1.2 Before we consider some rulings issued under the Code, it is important to understand the following concepts:

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1 RULINGS UNDER THE SECURITIES REGULATION CODE 1. Introduction 1.1 When a company is the subject of an "affected transaction", the Securities Regulation Code ("Code") requires the persons who have acquired "control" of that company to extend an offer to all other holders of the relevant securities of that company to acquire their securities. The Code is regulated by the Securities Regulation Panel ( SRP ). 1.2 Before we consider some rulings issued under the Code, it is important to understand the following concepts: "Control" is defined in section 440A of the Companies Act No. 61 of 1973 ("Companies Act") as "a holding or aggregate holding of shares or other securities in a company entitling the holder thereof to exercise, or cause to be exercised, the specified percentage or more of the voting rights at meetings of that company, irrespective of whether such holding or holdings confers de facto control (our underlining). The specified percentage is currently 35%; "Acting in concert" is defined in section 440A of the Companies Act as "acting in pursuance of an agreement, an arrangement or understanding (whether formal or informal) between two or more persons pursuant to which they or any of them co operate for the purposes of entering into or proposing an affected transaction (our underlining); Rule 13 of the Code, which is headed "Special Deals with Favourable Conditions", states that "except with the consent of the panel, an offeror or persons acting in concert with it shall not make any arrangements with holders of the relevant securities and shall not deal or enter into arrangements to deal in securities of the offeree company, or enter into arrangements which involve acceptance of an offer, either during an offer or when one is reasonably in contemplation, if there are favourable conditions attached which are not extended to all holders of the relevant securities (our underlining).

2 1.3 This article considers some decisions in which issues around "control", "acting in concert" and "favourable conditions" arose. 1.4 In reading this article, it should be noted that moves are (and have for some while been) afoot to introduce a new Code. Pending that, the decisions below remain relevant. 2. New Africa Investments Limited ("NAIL") 2.1 Facts NAIL, one of the first major post apartheid black economic empowerment vehicles, was led by a management team comprising Nthato Motlana, Jonty Sandler, Zwelake Sisulu and Dikgang Moseneke. Negative publicity around options on African Merchant Bank shares and the failure to obtain regulatory approval to acquire Kagiso Media ( Kagiso ) adversely affected its standing. This forced its board to question NAIL s future On 5 May 2003, NAIL invited interested parties to express an interest in making an offer for NAIL On 24 July 2003 NAIL announced that a consortium ( initial Tiso consortium ) comprising Multi Direct Investment 180 ("Tiso"), Safika Holdings ("Safika"), Investec Bank ("Investec") and Mineworkers Investment Company had notified NAIL of a firm intention to make an offer at R9 per NAIL share. Safika and Investec were both shareholders of NAIL at the time. On 17 September 2003 NAIL announced that the initial Tiso consortium had increased its offer to R On 22 September 2003 NAIL announced that a consortium ("Kagiso consortium") comprising Johnnic Communications ("Johncom"), Kagiso and Caxton together with CTP Publishers and Printers ("Caxton") had made an offer to acquire a majority of NAIL s assets in terms of section 228 of the Companies Act, coupled with a conditional offer to acquire all of the NAIL shares ("Kagiso offer").

3 2.1.5 The NAIL board announced its support for the Kagiso offer On 2 October 2003 the initial Tiso consortium announced that Capricorn (effectively, Hollard), had joined the initial Tiso consortium ("Tiso consortium"). On the same day, the Tiso consortium sent its offer circular to NAIL shareholders. The Tiso consortium made an offer ("Tiso offer") to all NAIL shareholders (other than Safika and Investec) at R Hollard and Safika each held 34.9% of the issued share capital of Phaphama Holdings ( Phaphama ). Phaphama in turn was a NAIL shareholder, but was not a party to the Tiso consortium and was not excluded from the Tiso offer Phaphama undertook not to accept the Tiso offer but granted Tiso an option to acquire all of its NAIL shares after the Tiso offer had closed. The option price ( Call Option Price ) would be the same as that under the Tiso offer, except for interest at core plus two percent from the date the option became operative. The option was said to be "no cost", but the circular disclosed the following under "Special Arrangements": the Tiso consortium and Phaphama would use their best endeavours to procure, inter alia, that NAIL grant Tiso and Safika certain calls on NAIL's interest in KFM, grant Tiso and Safika a right of first refusal in respect of Jacaranda and Radmark and grant Safika a mandate to sell the Sowetan newspaper at a corporate finance fee (commission) of R ; the Tiso consortium would pay a corporate finance success fee of R to Safika if the Tiso offer became unconditional; each of Primedia and the Tiso consortium would pay Safika R if Safika abandoned any prior entitlement to a potential 15% shareholding in KFM, and Primedia thereafter acquired KFM.

4 2.2 Application to the SRP The Kagiso consortium applied to the Executive Director of the SRP on 3 October 2003 for a ruling that: the Tiso consortium be obliged to increase the offer consideration to all NAIL shareholders, to include the special arrangements referred to above; and all of the members of the Tiso consortium as well as Phaphama be disqualified from voting on any resolution of NAIL convened to consider the proposals made by the Kagiso consortium to implement the Kagiso offer. 2.3 First ruling of the SRP Executive Director (14 October 2003) Kagiso's first contention was as follows: two major shareholders of Phaphama (ie, Safika and Hollard) were induced to support the Tiso offer; to secure the support of Phaphama, a NAIL shareholder; that inducement was a reward outside of the price offered to NAIL shareholders for their NAIL shares, and so had not been made to the other NAIL shareholders; The Executive Director held that although: those of the special arrangements which involved NAIL did not bind NAIL, the commercial reality was that the Tiso consortium and Phaphama controlled NAIL, with the likely consequence that NAIL would give effect to the arrangements; rule 13 ( Special Deals with Favourable Conditions ) did not entitle the SRP to compel the offeror (Tiso Consortium) to increase the offer to minorities (it simply prohibited the offeror

5 from attaching favourable conditions to arrangements with some of the shareholders which are not extended to all shareholders), general principle 11 of the Code afforded a wider discretion: "The underlying principle is that persons holding an equity interest in an offeree company through shares or other securities in that company (whether or not such carry voting rights) shall be entitled to dispose of their said interest on terms comparable to those of any affected transaction in the relevant securities." The Executive Director accordingly ruled that the NAIL minorities were entitled to receive the same compensation for their NAIL shares as the concert parties (NAIL shareholders in whose favour the inducements were given), which amounted to R10,50 per share plus the value of the greatest inducement, measured as a value per NAIL share. 2.4 Appeal to the SRP Executive Committee (17 December 2003) An appeal to the Executive Committee of the SRP against this determination failed. 2.5 Appeal to the SRP (18 February 2004) An appeal to the SRP succeeded. The SRP ruled that, even though the Tiso Consortium concluded an agreement in regard to the assets of NAIL (ie, the special arrangements), the arrangement did not breach rule 13 as it was not an arrangement which involved acceptance of the Tiso offer. The agreement between the parties to the Tiso Consortium (ie, the special arrangements) was not made to induce them to accept the Tiso offer as it was given to them in their capacity as offerors, not offerees Phaphama on the other hand, was an offeree, but there were no favourable conditions conferred on it: although Phaphama acted in concert with the Tiso Consortium,

6 this alone did not constitute a "benefit" to it; the only benefit which Phaphama derived, if considered to be a benefit at all, was simply to compensate it for lost time (ie, the interest portion of the Call Option Price). Although shareholders might not have achieved the extra two percent, this benefit was so small as to fall within the ambit of the maxim "de minimis non curat lex" (ie, the law does not concern itself with trifles) Although not stated in the ruling, it is implicit therein that the "benefits" which accrued to Safika and Hollard (shareholders of Phaphama) were not construed by the SRP as being (on a see through basis) "benefits" to Phaphama (which was an offeree). 2.6 Second ruling of the SRP Executive Director (14 October 2003) Rule 29(d) provides as follows: "Where the directors of a company will require the authority of a general meeting of shareholders of the company pursuant to the provisions of section 228 of the Companies Act in order to enter into an affected transaction, the panel shall have the right in its sole and absolute discretion, to direct any shareholder whose vote may as a result of any direct or indirect conflict of interest result in an inequity to any other shareholder, shall not vote or cause its votes to be exercised in the whole or part of the said general meeting or any adjournment thereof." The Executive Director ruled that to prevent Phaphama from voting on the resolution proposed to approve the disposal of NAIL s assets to the Kagiso consortium would effectively place Phaphama, as the major shareholder of NAIL, in the hands of minority shareholders. Further, as Phaphama was not a member of the Kagiso consortium, it was not in the position of a "related party" of NAIL as contemplated in the Listings Requirements of the JSE The mere fact that Phaphama was a concert party of a competing

7 bidder (Tiso consortium) was a fact of commercial life and did not result in an inequity to any other shareholder. The fact that Phaphama and the Tiso consortium could vote against the offer by the Kagiso consortium did not compel any other shareholders to accept the offer by the Tiso consortium. 3. Comparex Holdings Limited ("Comparex") 3.1 Facts On 5 June 2002, a consortium of asset managers (Allan Gray ("Allan Gray"), Orbis Investment Management, Investec Asset Management ("Investec"), RMB Asset Management ("RMB"), Coronation Asset Management and Sanlam Investment Management ("Sanlam")) (collectively the "asset managers") advised Comparex that they had agreed in principle to support a change in the Comparex board. On 13 June 2002 a letter was sent on behalf of Allan Gray, Investec and Sanlam notifying Comparex of their intention to reconstitute the Comparex board, if necessary, by calling a general meeting of Comparex shareholders On 19 June 2002, six non executive directors of Comparex issued a press statement that, in their opinion, Alan Gray, Investec and Sanlam, which owned more than 35% of the Comparex shares, were acting in concert and were obliged to make an offer to Comparex s minority shareholders. 3.2 SRP ruling (3 December 2003) The SRP divided the shareholdings of each asset manager based on various categories of client mandates: those held in terms of fully discretionary mandates where the asset manager enjoys full authority to determine how to exercise the voting rights;

8 those held where the client retains the right to vote the shares being managed, but where the asset manager can request the registered holder to grant a proxy for the asset manager to vote the shares; and all other cases The SRP stated that the definition of "control", required each of the following criteria to be satisfied: there must be a holder of securities; the securities held must carry at least 35% of total voting rights; and the holding of such securities must entitle the holder to exercise, or cause to be exercised, directly or indirectly, such voting rights The SRP then considered the meaning of the word "holder" (defined in section 440A of the Companies Act as "the direct or indirect holder of securities") Initially, a distinction was drawn between membership of a company (which vests in the registered holder) and ownership of the shares (which vests in the beneficial holder). The term "holder" did not necessarily refer to the registered holder and might well refer to the beneficial owner. The SRP did not regard it as necessary to determine the meaning in the context of the specific matter as the proper enquiry was whether the asset managers were vested with control ie, with the entitlement to exercise 35% or more of the voting rights in general meeting. This in turn depended to a large extent on the contents of the client mandates: only those shares which an asset manager had under management with a fully discretionary mandate could be taken into account in determining whether that asset manager has

9 acquired control; in a partially discretionary mandate, the client retains the right to exercise the voting rights the fact that from an administrative point of view the asset manager requests advice as to how the voting rights are to be exercised does not change the fact that the client controls the exercise Based, inter alia, on that analysis, the SRP concluded that there was no affected transaction. 4. MGX Holdings Limited ("MGX")/EC Hold Limited ("ECH") 4.1 Facts Up to 15 July 1999, MGX and The Mandy Rebecca Price Trust ("Mandy Trust") held in aggregate 33,78% of the issued share capital of ECH From 15 July 1999 to October 1999, MGX and the Mandy Trust acquired ECH shares increasing their combined shareholdings over 35%. 4.2 SRP rulings Rulings were issued by the SRP on 18 and 28 March 2002 (which followed rulings of the Executive Committee dated 5 July 2001 and 7 August 2001). 4.3 High Court ruling (23 June 2004) The SRP instituted action in the High Court for an order compelling MGX, the Mandy Trust and Ronnie Price ("Price"), a director of MGX, to make a mandatory offer to minority shareholders of ECH. The SRP alleged that MGX and the Mandy Trust, acting in concert, acquired (taking into account the shares already held by them) more than 35% of the issued share capital of ECH and that Price was a concert party to those acquisitions.

10 4.3.2 The SRP lodged its particulars of claim, but thereafter sought leave of the court to amend its particulars of claim The question which arose was whether the acquisitions in excess of the 35% threshold constituted an affected transaction by MGX, the Mandy Trust and Price acting in concert The court stated that the concert party element (acting in concert) required: the existence of an agreement, arrangement or undertaking ("agreement"); conduct amounting to an act; co operation between the parties to the agreement; that the co operation be pursuant to the agreement; and that the purpose of the co operation was the entering into or proposing of an affected transaction The court stated the following principles: the agreement may consist of an act falling short of a legally binding contract all that is required is an understanding which indicates that the parties were not acting independently, but together, ie, at least some meeting of the minds. This may be proven by the facts of the relationship between the parties and by the facts of the co operation by them; it is not necessary that the agreement be directed at pooling or combining the parties' holdings. The way in which the voting rights will actually be exercised in the future is not relevant to the question whether control has been acquired. The sole question is whether the voting rights of the parties (acting in concert) equal or exceed 35% (ie, ability to control, rather than exercise

11 of control). This focus on effect rather than purpose is questioned in the Harmony/Gold Fields matter referred to later on in this article; the act of co operation (required for a person to be regarded as a concert party) is not limited to the acquisition of securities. It might also be the: funding, planning, facilitating, initiating, managing or master minding of the acquisition. Accordingly, a person can act in concert even if he does not himself acquire or hold shares; or obtaining of the co operation of another to fund the acquisition; or de facto control by the one over the others. The factual relationship between the parties may be taken into account (in this case, the facts that Price had established the trust for the sole benefit of his daughter, that he was a trustee thereof and that the other trustees were friends and/or persons who rendered services to him); the purpose of the agreement is irrelevant to the question whether parties are acting in concert. It is the purpose of the co operation that matters (which purpose must be the proposing or entering into of an affected transaction (ie, a transaction which has the effect of vesting 35% or more of the voting securities in the parties)). The object of the agreement may be different from the purpose of the co operation, eg, to obtain board control. The co operation merely needs to be pursuant to an agreement The court dismissed the defendant's objections based on the facts alleged by the SRP and granted the SRP leave to amend its particulars of claim. 5. Gold Fields Limited ("Gold Fields")/Harmony Gold Mining Company Limited

12 ("Harmony") 5.1 Facts Gold Fields proposed a transaction with IAMGold, a Canadian company, which would split Gold Fields international and South African assets into two companies each with its own listing; Harmony made a hostile offer to acquire Gold Fields. What followed was a bruising battle fought primarily before regulatory authorities and in the press Harmony proposed: an early settlement offer to acquire up to 34,9% of the issued share capital of Gold Fields; and a subsequent offer to acquire the balance The early settlement offer was subject to the passing and registration by the Registrar of Companies of certain Harmony shareholders' resolutions and the declaration by the United States Securities Exchange Commission that the registration statement with respect to the Harmony consideration shares was effective. The subsequent offer was subject to those suspensive conditions and additionally to Harmony receiving valid acceptances from Gold Fields shareholders in excess of 50% of Gold Fields' issued share capital, to the proposed Gold Fields/IAMGold transaction not being implemented and to the transaction being approved by the competition authorities and other regulatory approvals Settlement under the early settlement offer would occur shortly after the early settlement offer closed on 26 November Norilsk Nickel ("Norilsk"), the holder of 20% of the Gold Fields' issued share capital, undertook in favour of Harmony not to dispose of or encumber any of its Gold Fields shares, that it would vote against the

13 proposed IAMGold transaction, that it would not accept the early settlement offer and that it would accept the subsequent offer. 5.2 Ruling of the Executive Director (18 October 2004) Harmony approached the Executive Director of the SRP on 15 October 2004 to approve the structure and proposed mechanics of the Harmony offer. The Executive Director confirmed that he was satisfied with the subsequent offer and the proposed mechanics (no mention was made of the early settlement offer). 5.3 Ruling of Executive Committee of the SRP (5 November 2004) Gold Fields requested the SRP to rule that: the early settlement offer and the subsequent offer were one composite transaction with the result that each should be extended on the same terms and conditions, particularly as to settlement (the early settlement offer was proposed to be implemented before the subsequent offer), and should be subject to the same suspensive conditions; Norilsk was a concert party of Harmony; the SRP had jurisdiction over the early settlement offer as it was effectively an offer for 35% or more (ie, 54,9%) of the shares in Gold Fields (ie, the maximum of 34,9% which could be acquired under the early settlement offer and the 20% in respect of which Norilsk had given its irrevocable undertaking) One vs two transactions Gold Fields argued that the SRP should consider the overall transaction as opposed to the manner in which it was structured. The definition of an "affected transaction" makes reference to "any transaction (including a transaction which forms part of a series of transactions or scheme, whatever form it may take)

14 which has or will have the effect of vesting control". Taken together, it was a transaction which, if implemented, would result in Harmony acquiring control (ie, 35% of the voting rights) of Gold Fields Harmony argued that the mere existence of a series of transactions did not mean that each transaction in the series was an "affected transaction". Only when the trigger point of assumption of control was reached did a transaction become an "affected transaction". It argued that the early settlement offer could not in and of itself offer control over 35% or more of the voting rights it was intended to acquire no more than 34,9% which would not give Harmony control. The SRP agreed with this submission. Even though the early settlement offer and the subsequent offer were connected, they were independent of each other. Each had its own terms and conditions Concert party issue Gold Fields argued that Norilsk's knowledge of Harmony's intended objective as well as its irrevocable undertakings made them concert parties that would hold 54,9% (ie, 35% or more) of the voting rights in Gold Fields shares pursuant to the implementation of the early settlement offer, and so acquire control. Harmony argued that Norilsk and itself were simply pursuing their independent interests. Norilsk argued that its interest in the transaction was purely one of protecting its own interests. It was not involved in the transaction for the purposes of assisting Harmony to acquire control. The fact that it may have facilitated Harmony acquiring control did not mean that they were co operating for the purposes of entering into an affected transaction The SRP agreed that Norilsk's co operation was not for the purpose of entering into or proposing an affected transaction. The fact that Norilsk knew of Harmony's intention to make an offer and that the transaction would be structured in the form of

15 an early settlement offer and subsequent offer and the fact that it gave the irrevocable undertakings and that it facilitated the acquisition of control did not automatically make it a concert party. Based on Norilsk's assertions about why it acted the way it did, the SRP decided that Norilsk did not co operate for the purposes of entering into an affected transaction. The SRP accordingly agreed that Norilsk was not a concert party with Harmony. 5.4 Ruling of Appeal Tribunal of SRP (28 November 2004) The Appeal Tribunal: agreed that Norilsk was not a concert party of Harmony and that the early settlement offer was not an offer for 54,9% of the issued share capital of Gold Fields; held that parties act in concert if they act together with the purpose of acquiring control and not merely if they enter a transaction which would have that effect (ie, confer control over 35% or more of the voting rights). The purpose must be to acquire control and not some other motivation such as that of protecting one s investment. This was the approach taken by the court in Bock and Others v Dubururo Investments (Proprietary) Limited 2004 (2) SA 242 (SCA) (by which the SRP regarded itself bound) but not by the court in the MGX matter referred to earlier in this article. Gold Fields had argued that the relationship between Norilsk and Harmony went beyond the irrevocable undertaking to an agreement on the post merger combined Harmony Gold Fields. The SRP considered the factual circumstances and internal communications which led to the Harmony offer and the terms of the irrevocable undertaking and came to the conclusion that discussions between Harmony and Norilsk were limited to Norilsk in its capacity as Gold Fields shareholder. At no time did they have a joint purpose of vesting control of Gold Fields in Harmony. This was reinforced by the terms of

16 the irrevocable undertaking which ceased to bind Norilsk if Harmony suffered a material adverse change or under certain circumstances if a competing offer was made these terms were consistent with the actions of a normal investor seeking to maximise its investment; held that the early settlement offer and the subsequent offer were merely two stages, or the mechanics, of one transaction, which transaction, on implementation, would vest control of Gold Fields in Harmony. The Appeal Tribunal did not however require that the early settlement offer be made subject to the same terms as the subsequent offer such that the early settlement offer and subsequent offer be implemented at the same time. The SRP did not have the power to determine the structure of offers. It was satisfied that the early settlement offer complied with the rules in the Code on disclosure and conduct during the offer period, that the consideration under both was the same and that the Harmony offer treated all Gold Fields shareholders fairly and equally This was of course a set back to Gold Fields as it facilitated the possible acquisition by Harmony of Gold Fields shares prior to the Gold Fields meeting to consider the IAMGold transaction. Ultimately, Gold Fields shareholders voted down the IAMGold transaction and Harmony subsequently failed to acquire control of Gold Fields.