Picture: ISTOCK
Picture: ISTOCK

The Takeover Special Committee (TSC), which considers appeals of decisions by the Takeover Regulation Panel (TRP), has issued only four rulings in 2018.

Three of them have involved the hostile bid for control of Murray & Roberts (M&R) by German engineering group Aton.

This may explain the slightly weary note in the most recent of those rulings.

"This is the latest episode in the long-running dispute between Aton … and the board … of Murray & Roberts," declares the TSC, launching what turns out to be scathing criticism of the robust efforts of the M&R independent board to fend off the German bid.

The TSC was peeved by the "manner in which the independent board conducted itself".

It was particularly irritated by the fact that the independent board did not inform the TSC of its proposed Aveng transaction back in May, when an earlier TSC was considering separate complaints by M&R and Aton.

In May the first TSC ruled in support of M&R’s argument that Aton’s sale agreement with Allan Gray, which pushed it above the 35% threshold, obliged Aton to make a mandatory offer to all M&R shareholders at the same price, R17 a share.

This was a significant win for shareholders, who had initially received a voluntary offer of R15 a share.

For Aton, it ruled that the conduct of M&R’s independent board contravened the Companies Act, which requires that the board does not deprive shareholders of the opportunity to decide on the merits of an offer.

It prohibited M&R CEO Henry Laas from speaking about the deal on behalf of the M&R independent board.

In its third and latest ruling on the matter, the TSC reversed the TRP’s decision, announced in late June, to allow M&R to proceed with the proposed takeover of Aveng.

That deal might have been dead in the water anyway following Aton’s dramatic announcement in early July that it had acquired a 25.4% stake in Aveng. Just enough to ensure the transaction doesn’t get the necessary 75% shareholder support needed.

That purchase indicates Aton wasn’t taking any chances with the TSC appeal it had lodged on July 11 against the TRP’s ruling.

The latest TSC ruling has precedent-setting implications that go way beyond M&R and Aveng shareholders and may influence future hostile bids. It throws open the panel’s area of discretion as the TSC reckons it should consider a range of factors..

"In exercising its discretion, the panel must take a broader approach, which means that the interests of all stakeholders, not only the shareholders, must be given appropriate weight and proper consideration," says the TSC’s Chris Ewing in his ruling.

The panel must take into account the broad purpose of the Companies Act, which is intended to "promote the development of the SA economy and to promote innovation and investment in the SA market", says Ewing with what looks like a nod to the Competition Act’s "public interest" considerations.

The panel must also consider the integrity of the marketplace and "fairness to the holders of the relevant securities", he added.

On top of all that precedent-setting stuff, there are the specific circumstances of the proposed Aveng transaction that have to be considered, according to Ewing.

These include that the Aton offer is hostile and not supported by M&R’s independent board, that Aton was forced to upgrade its original offer to a mandatory one, that there is an overlap between shareholders in M&R and Aveng, and that the proposed Aveng deal will significantly increase what Aton has to pay for M&R.

So, though the TSC says there’s no reliable evidence demonstrating that the proposed Aveng deal was designed to frustrate the Aton offer, when all these factors are considered, it concludes that M&R should not be allowed to proceed with it.

Within hours of the release of the TSC ruling the Aveng share price had plunged to a record low and M&R was holding comfortably above the R17 offer price.

M&R might yet take the TSC ruling on review — it did not want to comment on the matter before making a decision — but at this stage it looks as though Aton is on track to beat the odds and win a hostile takeover battle.

Hostile takeover bids are remarkably rare in SA, successful ones even more so. Recall Nedbank’s audacious bid for Standard Bank in 1999, Harmony’s move on Gold Fields in 2005 and Chilean pharmaceutical company CFR’s move on Adcock Ingram in 2013. All failed.

One notable exception was Japanese group Kansai, which did manage to get control of Freeworld, the creator of the Plascon paint brand, despite extremely tough opposition from the Freeworld board.

Since the late 1990s, when the competition authorities were launched onto the SA corporate stage, the Competition Tribunal has been the favoured venue for boards trying to fend off a hostile attack.

The Aton versus M&R battle is the first time in 14 years that the contesting parties have resorted to the takeover authorities with such gusto.

The previous time was during Harmony’s inspired, but ultimately unsuccessful, bid for Gold Fields. Between November 2004 and February 2005 the Securities Regulation Panel issued six rulings relating to the hard-fought battle.

Terence Craig at Element Investment Managers says it has sold its M&R shares but some shareholders are holding on in expectation that Aton will increase the offer again towards the R20-plus price which the M&R directors say it’s worth.

"Without the Aton offer the share price would drop back, I don’t think investors should be waiting for a further increase," says Craig.