Legal insights into concert party relationships in South Africa

Aside from instances where concertation is presumed to be the case (as discussed below), the assessment of whether a concert party relationship exists requires a nuanced assessment of a number of potentially opaque factors.

Understanding the legal principles surrounding concert party relationships is essential, as a concert party determination can have significant implications for pursuing an affected transaction and ensuring compliance with the Takeover Laws.

What is acting in concert?

The term “act in concert” is defined under section 117(1)(b) of the Act as: “any action pursuant to an agreement between or among two or more persons, in terms of which any of them co-operate for the purpose of entering or proposing an affected transaction or offer.”

To establish that parties are acting in concert, the following must be present:

• An agreement or understanding between parties (not necessarily in writing, a mere meeting of the minds is sufficient). The oft-coined phrase “a nod and a wink” features regularly in this context.
• The purpose of the agreement or understanding must be to enter into an affected transaction.
• An act of co-operation such as the acquiring of securities, proposing or facilitating the acquisition or purchase, and/or planning, masterminding, initiating, advising, securing the cooperation of, or paying for, the acquisition of the securities.

An “affected transaction” (as per section 117(1)(c) of the Act), includes the following:

• Certain transactions that are regarded as fundamental transactions (e.g. disposals of all or the greater part of the assets of a regulated company or its group under section 112, a statutory amalgamation or merger under section 113 and schemes of arrangement under section 114 of the Act).
• Mandatory offers under section 123 of the Act.
• General/tender offers to shareholders under section 117(1)(c)(v).
• Squeeze-outs under section 124 of the Act.

The Takeover Laws presume that certain relationships involve concertation, unless proven otherwise, with these presumptions being:

• related or inter-related persons are presumed to act in concert unless there is satisfactory evidence that they have acted independently;
• a company is presumed to be acting in concert with its directors, any company controlled by one or more of its directors and any trust where the directors are trustees or beneficiaries; and
• a company’s pension, provident or share incentive scheme are presumed to be acting in concert with one another.

Section 118(5) of the Act also presumes a concert party relationship between a person who grants an option over voting securities and the grantee, unless the grantor retains voting rights.

Importantly, an undertaking to merely vote in favour of an affected transaction does not, in itself, establish a concert party relationship, provided that the undertaking does not extend to any elections regarding the form of consideration to be received, or decisions to retain shares or roll over into a post-transaction structure.

Implications of acting in concert

If parties are found to be acting in concert, several legal consequences arise:

Notification requirements

Concert parties must notify the Panel within five business days of forming or ceasing their concert party relationship, and will be required to announce the same to all shareholders.

Restrictions on voting

Where a fundamental transaction is proposed (such as a scheme of arrangement or disposal of the greater part of the assets of the company), any parties acting in concert with the acquiring party or any of the acquiring party’s related persons will be precluded from voting on the resolution to approve the transaction.

Obligation to make a mandatory offer

If concert parties, or any of them, acquire securities and the acquisition causes the concert party group to collectively hold more than 35% of the voting rights in a regulated company, the concert parties must make a mandatory offer to the remaining shareholders, as contemplated in section 123 of the Act.

This obligation arises if:

• the parties were not already collectively entitled to exercise at least 35% of voting rights; and
• one or more of them subsequently acquires securities, resulting in their combined voting rights meeting or exceeding the 35% threshold.

Merely coming into concert in circumstances where the concert parties, at the outset and in the absence of an acquisition of securities, collectively hold securities with more than 35% of the voting rights does not, of itself, trigger the mandatory offer requirement. 

Restrictions during an offer period

During the “offer period” and for a period of six months following the expiration of that period, persons acting in concert with the offeror are subject to restrictions on their ability to trade in the securities of the offeree company. They are also prohibited from making arrangements with the securities holders of the offeree company or making further offers to those securities holders, on more favourable terms.

Offer price consequences

Often the real sting in the tail brought about by a finding of concertation, is that if a concert party of an offeror happened to acquire securities in the regulated company during the six months prior to the offer period, the highest price paid in those six months fixes the minimum consideration for the ensuing offer.

The Panel’s approach to assessing whether a concert party relationship is present

Determining whether parties are acting in concert requires a nuanced, fact-specific analysis. This was illustrated in the matter involving Novus Holdings Limited (Novus) and the DK Trust, in relation to Novus’ mandatory offer for Mustek Limited (Mustek) shares. The Panel had to determine whether the DK Trust was acting in concert with Novus in the context of a mandatory offer made by Novus to Mustek shareholders, including the DK Trust.

A key issue was whether the “purpose” element of the definition of “acting in concert” was satisfied. The DK Trust had provided an irrevocable undertaking not to accept the mandatory offer or dispose of its Mustek shares until the offer’s completion. While in practice it is quite widely accepted that an irrevocable undertaking to accept an offer is not concertation, irrevocable undertakings to not accept (and thus remain in) can be a grey area.

The parties claimed that the DK Trust’s undertaking not to accept the mandatory offer was merely a matter of convenience aimed at reducing Novus’ financial obligations under the bank guarantee to be provided by Novus to the Panel for the purpose of satisfying the mandatory offer commitments.

The Panel disagreed and concluded that the irrevocable undertaking, and the resulting reduction in Novus’ financial exposure, was essential for Novus to proceed with the mandatory offer. Further, the Panel found that the DK Trust’s irrevocable undertaking combined with a separate share sale transaction concluded prior to the offer – in which the DK Trust, through its wholly owned subsidiary, agreed to sell its shares in Mustek to Novus – would indirectly confer significant financial benefits on the DK Trust. As such, the Panel found that the DK Trust’s undertaking was therefore not ancillary, but a “critical enabler” of the mandatory offer, which carried much weight in the Panel’s finding that the requirement of the element of “purpose” had been met; accordingly, the DK Trust was found to be acting in concert with Novus.

Of particular interest are the factors that the Panel considered when testing whether the elements of the definition of “acting in concert” had been met. These factors include (i) the parties’ level of involvement in the pre-offer deliberations; (ii) certain ancillary transactions and conduct of the parties prior to the transaction in question; (iii) the financial and strategic benefits that the parties stood to gain from such prior transactions and how this influenced their conduct prior to the implementation of the transaction in question; (iv) the overall consistency in the submissions made to the Panel; and (v) the general likelihood of the version of events presented to the Panel, given that the individuals making the submissions to the Panel were experienced businesspeople. The Panel’s ruling also alludes to what were, in its view, hints of a management buy-out. 

While the Panel’s rulings do not create binding legal precedent, they provide an important insight into the manner in which the Panel analyses the facts and circumstances of a particular case, namely that the Panel often looks beyond the formal arrangements to assess the true substance and intent of the parties’ conduct. The Panel’s ruling is likely not authority, though, for the proposition that the giving of a “remain-in” irrevocable, in and of itself, amounts to concertation – rather, all facts must be considered.

Novus subsequently challenged the ruling of the Panel in the High Court in April 2025 on an urgent basis. The High Court declared the Panel’s ruling unlawful and unconstitutional and accordingly set it aside. The reasons for the judgment have yet to be made public, and it will be of particular interest to see the basis on which the Panel’s decision was overturned.

Conclusion

Determining whether parties are acting in concert is rarely straightforward and requires both a firm grasp of the relevant legal principles and a practical understanding of the assessment measures applied by the Panel. The Novus ruling gives interesting insights into the sort of factors the Panel would look at in order to determine concertation.