While market participants and advisors are generally well aware of the regulatory framework that kicks in under the Takeover Regulations with effect from the publication of an FIA and commencement of the firm offer period, the manner and extent to which the Takeover Regulations apply to potential affected transactions in the period leading up to the publication of the FIA (the pre-firm offer period) is not as well understood or appreciated.

In fact, in many instances, during the pre-firm offer period, would-be offerors pursuing potential affected transactions often neglect to consider the impact of, or take measures to ensure compliance with, the Takeover Regulations altogether. Neglecting to procure compliance with the Takeover Regulations during the pre-firm offer period may materially detrimentally impact the transaction process in respect of an affected transaction. In certain instances, such a failure may even be fatal to the successful completion of an affected transaction given that the Takeover Regulations provide that an affected transaction may not be implemented unless the Takeover Regulation Panel (Panel), being the regulatory authority empowered with jurisdiction to regulate affected transactions, has (i) issued a “compliance certificate”; or (ii) granted an exemption, prior to the affected transaction being implemented (see section 121(b) of the Companies Act).

Among the most common instances of non-compliance with the Takeover Regulations during the pre-firm offer period is the way communications or announcements in respect of potential affected transactions are required to be made during this period.

This was illustrated by the recent decision of the Takeover Special Committee (TSC) in the case of Caxton and CTP Publishers and Printers Limited, Takeover Regulation Panel, and Mpact Limited (8 March 2023) (Caxton TSC decision) as well as the recent announcement issued by the Panel in respect of communications published in relation to the potential affected transaction involving Multichoice Group Limited (Multichoice).

Announcements and communications during the pre-firm offer period

In terms of the Takeover Regulations, the underlying principles that regulate communications and engagements in relation to a potential affected transaction during the pre-firm offer period are that:

• all negotiations between an independent board and an offeror must be kept confidential;
• price-sensitive information may be provided to select persons on a confidential basis only; and
• confidentiality must be generally maintained prior to an FIA or cautionary announcement being published (see Regulation 95 of the Takeover Regulations).

The confidentiality provisions contained in Regulation 95 of the Takeover Regulations go on to require that if there is a leak, or a reasonable suspicion of a leak, of price-sensitive information in relation to an affected transaction, the leaked information must be immediately disclosed to the public by way of a cautionary announcement.

The Takeover Regulations also include specific regulations in respect of announcements in relation to affected transactions. Regulation 117 provides that “[a]ll documents relating to an affected transaction as defined under section 117(c) of the [Companies] Act, including announcements and circulars, must be approved by the Panel before being posted or published”.

The Caxton TSC decision

The Caxton TSC decision dealt with an appeal against a ruling of the Panel in relation to public statements made by Caxton and CTP Publishers and Printers Limited (Caxton) regarding a potential offer to acquire a controlling interest in Mpact Limited (Mpact). These statements were made after the negotiations between Caxton and the Mpact board in relation to the transaction had collapsed.

In its ruling, the Panel found against Caxton and ruled that “Caxton is prohibited from making any further public statement in any form and on any platform about the acquisition of Mpact without the approval of the Panel under Regulation 117”.

On appeal, Caxton argued that the Panel had no jurisdiction over the impugned public statements as (i) there was no offer on the table and therefore the statements did not relate to a live affected transaction but rather a potential affected transaction; and (ii) the scope of Regulation 117 of the Takeover Regulations did not extend to verbal statements but was rather confined to documents, including announcements and circulars.

While the TSC ultimately agreed with Caxton that the provisions of Regulation 117 of the Takeover Regulations apply only to the publication of documents (such as announcements and circulars) in relation to affected transactions, and not to other communications or verbal statements, the TSC found that the confidentiality provisions contemplated in Regulation 95 of the Takeover Regulations were nevertheless applicable to these communications.

In this regard, the TSC expressed that strict confidentiality on the part of the offeree-regulated company and the potential offeror during the pre-firm offer period must be adhered to, with the release of a cautionary announcement in respect of a leak of price sensitive information, or reasonably suspected leak, being the only exception to this general requirement to maintain confidentiality in the pre-firm offer period.

The TSC was also explicit that the fact that the firm offer period in respect of the Mpact transaction had not yet commenced did not release Caxton from the restrictions that apply to confidentiality in respect of affected transactions and its announced intention to conclude a potential affected transaction in respect of Mpact. The TSC was also of the view that the collapse of negotiations between Caxton and Mpact did not release Caxton from the confidentiality restrictions.

Announcements in relation to the potential Multichoice transaction

The reasoning set out in the Caxton TSC decision is, in our experience, consistent with the Panel’s approach in recent times around regulating the publication of announcements in respect of potential affected transactions during the pre-firm offer period.

In its application of the Takeover Regulations, the Panel has been increasingly consistent in adopting the position that no announcements in respect of potential affected transactions will be permitted during the pre-firm offer period, other than (i) the FIA (once all pre-requisites for publishing the FIA have been fulfilled); or (ii) cautionary announcements in respect of a leak, or reasonably suspected leak, of price sensitive information.

That being the case, market observers may have been surprised by the cautionary announcement published on SENS on 1 February 2024 by Multichoice, which appeared to be inconsistent with the recent approach of the Panel in relation to such announcements. In the announcement, Multichoice informed shareholders that it had received a non-binding expression of interest letter from Groupe Canal+ SA in respect of a potential affected transaction, including the indicative pricing contemplated in the expression of interest letter.

This inconsistency appears, in some respects, to have been explained in the announcement of the Panel published in response to thereto on 5 February 2024, in terms of which the Panel referred to “various communications and announcements … issued to the public in relation to Multichoice” which the Panel confirmed were not sanctioned or approved by the Panel. The Panel went on to say that it was “taking this matter seriously and currently investigating various aspects of the current status of this matter on an urgent basis”.

Conclusion

Having regard to the Caxton TSC decision and the Panel’s announcement in relation to the potential Multichoice transaction, it is clear that potential offerors and offeree-regulated companies are required to administer their negotiations, as well as all communications, with strict adherence to the confidentiality principles set out in Regulation 95 of the Takeover Regulations.

Moreover, all documents and announcements to be published in relation to potential affected transactions must first be submitted to the Panel for approval. In doing so, parties should be cognisant that the present view of the Panel is that such an announcement will not be approved unless (i) it is in the form of an FIA and all pre-requisites for publishing an FIA are fulfilled; or (ii) it is a cautionary announcement in the context of a leak, or suspected leak, of price sensitive information in relation to a potential affected transaction