Article by David Pinnock and Quintin Honey

The South African corporate world recently stood in trepidation of a momentous decision by the Supreme Court of Appeal ("SCA") which could have resulted in most, if not all, share for share offers made to shareholders of public companies concluded during the past few decades being declared unlawful.

The matter involved the hostile offers made by Harmony Gold Mining Company Limited (represented by Cliffe Dekker) to acquire all the shares in Gold Fields Limited by way of offering newly issued Harmony shares in exchange for Gold Fields shares. Harmony's audacious hostile bid has attracted enormous attention and debate, both because of the large market capitalisations of the companies involved, and as one of very few hostile offers to have been launched in the South African market. The fact that the matter had been brought before the SCA in the shortest ever time for such an appeal and the fact that the Harmony bid would have been still-born if the SCA ruled against it only added to the intense drama of the occasion.

Gold Fields argued that each of the Harmony offers constituted "an offer to the public for the subscription for shares" as envisaged in section 145 of the Companies Act, 1973 ("Act") and that, accordingly, Harmony's offers infringed section 145 as Harmony had not registered and issued a prospectus. A prospectus is usually only associated with the listing of a company or another such capital raising exercise.

The decision hinged on the interpretation of section of 145 and more particularly the words "subscription" and "public" in the context of share exchange transactions. The Court a quo (the Witwatersrand Local Division) ruled that Harmony's offers constituted neither a subscription nor an offer to the public in the context of section 145.


Harmony argued that the word "subscription" in the context of section 145 meant "taking or agreeing to take shares for cash", whilst Gold Fields argued that the word included subscribing for shares in consideration for other shares.

The SCA focused on the dictionary meaning of the verb "subscriber", and held that the manner in which it was phrased in section 145 indicated that payment in cash is not universally applicable. The finding was supported by alluding to other sections in the Act dealing with the issue and allotment of shares, from which the SCA drew the conclusion that the intention behind the section was that the word "subscription" should not bear a restricted meaning.

It was accordingly held by the SCA that a subscription for shares, as that word is used in the Act, is an undertaking to take up shares, not only for cash. Round one to Gold Fields.


As far as the interpretation of the word "public" was concerned, Gold Fields challenged the Court a quo's finding that Harmony's offers were not offers to the public (or a section of the public) as envisaged in the Act.

Gold Fields argued that because any member of the public is able to purchase one or more shares on a stock exchange and thereby take advantage of the offer, the offer is accordingly capable of being accepted by the public at large. The SCA rejected this argument on the basis that the Harmony offers are directed only at those persons who own Gold Fields shares (a virtue not shared by the public at large) and that until such time as a person becomes an owner of a Gold Fields share, the offer is not made or directed to that person.

The SCA, in a unanimous (5 judge) verdict, concluded that the Harmony offers are accordingly not made to the public or a section thereof, and therefore did not require the issuing of a prospectus.

The judgement was a knock-out blow to Gold Fields' challenge, and allowed the South African mergers and acquisitions industry, watching anxiously from ringside, to sleep a little easier.

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