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Appeal against Tongaat Hulett mandatory offer exemption dismissed

But Takeover Special Committee says an investigation must be undertaken into one of the Artemis consortium’s complaints.
The finer details of the rights issue, including the price, have not yet been finalised. Image: Suren Naidoo, Moneyweb

The Takeover Special Committee (TSC) has dismissed a review of a decision by the Takeover Regulation Panel (TRP) granting an exemption to Tongaat Hulett from the obligation to make a mandatory offer to shareholders in the JSE-listed sugar producer and property company.

However, the TSC said an investigation should be undertaken by the TRP in relation to one of the Artemis consortium’s complaints.

The TSC, with one member of the six-member committee dissenting, said on Tuesday: “The complaints raised by the Artemis consortium are dismissed, and that the TSC confirms the TRP Ruling.”

Tongaat Hulett successfully applied to the TRP for an exemption from the obligation to make a mandatory offer to its shareholders after obtaining shareholder approval at a special general meeting of the resolutions required to implement an equity capital raise of between R2 billion and R4 billion by way of a rights offer.

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Magister Investments

The rights offer will be partially underwritten by up to R2 billion by Mauritian-based Magister Investments Limited, a privately-held group controlled by the Zimbabwe billionaire Rudland family.

Magister is led by Hamish Rudland, the brother of controversial tobacco tycoon Simon Rudland, who is a shareholder of Gold Leaf Tobacco.

It was claimed that Magister Investments would not underwrite the proposed rights offer without the mandatory offer exemption.

The finer details of the rights issue, including the price, have not yet been finalised.

Complaint in question

The complaint by the Artemis consortium that the TSC said must be investigated is the claim that the Tongaat Hulett shareholder waiver of the mandatory offer is a nullity having regard to the provisions of Regulation 86(5) of the Companies Regulations, 2011.

Regulation 86(5) provides that: “(5) Irrespective of whether an issue of securities is made conditional upon a waiver, a waiver by the independent holders of more than 50% of the general voting rights of all issued securities of the regulated company is a nullity if any acquisitions are made by an acquirer or a subscriber or underwriter, or by any of their respective concert parties, in the period between the transaction announcement and date of the waiver.”

The TSC said the applicants, both in their principal and supplementary submissions, in essence allege that a Mr Adamjee, who was said to be the director of Adamjee Group Enterprise, is an inter-related party with Magister and that Betelgeux is “probably” an inter-related party with Magister, through Adamjee.

The TSC heard the appeal on February 25 but the TSC said on March 11 – the date on which it was scheduled to deliver its ruling on the matter – that the applicants requested the TSC to reopen the proceedings to allow them to make additional supplementary submissions.

This, the TSC said, was on account of a written communication received by the attorneys for the applicants on that day concerning the sole shareholder of Betelgeux Investments (Pty) Ltd, Adamjee Group Enterprise (Pty) Ltd, the director of which was said to be “Mr Adamjee”.

The TSC said Tongaat Hulett has denied these contentions by the applicants and has argued that these allegations “are at best speculative and sheer conjecture”.

“In any event, the TSC concludes that these allegations are largely questions of fact with many of their aspects requiring evidence to be adduced.

“Needless to say, the TSC views the alleged transgressions in a very serious light.

“The TSC is of the firm view that these allegations must be investigated extensively and fully to get to the bottom of this issue.

“The TSC accordingly directs that the complaint contained in this issue be dealt with comprehensively by the TRP in the first instance,” it said.

Tongaat Hulett said on Tuesday it will engage with the TRP in relation to the investigation referred to in the TSC ruling.

Dissenting voice

TSC member Mr NA Matlala dissented from the majority decision of the committee.

Matlala said: “I have read the majority decision and do not agree with the decision arrived at that Regulation 86.4 of the Regulations has been complied with by the Respondents [Tongaat Hulett] resulting in the granting of an exemption from an obligation to make a mandatory offer.

“The granting of the exemption does not pass muster of regulation 86.4 read with section 125(1)(a) rendering it a tainted ordinary resolution subject to attack under a list of grounds in section 6 of PAJA [Promotion of Administrative Justice Act],” he said.

Matlala concluded that the requirement for a waiver to make a mandatory offer as set out in regulation 86(4) of the regulations has not been complied with.

“The majority decision has denied the applicants the benefits afforded them by section 123 of the Act and such denial in my view is unconstitutional as it is tantamount to expropriation of property without compensation while the concert parties obtained such benefit.

“The applicants can also challenge the decision in terms of the Constitution Act, 1996.

“I would therefore uphold the applicants’ appeal and that the cost of the TSC should be paid by the respondents [Tongaat Hulett],” he said.

Rights offer ‘dilutive’

It is anticipated that the proposed rights offer will be extremely dilutive to minority and existing shareholders who do not follow their rights.

At the special general meeting about 80% of Tongaat Hulett shareholders voted in favour of the resolution that allows the company to increase its authorised shares from 150 million, of which 135.1 million are currently in issue, to five billion by the creation of a further 4.85 billion new authorised shares.

However, Tongaat Hulett stressed in the rights offer circular that this should not be taken as an indication of the number of shares it will issue in the rights offer and the Magister transaction.

“The company will only issue such number of shares as is required to raise the rights offer amount,” it said.

The TRC in its ruling commented on the contention that minority shareholders are not being treated equitably because those shareholders who cannot afford to follow their rights will be “radically diluted”.

“Suffice to say that this is a prospect inherent in every rights offer and is a commercial consideration to be weighed by shareholders against the benefits of the rights offer in the particular circumstances of the issuing company.

“This is not territory into which the TRP and TSC are required to tread,” it said.

Shares in Tongaat Hulett rose 2.35% on Tuesday to close at R3.92.

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