Published Date: 2021-06-07 | Source: INCE|Community | Author: The Finance Ghost
Takeover law is great. Unlike other areas of law that are heavily open to interpretation, like competition law, takeover law prescribes processes and disclosures designed to protect minority shareholders in companies.
Part of this is having access to information, which is why 122(3)(b) of the Companies Act requires shareholders to notify a company when they acquire or sell shares such that their ownership moves through a 5% threshold or any further whole multiple of 5%.
In other words, if a shareholder holds 4% and buys another 2% (to own a total of 6%), the 5% threshold has been crossed and the shareholder must notify the company. The company will put out a SENS announcement to this effect.
Similarly, if a shareholder moves from 8% to 12%, the 10% threshold has been crossed and an announcement is also needed, as 10% is a whole multiple of 5%.
On Friday, Tower Property Fund announced that Coronation Asset Management has acquired more shares on behalf of clients and now holds 10.13% in Tower. This wouldn't be terribly interesting, were it not for the offer that is currently on the table for Tower from RDC Properties Limited, listed on the Botswana Stock Exchange. That offer was announced on 27th May this year.
The offer is a cash offer at R4 per share via a scheme of arrangement, which needs 75% shareholder approval (of those present at a meeting - NB point). If it goes through, it forces all shareholders to sell.
The deal includes a general standby offer, which kicks in if the scheme of arrangement isn't successful. This is used when the buyer would prefer to acquire the entire business (hence the scheme of arrangement) but would acquire every share from a willing seller as a back-up plan. In this case, RDC has included a further provision that the standby offer only applies if at least 50% + 1 of the shareholders are willing to accept that offer.
To recap: RDC wants to acquire 100% of Tower but is also willing to acquire at least 50% + 1 of the shares i.e. control of Tower. If the scheme fails and fewer than 50% + 1 of shareholders accept the general offer, RDC walks away. They don't want a non-controlling stake.
The deal has irrevocable commitments from investors holding 57.7% of the shares in issue. Known as irrevocables for short, these are used to test shareholder support before a deal goes to the vote. Importantly, although the irrevocables don't already equal 75% of all shares in issue, this doesn't mean that the deal won't be approved.
The 57.7% in irrevocables is a measure of all shares in issue but the 75% approval is based on shareholders present at a meeting and you'll never see a situation where every shareholder arrives at the meeting. In other words, 57.7% in irrevocables suggests a strong probability of the deal going through as this will be a higher percentage when measured based on meeting attendance.
If it goes ahead, the deal will take months to implement, which is why the current share price is R3.65 and not the R4.00 offer price. There's a time value of money element to the difference in price as well as some risk ascribed to the deal not going through.
We don't know at what price Coronation bought shares to move through this threshold, but they are buying with eyes wide open. Tower isn't the most liquid company around, so investors should look carefully at the bid-offer spread in the market. The actual purchase price available to investors might be a lot closer to R4.00 than the R3.65 closing price would otherwise suggest.
Disclaimer: the author holds shares in Tower