Evaluating the Significance of Mandatory Offers in Contemporary Corporate Finance
Author: Justice Mudzamiri
Affiliations: LLB (Fort Hare) LLM (University of Johannesburg) LLD (Fort Hare). Postdoctoral Research Fellow, Department of Commercial Law, University of Cape Town, South Africa
Source: Journal of Comparative Law in Africa, Volume 10 Issue 1, p. 58 – 82
If a regulated company reacquires its voting securities in terms of section 48 of the Companies Act 71 of 2008 (2008 Act) or if a person, together with related persons who held less than 35 per cent voting rights before the acquisition attain 35 per cent of voting rights after the acquisition, they must offer to purchase the remaining securities within a prescribed period. Transactions that force the acquirer to offer the remaining securities holders acquisition of their securities as contemplated above are referred to as mandatory offers. Academics debate whether to retain or dispense with mandatory offers in corporate finance law. They question the rationales for mandatory offers. For instance, some academics argue that mandatory offers inhibit investment. The rationale of using mandatory offers to pursue equal treatment of securities holders is also challenged for being incompatible with generally accepted company law principles. It is within this context that this article seeks to reinforce the pertinence of mandatory offers in the South African takeover regulation regime. Mandatory offers are of practical relevance and important to achieve equal and fair treatment of the securities holders of a similar class in line with the overarching objectives of the 2008 Act read together with the Takeover Regulations, 2011 (2011 Regulations). Mandatory offers also protect minority shareholders from being forced to retain their investments in a company that has significantly shifted its securities holding control. This article suggests some amendments to the existing provisions of the 2008 Act to reinforce the functional purposes of mandatory offers.