Editor’s note: This is general educational material on how a rule works. It is not investment advice and it does not evaluate any company or transaction. It is based on the Kenyan regulations and the regulator’s own application checklists listed at the end.
Analysis: process at the threshold, price only at the end
Read together, the two protections sit at opposite ends of the transaction. At the quarter mark the regulations compel disclosure, timing and independent advice, but they do not prescribe what the offeror must pay. The offer may be conditional on a minimum level of acceptances, and the document need only state the percentage. The mandatory price standard appears only when the offeror is already at ninety percent and the remaining holders have no market left to sell into. A minority shareholder facing an offer at the threshold is therefore protected by information and by an adviser the board must appoint, not by a floor price.
The creep proviso is the second thing a careful reader would weigh. A holder sitting between twenty five and fifty percent may add up to five percent of the voting shares each year without triggering a fresh take-over procedure, up to a ceiling of fifty percent. Control can therefore be consolidated in steps, each individually below the trigger, over a period of years, with no offer document and no independent adviser’s circular at any point along the way. The regulations close that path only at fifty percent, where any further acquisition brings the procedure back into play.
Exemption is the third. The Authority may in writing exempt a person or an offer from the requirements of the take-over procedure where doing so serves the wider interests of shareholders and the public, and the grounds named include a strategic investment tied to management or technical support, a management buy-out involving a majority of employees, a restructuring of share capital, an acquisition of a listed company in financial distress, effective control arising out of the disposal of pledged securities, and the maintenance of domestic shareholding for strategic reasons. A reader tracking a change of control at a Nairobi issuer would check first whether an exemption was applied for, since the press notice must say so, and that single line decides whether the rest of the machinery ever runs.
What the documents say
Buying shares in a listed Kenyan company is ordinarily nobody’s business but the buyer’s. Past one point it becomes everybody’s. The Capital Markets (Take-overs and Mergers) Regulations, deemed to have come into operation on the 24th July, 2002, set that point at a quarter of the votes, and attach to it a sequence of notices, documents and deadlines that the buyer cannot avoid without the regulator’s written permission.
Where the line sits
The regulations define acquiring effective control as the acquisition of shares in the offeree which, together with shares already held by the offeror, by associated persons, by related companies or by persons acting in concert, carry the right to exercise or control the exercise of not less than twenty five percent of the votes attached to the ordinary shares of the offeree. Acting in concert is defined broadly: persons who, under a formal or informal agreement or understanding, actively co-operate through the acquisition of voting shares to obtain or consolidate control of a listed company.
No person may make an offer that would entitle them to exercise effective control without following the take-over procedure. The regulations then presume a firm intention to make a take-over in four further situations. They catch a holder of more than twenty five percent but less than fifty percent who acquires more than five percent of the voting shares in any one year; a holder of fifty percent or more who acquires any additional voting shares; an acquisition of a company that itself holds effective control; and the acquisition of a shareholding of twenty five percent or more in a subsidiary of a listed company where that subsidiary has contributed fifty percent or more of the listed company’s average annual turnover over the latest three financial years. In each case the acquirer must comply with the take-over procedure.
One proviso runs the other way. A company already in control of twenty five percent but less than fifty percent of the voting shares may acquire up to five percent in any one year, up to a maximum of fifty percent.
What the buyer has to do, and how fast
The clock starts at the boardroom door. A company or person intending to acquire effective control must, not later than twenty four hours from the board resolution to do so, or not later than twenty four hours before making the decision in the case of any other person, announce the proposed offer by press notice and serve a written notice of intention. That notice goes to the proposed offeree at its registered office, the securities exchange where the offeree’s voting shares are listed, the Capital Markets Authority, and the Commissioner of Monopolies and Prices where the offeror is in the same business as the offeree. The Authority’s own checklist adds the Competition Authority to the list of parties served. The press notice must appear in at least two English language dailies of national circulation, must follow rather than precede service on the offeree, and must state that the person intends to acquire or has acquired effective control.
From there the timetable is fixed. The offeror submits the take-over offer document to the Authority within fourteen days of serving the offeror’s statement. The Authority approves it within thirty days where it complies, or tells the offeror if that is not possible. The approved document must be served on the offeree within five days of approval, and the offeree circulates it to the shareholders to whom the offer relates within fourteen days of receipt, together with the independent adviser’s circular. The offer itself must be dated and, unless varied, must state that it remains open for acceptance for thirty days from the date of service. A variation, including an increase in the consideration, must be made at least five days before the offer period closes.
The disclosure load is heavy and specific. The offer document must identify the ultimate offeror, name directors and shareholders with notifiable interests, state the offeror’s intentions for the offeree’s business, for major structural changes and for continued employment of staff, and set out any long term commercial justification. Where the offer is for cash in whole or part, a financial adviser must confirm the offeror has the financial capability to carry it out in full, and the document must state that the advisers are satisfied the offer will not fail for want of financial capability and that every accepting shareholder will be paid in full. Dealings in the offeree’s voting shares by anyone whose holdings must be disclosed, in the six months before the offer period and up to the latest practicable date, must be listed with numbers, dates and prices.
What the target’s shareholders are given
The offeree board cannot simply react. On receipt of the offeror’s statement it must appoint an independent adviser, whose advice must be made known to the holders of the class of voting shares concerned through a circular. The regulations disqualify advisers with the wrong ties, including a person who was lead banker in a syndicated loan extended to either party in the preceding three years. The board’s own circular must state whether it recommends acceptance, disclose each director’s holdings in both companies and whether that director intends to accept, disclose any payment or benefit proposed to a director in connection with the scheme, any related agreement conditional on the outcome, any director’s interest in a contract entered into by the offeror, and any material change in the offeree’s financial position since the last balance sheet laid before the company.
The one explicit price protection sits at the far end. Where a take-over results in the offeror acquiring ninety percent of the offeree’s voting shares, the offeror must offer the remaining shareholders a consideration equal to the prevailing market price of the voting shares or the price offered to the other holders, whichever is higher, with the Companies Act applying alongside.
