Section 23M (Income Tax Act). Section 23M is proposed to come into effect from 1 January 2015 and will apply to amounts of interest incurred on or after that date. This section will limit the deductibility of interest owed by a South African resident debtor to a creditor that is not subject to South African income tax. Specifically, the limitation under section 23M may be triggered if there is a "controlling relationship" between the debtor and the creditor, or a person funding the debt provided by the creditor, or a person guaranteeing the debt. If the requirements of section 23M are met, the amount of interest that may be deducted in respect of all such debts in respect of any year of assessment cannot exceed the sum of the interest received by or accrued to the debtor and an amount determined with reference to a particular formula. Interest in excess of this ceiling amount may be carried forward to the following tax year and is then deemed to be interest incurred in that year.


The regulatory authorities

Takeover Regulation Panel (Panel)


Main area of responsibility. The Panel is responsible for, among other things, the regulation of takeovers and mergers in South Africa.

JSE Limited (JSE)


Main area of responsibility. The JSE functions as a primary exchange for the raising of new capital by business and as a secondary exchange for the subsequent trading of those shares.

Competition Tribunal (Tribunal)


Main area of responsibility. The Tribunal is an adjudicating body of first instance for large mergers, restrictive horizontal and vertical practices and abuses of dominance, as well as any other matter which may be considered by it in terms of the Competition Act.

Competition Commission (Commission)


Main area of responsibility. The Commission's main responsibilities include:

  • Implementing measures to increase market transparency and develop public awareness of the provisions of the Competition Act.
  • Investigating and evaluating alleged horizontal or vertical restrictive practices or abuses of dominance.
  • Granting or refusing applications for exemption.
  • Authorising (with or without conditions), prohibiting or referring to the Competition Tribunal mergers of which it receives notice.
  • Negotiate and conclude consent agreements.

The South African Reserve Bank (SARB)


Main area of responsibility. The SARB is the central bank of the Republic of South Africa. Its primary goal is the achievement and maintenance of financial stability.

Online resources

Companies and Intellectual Property Commission


Description. The website of the Companies and Intellectual Property Commission, part of the Department of Trade and Industry, the relevant government department responsible for companies.

Takeover Regulation Panel


Description. The website of the Takeover Regulation Panel.

The Johannesburg Stock Exchange


Description. The website of the exchange operated by the JSE.

Contributor profile

Rudolph du Plessis

Bowman Gilfillan Inc

T +27 11 669 9331
F +27 11 669 9001

Professional qualifications. South Africa, 1998

Areas of practice. M&A; capital markets and securities law; corporate and commercial.

Recent transactions

  • Advising Standard Bank on the disposal by Standard Bank to The Industrial and Commercial Bank of China of 60% stake in Standard Bank Plc at an estimated deal value of ZAR8.4 billion.
  • The restructuring and listing of the Alexander Forbes Group.

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