'Companies Act Change May Hamper Brait's Bid' - Business Day
Business Day (Johannesburg) NEWS April 24, 2007
By Nicola Mawson Johannesburg
AN AMENDMENT to the Companies Act would make it more difficult for private equity corporations to buy out firms with a slim majority, market commentators have said.
While the new legislation has yet to come into effect, it would require a three-quarter majority to sell more than half a company's assets.
With Brait Private Equity's R14,2bn bid for Africa's largest food retailer, Shoprite, still hanging in the balance, this deal could be the first high-profile takeover to be tested under the new law.
Brait's proposed buyout is asset-based, as opposed to Bain Capital's buyout of Edgars Consolidated Stores which is at company level. This means that, until the new law comes into effect, Brait needs only 50% plus one vote to seal shareholder approval.
However, the amendment seals shut a loophole that had been a contentious issue among some shareholders.
A lawyer specialising in company law said the amendment, gazetted last week, was not yet in effect but, should it come into effect before shareholders had voted, a 75% yes vote would be required.
Sanlam Private Equity deputy CEO Cora Fernandez said private equity deals were likely to slowdown substantially. The amendment would make it more difficult for international private equity firms to target larger capitalised firms, which had diverse shareholder bases.
Craig Forbes, transactor in corporate finance at RMB, said the government was aligning the two buyout methods, which would make it more difficult to buy out companies, and this would go some way towards protecting minorities.
"It seems reasonable that you would need three-quarters (of shareholder agreement) to sell over half your assets."
Brait's takeover bid still faces several hurdles before shareholders go to the polls and institutional investors challenging the deal have already vowed to protect minorities.
Asset managers challenging the deal are: Coronation Fund Managers, Peregrine Capital, Stanlib and Polaris Capital. Core objections to the deal were that the offer price fundamentally undervalued Shoprite and that Shoprite chairman Christo Wiese should not be allowed to vote his stake in favour of the deal, as this was a conflict of interest.
Despite the possible change in law, Brait executive director Eduardo Garcia said he did not view the new law as a threat. He said the private equity firm had taken note of the impending change and viewed it as an enhancement to companies' statutes. Brait was still trying to move the Shoprite transaction forward and hoped to make an announcement soon, Garcia said.
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