TRP censors Caxton

Caxton & CTP Publishers and Printers (Caxton) has made no secret about its intentions to increase its stake in the listed Mpact packaging group, from approximately 35% to eventually acquire control of Mpact, which the latter is unhappy about.

In the stand-off, Caxton aired facts and secrets about Mpact, which the latter is even more unhappy about – so much so that it asked the Takeover Regulation Panel (TRP) to order Caxton to keep quiet.

Read:
Mpact refutes Caxton allegations (Aug 2022)
TRP gags Caxton from speaking out about its proposed acquisition of Mpact (Sep 2022)
Mpact states its position (Oct 2022)

The ongoing stand-off, applications and counter-applications to different regulators led to the TRP publishing a new announcement in which it reaffirmed its earlier decision that Caxton has to submit any public statement about its wishes to increase its stake in Mpact for approval by the panel.

It confirmed its original ruling of September 2022 that Caxton is busy with the process of making a bid for Mpact, and must abide by the rules about disclosure and approval of documents.

Using different regulations than those applicable to formal, written documents that companies would issue for mergers and acquisitions, the TRP says any verbal comments on any platform must be vetted too.

This might set a dangerous precedent, effectively gagging business leaders from speaking about potential transactions.

As expected, Caxton said that it will ask for a review of this ruling too. “Caxton has noted the findings by the TSC [Takeover Special Committee] in regard to certain of Caxton’s so-called ‘pre-firm offer statements’ about Mpact,” says Caxton chair Paul Jenkins, who was specifically named in the original complaints.

“Caxton will institute review proceedings in due course, as it does not agree with the TRP’s interpretation of the regulations concerned, nor with its unconstitutional fetter on free commercial speech,” says Jenkins.

Caxton previously shared a lot of concerns about Mpact with investors, maintaining that the price-sensitive information could also affect Caxton’s share price as a result of its big shareholding in Mpact.

Ruling

In essence, the panel ruled that Caxton must abide by regulations governing mergers and takeovers. It came to the conclusion that Caxton’s talk about increasing its stake in Mpact can be seen as “pre-firm offer conduct”.

The TRP reiterated that it has jurisdiction over the matter, as Caxton can be seen to be preparing for an offer to Mpact shareholders, despite not announcing a formal offer as yet.

The TRP regulates ‘affected transactions’ or ‘offers’ as defined in the Companies Act (‘mergers and takeovers’). These transactions relate to the acquisition of more than 35% of the voting securities of a regulated company; disposal of major assets or undertakings; schemes of arrangements; amalgamations or mergers and acquisitions of 5%, 10%, 15% or any further multiple of 5% of the issued securities of a company; as well as compulsory acquisitions of shares from minority shareholders.

Its ruling in the ongoing dispute between Caxton and Mpact says that its decision also sets out the legislative framework governing pre-firm offer conduct by, among others, potential offerors.

“In addition, it provides a clear guide on what is permissible during the pre-firm offer period and how this interacts with the panel’s regulatory mandate regarding affected transactions and offers,” says the TRP.

“Caxton is prohibited from making any further public statements or announcements in any form and on any platform about the acquisition of Mpact without the approval of the panel.”

The panel stated in its ruling (running to 26 pages of legalese after it had to read though 323 pages of documents submitted by Mpact) that Caxton is correct in its arguments that the TRP needs to approve “documents” relating to an affected transaction. “Documents means documents,” it says.

“We do not deem it necessary to decide in this regard on the so-called ‘formal-documents restrictions’ which Caxton raised regarding the limits to the interpretation of regulation 117. This is because the impugned statements relate to conduct during the pre-firm offer period, where strict confidence must be observed between all parties who may have information regarding the affected transaction or offer concerned,” says the TRP, adding that it also disagrees with Caxton’s arguments that specific regulations only apply to so-called “live transactions”.

It says it is also clear that Caxton was “unequivocal” that it ultimately wants to acquire control of Mpact.

“In fact, [Caxton] had initially approached the board of Mpact as required by regulations and only resorted to communicating to the market after the negotiations with the Mpact board had collapsed, supposedly as a consequence of Mpact’s board having refused to cooperate with Caxton to file a joint merger notification with the Competition Authorities in South Africa.

“After the collapse of those negotiations, Caxton considered itself unburdened by the usual restrictions that apply to announced intentions to conclude affected transactions, as set out in the Takeover Provisions. The fact that Caxton chose to disregard all rules that would ordinarily apply to a proposed offer can never be a valid reason to avoid applying the same rules that had been disobeyed.

“If anything, the pre-firm offer rules confining approaches by potential offerors to the board are specifically designed to avoid such mischief.

“Where a potential offeror who has failed to demonstrate that it is ready, willing and able to implement the proposed offer nonetheless makes disclosures of price sensitive information to the market or subjects a regulated company to rumour or speculation without actually making an offer, such conduct would fall foul of the spirit and the text of the Takeover Provisions,” the TRP said in its ruling.

Other regulations

It said its looks like Caxton intentionally structured its takeover offer in a rudimentary manner, but it does not excuse it from the burden of the Takeover Provisions relating to the pre-firm offer conduct by a potential offeror.

The TRP also said that considering the number of statements that were issued verbally during various media interviews, it is not necessary in this case to dwell on whether there could legitimately be a basis to read such verbal statements into the ambit of regulation 117. It lists other regulations that cover these statements.

“Our view is that the panel’s powers to issue such restraint ought not to have been located in regulation 117, but rather on the panel’s regulatory powers pursuant to section 119(1)(a), read with sections 119(2)(a), 119(4)(b) and (c), 119(5)(a) and 171(2) as well as regulations 99(1), 95 and 100.

“In light of the conclusions above, we are of the view that the panel should reissue Caxton with a compliance notice, in terms of which it modifies the restraint on the non-compliant conduct of Caxton by locating its powers to do so on the Takeover Provisions set out above, instead of regulation 117,” according to the ruling.

The conclusion reads: “Caxton is prohibited from making any further public statements or announcements in any form and on any platform about the acquisition of Mpact without the approval of the Panel in accordance with, Parts B and C of Chapter 5 of the Companies Act, 2008 and the Takeover Regulations.”

Caxton was ordered to pay the costs of the panel’s executive committee in respect of the ruling.

Caxton

Caxton said over the weekend that it takes note of the admission by the TRP’s Takeover Special Committee that Caxton was incorrectly gagged under Regulation 117, but may now be gagged by the panel on the same terms under this different set of provisions.

“The TSC found that there exists an obligation as part of the pre-firm offer regime, derived from regulations 95, 99(1) and 100 of the Companies Act Regulations, to keep all information relating to a potential offer secret and that certain of Caxton’s statements regarding Mpact breached this obligation.

“Caxton will seek to review the findings on the grounds of procedural unfairness, owing to the fact that it was not required to answer a case on the new set of provisions,” says Jenkins.

Unlawful

Mpact CEO Bruce Strong welcomed the latest decision by the Takeover Special Committee.

“In the decision the TSC found that Caxton has acted unlawfully, contravening numerous Takeover Provisions that require strict confidentiality relating to pre-firm offer approaches.

“While Caxton’s stated intention is to acquire control of the company, no offer has been made by Caxton. The Mpact Board re-iterates its position that, should an offer be made by Caxton, the Mpact Board will diligently assess whether such offer is in the best of interests of … Mpact and all its shareholders and proceed accordingly.

“Mpact will always act in the best interests of Mpact and its shareholders – including invoking the protection of the applicable regulators wherever appropriate,” says Strong.

He says management remains focused on delivering its strategy which, as the company’s 2022 financial results demonstrated, is delivering strong returns for all shareholders.

Listen to Simon Brown’s interview with Mpact CEO Bruce Strong (or read the transcript here):

You can also listen to this podcast on iono.fm here.

Disclosure: Caxton’s majority shareholders are also majority shareholders in African Media Entertainment (AME), the owner of Moneyweb.