The TRP’s latest ruling on concert party determination and CFD arrangements

Consequences of the TRP’s findings:

• The TRP’s determination that Numus was a concert party, combined with Numus’s acquisition of shares at R15.41 during the offer period, activated the price adjustment mechanism under Regulation 111(6) of the Companies Regulations, 2011 (Takeover Regulations).
• This increased the offer price from R13.00 to R15.41 per share.

The Ruling sets out the TRP’s approach to concert party relationships and beneficial interests in modern derivative structures.

Novus announced its intention to apply to the Takeover Special Committee to dispute the TRP’s findings and have the Ruling set aside.

Key findings of the Ruling

• The TRP found that Novus engaged Numus under a formal brokerage mandate in relation to Mustek, and that Novus opened CFD positions in respect of a significant number of underlying Mustek shares.
• The TRP determined that Numus acted in concert with Novus based on its findings of structural integration (shared premises), anticipatory positioning by the Numus hedge fund prior to documented instructions, systematic pricing aligning with Novus’s target price of R13.00, and verbal trading instructions from Novus’s strategic controller to Numus, accompanied by post-trade execution confirmations.
• The TRP reiterated that for concert party purposes, an agreement encompasses tacit understandings inferred from deliberate, sustained and mutually reinforcing patterns of conduct.
• The TRP further held that Novus had, through CFD positions, acquired beneficial interests in the underlying Mustek shares, despite the contractual cash-settlement character of the CFDs, based on control over the disposition of the shares and findings that the CFD arrangements constituted agreements under which Novus and its brokers co-operated for acquisition of securities. Consequently, the TRP held that Novus had also failed to comply with its obligation to disclose beneficial interests as required under section 122 of the Companies Act, No. 71 of 2008 (Companies Act).
• The TRP concluded that Numus’s proprietary trades during the offer period, combined with the concert party finding, triggered an adjustment to the offer price by virtue of the ‘highest price rule’ in Regulation 111(6) of the Takeover Regulations.
• While TRP rulings are not binding legal precedent, they may provide guidance on how the regulator will approach similar transaction structures.

The statutory framework

The TRP regulates affected transactions in terms of Chapter 5 of the Companies Act, read with Chapter 5 of the Takeover Regulations, including mandatory offers. Two provisions of the Takeover Regulations were central to the ruling:

section 117(1)(b), which defines “act in concert” 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 into or proposing an affected transaction or offer”; and

section 123(1) requires a mandatory offer where a person, acting alone or together with related or inter-related persons or persons acting in concert, acquires a beneficial interest in voting rights attaching to the securities of a regulated company resulting in the person or persons being able to exercise at least 35% of all voting rights attaching to securities of that regulated company, and where the person or persons did not have this ability before the acquisition.

The test for acting in concert

The TRP emphasised that section 117(1)(b) of the Companies Act establishes a four-element test for concertation:

• action pursuant to an agreement;
• between or among two or more persons;
• in terms of which any of them co-operate; and
• for the purpose of proposing an affected transaction.

The TRP rejected reliance on the ‘six-element test’, as referred to in the Remgro/Mediclinic/Al Noor ruling of the Takeover Special Committee, particularly the artificial separation of “for the purpose of” as a distinct fifth element from the “proposing an affected transaction” wording that follows it.

The TRP reiterated that “the requirement for an ‘agreement’ encompasses tacit understandings inferred from deliberate, sustained, and mutually reinforcing patterns of conduct”, and reasoned that requiring explicit written documentation would render the statutory scheme ineffective and enable sophisticated circumvention of shareholder protection requirements.

TRP’s basis for the concert party determination

The TRP based its determination that Numus acted in concert with Novus on the following findings:

Mustek-specific brokerage mandate and proximity: The TRP determined that Novus concluded a Mustek-specific brokerage mandate with Numus in August 2023, which the TRP regarded as being purpose-built for a strategy of Novus to acquire Mustek shares.

Structural integration through shared premises: The TRP found that Novus’s strategic controller routinely operated from the same premises as Numus, creating ongoing operational proximity.

Anticipatory accumulation using the mandated infrastructure: The TRP regarded Numus hedge fund’s accumulation of Mustek shares prior to any documented instruction from Novus, using the infrastructure established under the Mustek-specific mandate, as anticipatory positioning aligned with Novus’s strategy rather than independent trading.

Price alignment: According to the TRP, trading data evidenced a systematic shift in purchasing behaviour from variable market pricing to a “rigid price shelf” of R13.01 per share in the months preceding the offer, one cent above the eventual offer price of R13.00, which the TRP regarded as supporting an inference of a co-ordinated strategy rather than independent investment discretion.

Verbal trading instructions with only post-execution records: The TRP concluded that trading instructions from Novus’s strategic controller to Numus were given verbally, and that the only documentation consisted of post-execution deal recaps sent by Numus to Novus’s CFO and copied to Novus principals. The TRP viewed this as corroborating co-ordinated execution.

Lack of credible conflict management for parallel proprietary trading: The TRP noted that Numus traded Mustek shares through its hedge fund on a proprietary basis while simultaneously executing Novus’s Mustek accumulation strategy. Numus was unable to provide contemporaneous conflict management, information barriers, or compliance records addressing this dual role to the satisfaction of the TRP, which viewed this as undermining genuine segregation.

Contemporaneous documents evidencing intended concertation and stake accumulation: The TRP found that internal Novus planning documents and board materials described a strategy in which Novus and “management” would form a concert party relationship, envisaged reaching the 35% mandatory offer threshold, and anticipated the TRP and Competition Commission approval processes. The TRP regarded these documents as demonstrating an intention, from the outset, to pursue co-ordinated stake building within the takeover regime.

Highest-price rule

Following its concertation finding, the TRP applied the ‘highest-price rule’ under Regulation 111(6) of the Takeover Regulations, requiring that the offer price per share must match the highest price paid by an offeror or its concert parties during the offer period. This resulted in an upward adjustment in offer consideration from R13.00 to R15.41 per Mustek share.

Beneficial interest through derivative instruments

The TRP also held that Novus had failed to comply with its disclosure obligations under section 122 of the Companies Act, as Novus did not disclose what the TRP determined to be the “beneficial interests” (as defined in the Companies Act) it acquired in terms of its CFD positions.

CFDs are derivative instruments that allow a party to gain economic exposure to an underlying asset (e.g. a share or commodity) without purchasing the asset outright. The CFD holder and issuer agree on a notional quantity of the underlying asset and typically settle gains or losses in cash based on price movements. 

CFDs do not give holders formal ownership or voting rights. However, CFD issuers often hedge their contractual exposure to CFD holders by acquiring and holding the underlying security, and this was the case with Novus’s CFD positions.

Despite the ISDA documentation describing the CFDs as “cash-settled”, the TRP determined that Novus held a direct beneficial interest in the underlying Mustek shares “through relationship or otherwise”, on the basis that, according to the TRP, Novus displayed consistent control over the disposition of these shares. In this regard, the TRP regarded the evidence as showing that Novus:

• identified specific shareholders from whom blocks could be acquired and instructed their solicitation;
• directed the transfer of shares between its prime brokers when credit limits were reached; and
• acquired 100% of the hedge shares upon CFD termination through co-ordinated transactions.

The TRP further held that in terms of section 56(2)(c) of the Companies Act and Novus’s CFD positions, Novus had a deemed beneficial interest in the underlying Mustek shares through “co-operation for acquisition” between Novus and its prime broker, as evidenced by:

• active solicitation of specific sellers at Novus’s direction;
• co-ordinated transfers between prime brokers; and
• simultaneous exit transactions, where Novus acquired the exact underlying Mustek shares previously held by its prime broker.

The TRP emphasised that section 56(2)(c) “looks to conduct, not contract”, and that the conduct of active solicitation, directed transfers and co-ordinated exit satisfies the statutory test for a beneficial interest regardless of derivative documentation.

The TRP’s beneficial interest findings were based on its inference that Novus had designed the CFD structure from inception to facilitate physical settlement with Mustek shares rather than cash settlement, and had expected its brokers to hedge the CFD positions with physical shares. Not all CFDs are hedged with physical shares. For instance, CFD issuers may instead manage risk through matched book strategies, derivatives, capital reserves or netting across counterparties. The TRP’s conclusions cannot necessarily be extrapolated to CFD structures lacking evidence of intended physical settlement or demonstrated control over underlying share dispositions.

Conclusion

Novus announced its intention to apply to the Takeover Special Committee to have the Ruling set aside. In the interim, this analysis indicates that the TRP will evaluate derivative instruments for their regulatory impact on concert party relationships and mandatory offer obligations, focusing on economic and operational reality rather than formal legal characterisation. Deal teams should approach stake-building carefully and should stress test mandatory offer and/or beneficial interest related risks early, particularly where third parties or brokers may carry economic exposure.