WHAT CONSTITUTES A TAKEOVER
Takeovers & Mergers of listed companies are regulated by The Capital Markets (Takeovers and Mergers) Regulations, 2002 (“the Takeovers and Mergers Regulations”).
A Takeover Offer is defined under the Takeovers and Mergers Regulations as a general offer to acquire all voting shares in the offeree company (“Target Company”). A reference to a takeover offer includes a takeover scheme.
A takeover scheme involves making an offer for the acquisition by or on behalf of a person of:
- all voting shares in the Target Company;
- such shares in a company which results in the Offeror acquiring effective control in a Target Company (namely 25% of the voting rights except where such person already holds 90%) personally or by persons acting in concert or by related or associated parties);
- a shareholding of 25% or more in a subsidiary of a listed company that has contributed 50% or more to the average annual turnover in the latest three financial years of the listed company prior to the acquisition; or
- an acquisition deemed by the CMA (Capital Markets Authority) to constitute a takeover scheme.
Where a person proposes to acquire shares or voting rights of a listed company, which together with shares and voting rights (if any) held by such person (or by persons acting in concert or by an associate person or related company) entitle such person to exercise effective control in the listed company (as defined above), such an acquisition constitutes a takeover, requiring such person to comply with the takeover procedures provided for under Regulation 4 of the Takeovers and Mergers Regulations.
In determining whether an acquisition will result in “Effective Control” being exercised, consideration needs to be given to the following definitions:
“A related company” is defined as:
- a holding company of another company;
- a subsidiary of another company; or
- a subsidiary of the holding company of another company.
Persons “acting in concert” is defined as persons who, pursuant to a formal or informal agreement or understanding, actively co-operate through the acquisition, by any of them, of shares having voting rights in a public listed company to obtain or consolidate control of that company.
The legal provisions on takeovers and mergers in Kenya are found in three pieces of legislation:
- The Capital Markets Act (Cap 485A);
- The Capital Markets (Takeovers & Mergers) Regulations, 2002; and
- The Competition Act No. 12 0f 2012.
EFFECTING THE COMPLETION OF A TAKEOVER
The following steps need to be followed to effect a takeover:
- A company or person who intends or proposes to acquire effective control in a listed company must, not later than 24 hours from the resolution of its board to acquire effective control in the company or not later than 24 hours after making a decision to acquire effective control in the company in the case of any other person, announce the proposed offer by Press Notice and serve a Notice of Intention in writing of the takeover scheme.
- The Press Notice must contain certain information required by the Regulations and should be in a form approved by the CMA. It must be published in at least two English language dailies of national circulation.
- The Notice of Intention is also required to contain certain information and should be delivered to the proposed Target Company, the CMA, the NSE and the Competition Authority.
- Within 10 days from the date of service of the Notice of Intention, the Offeror shall serve an Offeree’s Statement on the Target Company setting out the information specified in the First Schedule to the Regulations. The statement must be approved by the CMA prior to it being served on the Target Company.
- Within 24 hours of receiving the Offeror’s Statement, the Target Company is required to inform the Nairobi Securities Exchange (NSE) and the Capital Markets Authority (CMA) and make an announcement of the proposed takeover by Press Notice in at least two English language daily newspapers of national circulation. The Press Notice should include all material information contained in the Offeror’s Statement and must be approved by the CMA.
- Upon receipt of the Offeror’s Statement, the Target Company is required to appoint an Independent Advisor (which must be an investment bank or stockbroker licensed by the CMA) to advise the shareholders of the Target Company on the merits of the Offer. The Independent advisor must prepare a circular and send it to the CMA and the Target Company prior to it being served on the shareholders of the Target Company to which the takeover offer relates;
- Within 14 days of serving the Offeror’s Statement, the Offeror is required to submit to the CMA for approval a Takeover Offer Document in relation to the takeover offer. The Takeover Offer Document should include all information prescribed in the Second Schedule and such other information as the CMA may require. The Regulations prescribe various statements that must be contained in a Takeover Offer Document, including a statement to the effect that the Offer Document has been approved by the CMA and complies with the provisions of the Takeovers and Mergers Regulations.
- The CMA should approve the Takeover Offer Document within 30 days (if in compliance with the requirements of the Regulations) or such other time as it may determine. Where the CMA determines that it is not possible to grant approval within 30 days, it is required to advise the Offeror of this fact.
- The Takeover Offer Document must be served by the Offeror on the Target Company within 5 days from the date of approval of the Takeover Offer Document by the CMA.
- Subject to the independent advice received from the Independent Advisor, the Board of Directors of the Target Company must within 14 days after the receipt of the Takeover Offer Document issue a circular the (“Board Circular”) to the shareholders of the Target Company to which the takeover offer relates, indicating whether or not the Board of Directors of the Target Company recommend the acceptance of the takeover offer made by the Offeror under the takeover scheme.
- Within 14 days from the date of receipt of the approved Takeover Offer Document, the Target Company is required to circulate the approved Takeover Offer Document as well as the Independent Advisor’s circular to its shareholders to whom the takeover offer relates.
- The period of a takeover offer – an Offeror is required to keep an offer open for acceptances for a period of 30 days from the date the Takeover Offer Document is first served or such other period as may be determined by the CMA. A Takeover Offer is deemed to close on the last day of the offer period.
- Within 10 days of the closure of the Takeover Offer, the Offeror is required to inform the CMA and the NSE of the closure of the offer and announce by way of press notice in at least 2 English language dailies of national circulation the total number of voting shares to which the takeover offer relates:
- for which acceptances of the Takeover Offer have been received after having been served with the Takeover Offer Document by the Offeror to the Target Company’s shareholders;
- held by the Offeror and all persons acting in concert with the Offeror at the time of serving the offer document to the Target Company’s shareholders;
- acquired or agreed to be acquired during the offer period; and
- the shareholding structure of the Target Company subsequent to the Takeover Offer.
The Offeror is required to undertake pro-rata acceptances in the event that the Offeror receives acceptances by the Target Company’s shareholders in excess of the total number of shares to which the takeover offer relates. Pro-rata acceptance refers to an allocation of acceptance by the Offeror in the proportion of the total number of shares accepted by each Offeree shareholder in relation to the percentage upon which the offer was conditional.
Effecting a Complete Takeover
Where a Takeover results in the Offeror acquiring 90% of the Target Company’s voting shares, the Offeror shall offer to acquire the remaining shareholders shares at a consideration that is equal to the prevailing market price of the voting shares or the price offered to the other shareholders, whichever is higher.
When the Offer is conditional upon acceptances in respect of a minimum percentage of shares being received, the Offer must specify a date, not being later than 30 days from date of service of the Takeover Offer, or such later date as the Authority may in a competitive situation or in special circumstances allow, as the latest date on which the Offeror can declare the offer to have become free from that condition.
The form, content or manner of making a declaration that the Offer is free from that condition has not been prescribed under the Regulations, but the CMA has, in the recent past, held that a declaration must be made both to it and to the relevant shareholders of the Target Company prior to the expiry date of the condition. Furthermore, the Authority has held that any waiver of a condition as to minimum acceptances, constitutes a variation of the conditions of the Offer, for which the consent of the CMA must be sought and obtained. It should be noted that the Capital Markets Tribunal has rejected the CMA’s position on this. However, the CMA has appealed to the High Court against the decision of the Tribunal. The appeal is yet to be heard and determined.
Accordingly, it would be advisable for an Offeror to take great caution and to consult the CMA when stipulating a minimum threshold in the Offer Document while at the same time reserving a right to unilaterally waive the same.
Regulation 13(1) of the Regulations provides that where a decision has been made by the recipients of the Offer to make a competing Takeover Offer, all provisions of the Regulations relating to the Takeover procedures to be followed shall apply except that the competing Takeover document shall be served at least 10 days prior to the closure of the offer period.