Stage 3 parties should implement the transaction this

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Stage 3: Parties should implement the transaction This stage entails that once approval has been received from shareholders – must implement the agreement all creditors must be informed (if feel they will be disadvantaged by the transaction they can apply for a court to review transaction – within 15 days of being informed) parties must file with the Competition Commission for a new entity transfer the assets and liabilities Shareholder disclosure and approval - If a shareholder acquires any multiple of 5% of the shares in the company – must disclose to the company, same thing stands if the shareholder sells any multiple of 5% of the shares - If they plan on buying more than 35% must make an offer to all of the remaining shareholders - If there are more than one class of ordinary shares – offer to ALL the shareholders in target company - If 50% of independent shareholders waive the benefit of mandatory offer – don’t have to offer the remaining shareholders - When the offer is made – has to be a standard offer, no preferential treatment for some shareholder 3 | P a g e
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The role of the target company’s board of directors - Very NB role during the business combination - Companies Act states – acquiring company should approach target board directly with an offer - Board must disclose the information to the shareholders as soon as possible - Receive independent advice and an external assessment of the offer & then advise their shareholders - Should not take actions (defense mechanisms) to frustrate the offer from an acquiring company. - A good example of frustrating actions is – Adcock Ingram and Tiger Brands May ’08 – Adcock Ingram unbundled from Tiger Brands March ’13 – Bidvest offered to by 60% of Adcock Ingram share at R63 per share Adcock Ingram made moves to frustrate the offer The offer turned hostile 4 | P a g e Calculations Example The RAINBOW Company (which has 2 million shares in issue) manufactures paint. They have been experiencing problems with the quality of chemicals supplied by their major supplier, CHEMTECH. RAINBOW’s board of directors are of the opinion that they could turnaround CHEMTECH, thereby improving the supply and quality of the required chemicals. As such, the board is considering a backward vertical acquisition. CHEMTECH currently has 5 million shares in issue (of which RAINBOW already owns 10%). RAINBOW plans to buy all CHEMTECH’s shares in the open market. 1.) RAINBOW has to inform CHEMTECH’s management once they have acquired a total shareholding of more than 250000 shares. 5% x 5 000 000 = 250 000 shares every time they purchase 250 000 shares 2.) RAINBOW has to make an offer to all the remaining shareholders of CHEMTECH once they have acquired a total shareholding of 1 750 000 shares. 35% x 5 000 000 = 1 750 000 shares 3.) Suppose that after 3 months, RAINBOW has acquired 35% of CHEMTECHS shares. What is the minimum number of votes (by CHEMTECH’s shareholders) to pass the special resolution?
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  • Fall '19
  • Competition Commission

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