Trying to explain the JD acquisition

Yesterday you would have remembered that piece on Steinhoff, this is what I wrote:

...we only have twenty companies with a market capitalisation in excess of 100 billion Rand, Steinhoff the last on that list in twentieth place, with a market cap of 113 billion Rand. Likely to get bigger, right? More Steinhoff shares going to be issued for acquiring JD Group. Just last evening Steinhoff announced that it had received more acceptances for their offer to JD Group shareholders, and once the swap had been settled, they would own 83.9 percent of the furniture business. Guess who is the uncle now? Sorry, I am not an expert on company law, but read a guide from Bowman Gilfillan (so I must be an expert, right?) which suggests the following: "the compulsory acquisition of minority shareholdings when an offerer acquires 90% of the shares in the target." Watch closely.

It elicited a response from someone who would definitely know what he is talking about, let us call him Mr. B. Who said to me:

I do not know what exactly Bowman said. However, in terms of Section 124 of the Companies Act, if within 4 months after the offer date, the offer has been accepted by the holders of 90% of the securities, OTHER THAN ANY SECURITIES HELD BEFORE THE OFFER BY THE OFFEROR, then the offeror may, within a further 2 months, notify the holders of those remaining securities that the offeror wishes to acquire all the remaining securities. That is called (by the Act) a squeeze out.

I then replied to Mr. B:

So in Steinhoff's case, they had just over 50 percent. So another 45 percent of the outstanding shares of JD Group would have to agree to the scheme of arrangement, before making an offer to minorities? Is that right? That would be 90 percent of the shares that they did not own. Is that right?

And then Mr. B, not being a man who would leave it at this, then put us all right and in our place with his smarts:

I think both of us may have been misled by that Bowman note. I had a look at the last few SENS announcements.

Steinhoff seems to have had 56.8% of JDG before this exercise commenced. They were in control of JDG already.

They then voluntarily made a "Tender offer" (not a compulsory/mandatory offer) to minorities, to acquire up to 98% of JDG's issued shares, excluding treasury shares.

Their announcement on 19 March 2014 stated that: In terms of Regulation 88(1)(b) of the Companies Regulations, 2011, the Tender Offer is exempt from compliance with Part B and Part C of Chapter 5 of the Companies Act, No 71 of 2008, and Chapter 5 of the Companies Regulations, 2011. The reason for exemption is that it was a "partial offer" – ie not for all the remaining shares.

Note: compulsory acquisitions of minorities and squeeze out are dealt with in Chapter 5 of the Companies Act – which is NOT applicable here!

Yesterday they announced that they have received acceptances taking their shareholding to 83.9%. The offer closes today. It will be interesting to see what the final result is.

It seems as if there are minorities who are willing to stay on board for the ride – even if JDG should become an unlisted company.


Hope I have not missed something.

Thanks Mr. B! We are now all the better with regards to getting insight to his complicated world.