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

6.1 Exclusivity agreements

Exclusivity agreements are usually executed as a method of restricting the target from soliciting or engaging other potential buyers. Adherence to the provisions of these agreements is incentivized by provisions to pay "break fees". Break fees are not formally regulated, but in terms of the TRP's guidelines, a break fee cap of 1% of the value of the transaction is normally acceptable.

The effectiveness of exclusivity agreements is, however, weakened in light of the fiduciary duties owed by directors. Two of the most fundamental duties of the directors are to act in good faith and in the best interest of the company. This requires that the directors ensure that the bid they recommend is in the best interests of the company. The Companies Act furthermore prohibits the directors of a company from taking actions designed to frustrate a bona fide offer, or the shareholders' ability to consider the offer on its merits. In fact, one of the mandates of the TRP is to "prevent actions by a regulated company designed to impede, frustrate or defeat a bid, or the making of a fair and informed decision by the [shareholders]". Therefore, the effect of an exclusivity agreement is limited to restraining a board from actively soliciting, or seeking to solicit, competing bids.

6.2 Anti-takeover tactics

Given that hostile takeovers remain relatively uncommon in the South African market and the restrictions imposed on the board of a target in relation to frustrating a takeover offer (see 6.1 above), the options available to a target to defend a takeover are limited in their development.

The common approach adopted by a target's board is to be uncooperative with respect to the joint mandates of the bidder and the target (such as jointly submitting the merger filing to the competition authorities). Furthermore, the board may seek to impose as many procedural and administrative hurdles to the bid process as possible. This involves a careful balancing act, as the target board must not be seen to be breaching its fiduciary duties and obligations under the Companies Act. Reliance has also been placed on the TRP and other takeover authorities such as the Competition Commission to hinder takeover bids.