[Last updated: 1 January 2025, unless otherwise noted]

3.1 Shareholding rights and powers

The table below provides an overview of the different rights and powers attaching to different levels of shareholding within a South African public company. In its constitutional documents, a company may vary the percentage of voting rights required to approve any special resolution provided that, at all times, there is a margin of at least 10% between the highest established requirement for an ordinary resolution and the lowest established requirement for a special resolution. The table is based on the assumption that no such variation is made, and that the default position under the Companies Act applies.

3.2 Methods of acquisition

The main methods of obtaining control of a public company are as follows:

• scheme of arrangement;
• merger or amalgamation; and
• takeover bid.

A scheme of arrangement is the most commonly used mechanism to implement a transaction for obtaining control of a public company. It is broadly defined and includes most arrangements concluded between the company and holders of any class of its securities.

The statutory merger or amalgamation provisions of the Companies Act are seldom used as it requires all known creditors of the target to be notified of the transaction, whereupon creditors can intervene in the transaction even after it has been approved by shareholders and a merger agreement had been signed. Furthermore, creditors could apply for leave to have the merger reviewed by the courts, which could substantially delay implementation of the transaction even if the creditors' review application should fail.

A scheme of arrangement and statutory merger are "fundamental transactions". All fundamental transactions require the approval of a special resolution (75% affirmative shareholder vote) and may also require court approval if either:

• the special resolution is opposed by at least 15% of the voting rights exercised, and any person who voted against the resolution requires the company to seek court approval; or
• the court grants leave to a single dissenting shareholder to require that the fundamental transaction be approved by the courts.

Lastly, a bidder may obtain control of a public company through a takeover bid.

3.3 Due diligence

Due diligence investigations are not uncommon in friendly takeover bids. There are no specific rules governing these. The scope and extent of the due diligence investigation are dependent on, among other things, the time available to conduct the investigation, the need to preserve confidentiality and comply with insider trading rules (see 3.5) and the level of cooperation by the target board.

In a hostile bid scenario, there is no obligation on the target board to disclose any information and it is unlikely that they would permit a due diligence to be undertaken. The bidder would be limited to reviewing publicly available information on the target.

In relation to affected transactions (which includes the methods of acquiring control discussed in 3.2), competing bidders are entitled to equal access of information. Therefore, information made available by the target to one bidder would have to be made available to a competing bidder.

3.4 Secrecy and cautionary announcements

Before a takeover bid is announced, discussions between an independent board (appointed under the Takeover Regulations to consider a takeover bid) and a bidder must be kept confidential. Any person who has been made aware of confidential or price-sensitive information as a result of or concerning a potential bid must:

• not disclose that information; and
• conduct themselves in a manner which reduces the risk of such information being leaked.

If, at any stage, a company has acquired any confidential or price-sensitive information, it must publish a cautionary announcement through the JSE's SENS, unless the confidentiality of such information can be maintained for a limited period of time.

The purpose of the cautionary announcement is to alert existing and potential future shareholders that the target is the subject of potential corporate action, and that they must accordingly exercise care in trading in the company's securities until it has made a detailed announcement.

3.5 Insider trading and market abuse

"Inside information" is defined as specific or precise information which has not been made public, is obtained or learned as an "insider" and, if it were to be made public, would be likely to have a material effect on the trading price or value of any listed security.

An "insider" is broadly defined as any person who has inside information

•  through:
  • being a director, employee or shareholder of a listed company to which the inside information relates; or
  • having had access to such information by virtue of employment, office or position; or
• where such person knows that the direct or indirect source of the information was a director, employee or shareholder, or person who had access to such information by virtue of employment, office or position.

Any person who comes into possession of inside information at any stage of the transaction will, save for certain exceptions provided for in the FMA, be prohibited from acting on that information by dealing in securities in the target until either:

• the specific inside information of which it is aware is made public; or
• full details of the bid are made public through an announcement.

Market abuse mainly involves:

• market manipulation, being knowingly participating in any practice which has the effect of creating a false or deceptive appearance of the demand for, supply of, trading activity or artificial price for a security; or
• false, misleading or deceptive statements in respect of any material fact relating to a listed security.

Any contravention of the insider trading and market abuse rules is a criminal offense and could lead to both imprisonment and significant fines being imposed on the offender.

3.6 Stake-building and disclosure of shareholding

The rules regarding disclosure of shareholdings apply before, during and after a public takeover bid, and are relevant when a bidder starts building up a stake in the target.

Any person who acquires a beneficial interest in sufficient shares of a public company such that, as a result of the acquisition, the person holds a beneficial interest of 5%, or any multiple of 5%, is required to notify the company within three business days of such acquisition through a prescribed disclosure notice.

After receiving a disclosure notice, the company must file a copy with the TRP.

Furthermore, a listed company is required to:

• disclose in its annual financial statements all shareholders which directly or indirectly hold 5% or more of it shares; and
• within 48 hours after receiving a disclosure notice, publish the information contained in the disclosure notice on SENS.

3.7 Agreements with shareholders

In a takeover bid scenario, it is common for the bidder to obtain irrevocable undertakings to support and vote in favor of the proposed transaction from the target's main or institutional shareholders prior to formally submitting its bid.

This is subject to the following restrictions:

• only shareholders holding 5% or more of the aggregate securities subject to the offer may be approached;
• not more than 5 such shareholders may be approached;
• the relevant shareholders must sign confidentiality undertakings in relation to the offer; and
• the shareholders must adhere to the provisions of the FMA, in relation to insider trading prior to the announcement of the offer (see 3.5).

The undertakings are usually conditional upon:

• the requisite approvals being obtained (including shareholder approval for the transaction);
• the bid being made within a certain period; and
• the bidder being satisfied with the outcome of any due diligence investigation it decides to undertake.