The battle for truth: control and non-voting preference shares

Abstract

If a financial institution (A) advances funding to another company (B) in return for non-voting preference shares in company B at par value, does that constitute a merger for the purposes of s 12 of the Competition Act, 89 of 1998 (the Act), if those preference shares comprise more than 50 per cent of the issued shares (ordinary and preference) of company B? And what if company B’s articles of association provide that the holder of the preference shares may obtain a right to vote at shareholders’ meetings if any preference dividend is not paid timeously, or if the preference shares are not redeemed within the agreed time? Would a provision to that effect play any role in an assessment as to whether the initial transaction constituted a merger and/or requires a further merger notification upon the triggering of company A’s right to vote? These were the interesting questions which the Competition Tribunal (the Tribunal) had to address in Cape Empowerment Trust Ltd v Sanlam Life Insurance Ltd and another1 (CET v Sanlam). (The losing party, Cape Empowerment Trust Ltd (CET), took the matter on appeal, but the parties settled after the case had been argued in the Competition Appeal Court (CAC), but before judgment had been delivered). To contextualise the issues discussed in this paper, we begin by briefly outlining the facts of that case, the main submissions of the parties, and the findings of the Tribunal. We will then analyse the main issues arising for consideration in relation to the scenario sketched in the opening paragraph of this paper, again with reference to the parties’ submissions and the Tribunal’s determination in CET v Sanlam. By way of comparison, we will also refer to foreign law, particularly United States anti-trust law.