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

2.1 Main legal framework

Public mergers, acquisitions and takeovers in South Africa are primarily regulated by the South African Companies Act, 71 of 2008 ("Companies Act"), which incorporates the South African Takeover Regulations ("Takeover Regulations").

2.2 Other rules and principles

There are a number of additional rules and principles that must be taken into account when preparing or conducting a public takeover bid in South Africa, including:

• the rules relating to the disclosure of significant shareholdings in listed companies, as contained in the Companies Act and the Takeover Regulations;
• the rules regarding the offer of securities to the public and the admission to trading of these securities on a regulated market, in circumstances where the consideration that is offered in a public takeover bid consists of securities offered to the public, as contained in the Companies Act;
• the rules relating to insider dealing and market manipulation (the so-called market abuse rules), as contained in the Financial Markets Act, 19 of 2012 ("FMA");
• the rules on the supervision and control of the financial markets, as contained in the FMA; and
• the rules and regulations regarding merger control, as contained in the Competition Act, 89 of 1998 ("Competition Act").

In addition, public companies with shares listed on the JSE are required to adhere to the JSE Listings Requirements ("JSE Listings Requirements") in the context of a takeover bid.

2.3 Supervisory bodies

Contravention of the above legislation/rules can result in administrative fines and, in some cases, criminal sanctions being imposed on the offender.

2.4 Foreign investments

Foreign investments are not restricted in South Africa, unless in the context of specific industries and sectors (such as the mining industry as set out in 2.6 below) where foreign investment may be limited.

2.5 General principles

A number of general principles apply to public takeovers in South Africa, which are borne out of the provisions of, among others, the Takeover Regulations:

• all holders of the securities of the target of the same class must be afforded equivalent treatment. Moreover, if a person acquires or intends to acquire control of a company, the other holders of securities must be protected;
• securities holders of the target company must have sufficient time and information to enable them to reach a properly informed decision on the bid;
• the target company's board must act in the best interests of the target and must not deny the holders of securities the opportunity to decide on the merits of the bid;
• false markets must not be created in the securities of the target, the bidder or any other company concerned by the bid in such a way that the rise or fall of the prices of the securities becomes artificial and the normal functioning of the markets is distorted;
• a bidder must announce a bid only after ensuring that it can fulfil any cash consideration in full, if such is offered, and after taking all reasonable measures to secure the implementation of any other type of consideration; and
• the target must not be hindered in the conduct of its affairs for longer than is reasonable by a bid for its securities.

In rare circumstances, the Takeover Regulations will apply to private companies undertaking an “affected transaction” (defined below). A private company is a “regulated company” (and therefore falls within the ambit of the Takeover Regulations) if more than 10% of its shares have transferred within the previous 24 months. This will soon change as the Companies Amendment Act of 2024 introduces new criteria for private companies to fall within the ambit of the Takeover Regulations, namely if it:

• has 10 or more shareholders with direct or indirect shareholding in the private company; and
• meets or exceeds the financial threshold of annual turnover or asset value to be determined by the Minister, either generally or in relation to specific industries. This threshold has yet to be specified.

2.6 Black Economic Empowerment ("BBBEE")

To enable economic empowerment of previously disadvantaged South Africans, the South African government promulgated the Broad-Based Black Economic Empowerment Act, 53 of 2003 ("BBBEE Act"). The BBBEE Act, read together with the 2015 BBBEE Codes of Good Practice ("Codes"), sets out a scoring matrix which rates a company's compliance with the BBBEE Act and the Codes against various metrics, including black ownership, management, employment equity, skills development, preferential procurement, enterprise development and socio-economic development. Compliance with BBBEE in South Africa is not required by law (other than in certain specific sectors such as the minerals and mining sector). However, having a higher BBBEE rating provides entities with a competitive advantage, particularly when supplying to the Government of South Africa, which will require its suppliers to have a sufficient BBBEE rating. In the private sector, BBBEE instead works on an incentive basis, as companies work for higher BBBEE rating levels in order to remain competitive in the South African market. Therefore, the point of departure for BBBEE in South Africa is that an entity will aim for a higher BBBEE rating level in order to attract customers looking to improve the enterprise and supplier development element on their own BBBEE scorecard. Thus, entities score points towards their own BBBEE rating level when procuring goods and services from supplying entities with high BBBEE rating levels.

Certain industry sectors are subject to stricter BBBEE requirements. For example, the BBBEE rules applicable to the mining sector presently requires that 26% of the shares of a company that engages existing in mining and prospecting activities must be held by historically disadvantaged South Africans ("BEE Shareholding"), failing which the mining and prospecting rights of the company are at risk of being suspended or cancelled by the South African Department of Mineral Resources ("DMR"). In terms of the New Mining Charter published by the DMR, applicants for a new mining or prospecting right must have a minimum of 30% BEE Shareholding.

Accordingly, in structuring a takeover bid, it is important to take account of the effect of the transaction on the target's BBBEE rating, especially in the case of a 100% takeover where the target's existing BBBEE shareholder is to exit, creating a need for a replacement BBBEE shareholder to be introduced at the time or shortly after implementation of the transaction. In these circumstances, it is not uncommon for the bidder to be a consortium which includes a BBBEE shareholder.

Moreover, from a competition law perspective, the South African Competition Authorities have been increasingly imposing requirements to promote ownership by Historically Disadvantaged Persons in merger scenarios. This requirement aims to ensure that mergers and acquisitions contribute to economic transformation and inclusivity, aligning with the broader objectives of the BBBEE framework. Failure to comply with these conditions imposed by the Competition Authorities may result in the Competition Authorities withholding approval of the merger transaction.