COMPETITION TRIBUNAL
REPUBLIC OF SOUTH AFRICA
Case No.: 86/FN/Oct04
In the matter between:
Gold Fields Limited Applicant
and
Harmony Gold Mining Company Limited 1st Respondent
MMC Norilsk Nickel 2nd
Respondent
The Competition Commission 3rd
Respondent
______________________________________________________________
Reasons and Order
______________________________________________________________
Introduction
1. Harmony Gold Mining Company Limited (“Harmony”), the first
respondent, has launched a public takeover bid for a rival mining
house, Gold Fields Limited (“Gold Fields”), the applicant. The bid is
made in two stages. The first stage, styled the ‘early settlement offer’,
is not made subject to regulatory approval, while the second stage,
called the ‘subsequent offer’, is. Gold Fields seeks to interdict the early
settlement offer, as it alleges that it amounts to the unlawful
implementation of a merger.
2. The second respondent MMC Norilsk Nickel (“Norilsk”) features as a
respondent, and the subject of certain of the relief, as it is alleged, by
virtue of certain understandings that have been reached between the
two firms, to be a party to Harmony’s scheme to effect control in the
early settlement phase.
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3. No relief is sought against the third respondent the Competition
Commission (“the Commission”), which is cited as a respondent
because of its interest in the outcome of the matter. The Commission
did not oppose the application, but provided heads of argument and
oral submissions through counsel addressing the legal issues in
dispute.
4. The application raises a number of complex legal, questions, including
whether the Tribunal has any power to apprehend an unlawful merger,
and if it does, what those powers are, at whose instance they may be
invoked and when. In addition it raises legal questions about when
there has been an acquisition of control.
5. We have decided to deny the applicant relief for the reasons that
follow. As is apparent from our decision, because we have decided that
the early settlement offer does not effect a change in control, it is
unnecessary to resolve definitively certain of the legal questions
outlined above.
BACKGROUND
6. The events giving rise to this application commenced in March 2004
when Gold Fields was informed that Anglo American had sold its
20,03% shareholding in Gold Fields to Norimet Limited a wholly owned
subsidiary of Norilsk (for convenience in this application we will refer to
Norilsk as the relevant party). At the date of this application Norilsk still
holds this number of shares making it the single largest shareholder in
Gold Fields.
7. On the 11 August 2004 Gold Fields announced that is entered into an
agreement with a Canadian mining company, IAMGold.
8. In terms of the IAMGold arrangement, Gold Fields and IAMGold had
agreed on the pooling of Gold Fields assets located outside of SADC
with the assets of IAMGold. In consideration for the purchase of these
assets IAMGold will issue shares to Gold Fields, resulting in Gold
assets IAMGold will issue shares to Gold Fields, resulting in Gold
Fields owning about 70% of IAMGold. According to Gold Fields if the
transaction it proposes succeeds, IAMGold will be renamed Gold
Fields International and will be the 7 th largest gold mining company in
the world. It appears that Norilsk, Gold Fields largest shareholder, was
caught unawares by this announcement.
9. The Gold Fields’ board is now required to put the IAMGold
arrangement to its shareholders for approval by a simple majority. It
2
intends to do so at a shareholders meeting planned for 7 December
2004. Gold Fields argues that the purpose of this arrangement is to
create a company with better access to international capital markets. 1
However Norilsk holds that the proposal will result in a significant
diminution of value for shareholders as a whole. 2 Norilsk conveyed its
concerns about the IAMGold proposal to Gold Fields management, but
to no avail. It has accordingly announced that it will cast its votes
against the IAMGold transaction.
10. Then on the 16 th of October Harmony approached the Gold Fields’
board of directors with a proposal for a merger between Harmony and
Gold Fields, in terms of which Harmony proposed to acquire the entire
issued share capital of Gold Fields in exchange for the issue to Gold
Fields shareholders of new shares in Harmony. 3 Harmony also
informed Gold Fields that it had received an irrevocable undertaking
from Norilsk to accept the offer.
11. The Gold Fields’ board responded by saying that the proposal was
insufficiently detailed for its consideration and indicated that if a more
detailed one was forthcoming, it would be better placed to consider it. 4
12. Harmony did not revert to the Gold Fields board, but instead on 18
October made a public announcement of its bid for Gold Fields. A
circular was issued on the same date. 5 In addition because some
18.7% of Gold Fields shares are represented by what are termed
ADS’s (American Depository shares) a registration statement had to be
issued in terms of the United States Securities Act. 6
13. The Harmony offer is long and complicated, but only certain features
are pertinent to this application.
14. Although Harmony has clearly stated that it intends offering to
14. Although Harmony has clearly stated that it intends offering to
purchase all of Gold Fields securities it is doing so in terms of two
separate offers.
15. The first offer Harmony has called the early settlement offer. In terms of
this first stage Harmony offers to acquire up to 34,9% of the share
capital in Gold Fields. Harmony will not acquire any more shares than
this in the first stage and if more are tendered a prorating mechanism
will be used to scale back the shares accepted to this number.
1 See record page 25.
2 See record page 1120 .
3 Harmony is offering 1.275 of its shares for each Gold Fields share.
4 See record page 28.
5 See annexure NJH3, page 83 of the record.
6 See annexure NHJ11, page 462 of the record.
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16. The only conditions attached to this early settlement offer are that
certain resolutions are passed at a Harmony general meeting and are
registered.7
17. The early settlement offer was open for acceptance from 20 October
2004 and will close for acceptance on 26 November 2004. (Harmony
has apparently undertaken to Gold Fields, in return for extending filing
dates in this application, not to accept any shares tendered until that
date.)8
18. For present purposes, the most significant feature of the early
settlement offer is that Harmony has not made the offer subject to the
approval of the competition authorities. Gold Fields’ application rests
on this omission.
19. The early settlement offer is to be followed by stage two, described in
the Harmony circular as the ‘subsequent offer’. The subsequent offer
commences a day after the consideration is settled in respect of the
early settlement offer, which according to the circular is on, at the
earliest, the 29 th of November, but no later than the 3 rd of December. 9
20. The subsequent offer, which is open for acceptance until 4 February
2005, is subject to a number of conditions. Those relevant for our
purposes are:
• That Harmony receives valid acceptances for over 50% of Gold
Fields’ entire issued share capital;
• The proposed IAMGold transaction not being implemented for
whatever reason, including Gold Fields shareholders not
approving that transaction at the general meeting on the 7 th
December 2004;
• The merger being approved by the relevant regulatory
authorities including the Competition authorities.
21. Observe that in terms of the subsequent offer notification to the
competition authorities is mooted in contrast to the early settlement
offer.
7 At the time of writing these resolutions appear have been passed.
offer.
7 At the time of writing these resolutions appear have been passed.
8 This was an agreement reached at a prehearing conference held on 28 October 2004. Gold Fields
had initially wanted the application to be heard on the 4 th November. As a result of this agreement the
hearing was set down for the 12 th November.
9 See page 129 of the record.
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22. What is crucial to an appreciation of what is going on here, and why the
relief sought, which we set out below, is thus framed, is the relationship
of dates for acceptance and voting. In short what we are dealing with is
a battle by each side to hold a bridgehead at the general meeting on
the 7 th December and that bridgehead is composed not of mortar or
metal, but shares.
23. Harmony’ s early acceptance offer, albeit styled as an early offer to
shareholders to realise value, is no more than an attempt to vote down
the IAMGold transaction on 7 th December. Harmony has been
transparent about the fact that this is the way it intends to vote at the
meeting.
24. The early settlement offer is thus timed to ensure that Harmony has
these acceptances in its pockets at the relevant time. It is common
cause that if Harmony receives its full quota of acceptances that,
together with the Norilsk undertaking to vote its shares against the
IAMGold transaction, 54,93 % of the shares will be available to vote
down the IAMGold transaction.
25. The relief sought, which is aimed only at the early settlement
transaction, is designed to prevent both Harmony and Norilsk voting
against the IAMGold proposal on the 7 th. Acceptance of the IAMGold
transaction will defeat the entire Harmony bid.
26. Gold Fields seeks to invoke the Competition Act as its ally in the war. It
seeks to persuade us that the early settlement offer amounts to an
acquisition of control of Gold Fields, which control, it argues, will be
implemented at the general meeting on the 7 th in contravention of
section 13A of the Competition Act. We are asked to interdict this
implementation on the grounds that the change in control has not been
approved by the relevant competition authorities.
27. Section 13 A states that:
approved by the relevant competition authorities.
27. Section 13 A states that:
(1) A party to an intermediate or a large
merger must notify the Competition
Commission of that merger in the
prescribed manner and form.
(2) …..
(3) The parties to an intermediate or large
merger may not implement that merger
until it has been approved, with or without
conditions, by the Competition
5
Commission in terms of section 14(1)(b),
the Competition Tribunal in terms of
section 16(2) or the Competition Appeal
Court in terms of section 17.
LEGAL ISSUES
28. Gold Fields advances three theories as to why Harmony will acquire
control of it pursuant to the early settlement offer. Its main submission
is that the early settlement offer is not severable from the subsequent
offer and, hence, that one is dealing with a single offer to acquire
control.
29. In the alternative, Gold Fields contends that if the early settlement offer
is severable it should still amount to an acquisition of control because,
with 34,9% of the votes, Harmony is able to control the majority of the
votes at an annual general meeting and hence this amounts to control
by virtue of section 12(2)(b) of the Act or section 12(2)(g).
30. Thirdly, Gold Fields contends that the irrevocable undertaking it has
from Norilsk gives Harmony the ability to jointly control Gold Fields
together with Norilsk. Again this would amount to control in terms of
sections 12(2)(b) and 12(2)(c).
31. We quote the relevant sections of the Act relied upon here:
Section 12(1)(a)
For purposes of this Act, a merger occurs when one or more
firms directly or indirectly acquire or establish direct or indirect
control over the whole or part of the business of another firm.
Section 12(2)
A person controls a firm if that person
a) beneficially owns more than one half of the issued share
capital of the firm;
b) is entitled to vote a majority of the votes that may be cast at
a general meeting of the firm, or has the ability to control the
voting of a majority of those votes, either directly or through
a controlled entity of that person;
c) is able to appoint or to veto the appointment of a majority of
the directors of the firm;
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d) ……
e) ……
f) …….
g) Has the ability to materially influence the policy of the firm in
a manner comparable to a person who, in ordinary
commercial practice, can exercise an element of control
referred to in paragraphs (a) to (f).
32. In order to frustrate Harmony’s allegedly unlawful purpose Gold Fields
has approached us with an application for relief that in its totality is
intended to interdict this scheme from being implemented.
33. It is appropriate now to consider the relief sought by Gold Fields.
PART A
The applicant intends to make an application for an order in the following
terms:
1. The applicant is hereby granted leave to bring Part A of this
application as a matter of urgency, and any noncompliance by
the applicant with the forms, time periods and service provided
for in the Rules for the Conduct of proceedings in the
Competition Tribunal is hereby condoned.
2. Pending the final determination of the application set out in Part
C below, a temporary order in the following terms:
2.1 The first respondent (hereinafter referred to as the “first
respondent” or “Harmony”) shall be and is hereby interdicted
and restrained from implementing a proposed transaction
published by the first respondent on the Stock Exchange News
Service (“SENS”) on 18 October 2004 (the “announcement”),
including but not limited to the taking of any steps designed to
achieve the implementation of, inter alia, that portion of the
transaction set out therein described as the “early settlement
offer” (hereinafter referred to as the “early settlement offer” or
the “transaction”).
2.2. The first respondent shall be and is hereby interdicted and restrained
from accepting the tender to it of any Gold Field shares or otherwise taking
transfer of such shares in the share capital of the applicant as it may have
transfer of such shares in the share capital of the applicant as it may have
accepted pursuant to the early settlement offer or otherwise.
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2.3 The first respondent shall be and is hereby interdicted and
restrained from voting, or otherwise exercising any rights
attached to, any shares in the share capital of the applicant
which it may have acquired pursuant to the early settlement
offer or otherwise.
2.4 The second respondent (hereinafter referred to as the
“second respondent” or “Norilsk”) shall be and is hereby
interdicted and restrained from voting, or otherwise exercising
any rights attached to, any shares in the share capital of the
applicant which it may hold, insofar as such votes are exercised
in respect of or in connection with or such other rights pertain to
any aspect of the transaction proposed to be implemented
between the applicant and IAMGold Corporation Inc, a company
registered and incorporated in accordance with the laws of
Canada (“IAMGold”), the details of which were notified to
shareholders of the applicant on 11 August 2004 (the “IAMGold
transaction”).
3. The cost of this part A of the application be costs in part C, the
main application.
4. Granting the applicant such further and/or alternative relief as
this Honourable Tribunal deems fit.
PART B
The applicants intends to make application for an order in the following terms:
5. The applicant is hereby granted leave to bring Part B of this
application as a matter of urgency, and any noncompliance by
the applicant with the forms, time periods and service provided
for in the Rules for the Conduct of Proceedings in the
Competition Tribunal is hereby condoned.
6. That service of this Notice of Motion be effected on:
6.1 Each of the shareholders of the applicant as reflected in the
applicant’s register of members; and
6.2 Those persons named by the Central Securities Depositary
Participants (“CSDPs”) administering the subregisters of the
Participants (“CSDPs”) administering the subregisters of the
applicant being the beneficial holders of shares in the applicant,
as reflected in the records of the CSDPs, (collectively the
“applicant’s shareholders”) by publication of this order and the
8
Notice of Motion, within 7 (seven) days of the date of this order,
in each of the Business Day, the Government Gazette, the
Sunday Times, Rapport and Die Beeld.
7. That a copy of this Notice of Motion and the applicant’s founding
affidavit (together with the annexures thereto) shall be available,
during normal business hours, prior to the hearing of the above
Honourable Tribunal for the application in Part C hereof at the
offices of the applicant’s legal advisers, Edward Nathan and
Friedland (Pty) Ltd (at the address reflected in Part A of this
Notice of Motion). Further that, if requested, copies of such
documents may be obtained, free of charge, on request, from
the above named address.
8. That a subpoena, in terms of the draft subpoena attached to the
founding affidavit to this Notice of Motion be issued.
9. That the costs of this Part B be costs in the cause of the
application for the relief set out in Part C of this Notice of
Motion.
10. Granting the applicant further and/or alternative relief.
PART C
The applicant intends to make an application for an order in the
following terms:
11. The acceptance by and transfer of any shares in the share
capital of Gold Fields (whether pursuant to the early settlement
offer or otherwise) to and/or the exercise of any voting rights
attaching to such Gold Fields’ shares by Harmony prior to the
approval by the competition authorities of the acquisition of
100% of the issued share capital of Gold Fields constitutes
implementation of a notifiable merger prior to the approval
thereof by the Competition Authorities and, as such, is
prohibited by the terms of the Competition Act (No 89 of 1998),
as amended (“the Act”).
12. Alternatively, the early settlement offer (as described in the
12. Alternatively, the early settlement offer (as described in the
announcement (which is attached to the applicant’s founding
affidavit marked NH1)) constitutes a larger merger, which is
required to be notified to the Competition Commission in terms
of the Act.
13. The first respondent, alternatively the first and second
9
respondents jointly, are directed to notify the transaction to the
third respondent as a large merger, in accordance with the
requirements of the Act.
14. Pending the final approval, if any, of the acquisition by Harmony
of all of the shares in the share capital of Gold Fields or some of
the shares in Gold Fields pursuant to the early settlement offer
(with or without conditions) by the Competition Tribunal or the
Competition Appeal Court in terms of the Act:
14.1 The first respondent (hereinafter referred to as the “first
respondent” or “Harmony”) shall be and is hereby interdicted
and restrained from implementing a proposed transaction
published by the first respondent on the Stock Exchange News
Service (“SENS”) on 18 October 2004 (“the announcement”),
including but not limited to any steps designed to the
implementation of, inter alia, that portion of the transaction set
out therein described as “the early settlement offer” (hereinafter
referred to as “the early settlement offer” or the “transaction”).
14.2 The first respondent shall be and is hereby interdicted and
restrained from accepting the tender to it of any Gold Fields
shares or otherwise taking transfer of such shares in the share
capital of the applicants it may have accepted to the early
settlement offer or otherwise.
14.3 The first respondent shall be and is hereby interdicted and
restrained from voting, or otherwise exercising any rights
attached to, any shares in the share capital of the applicant
which it may have acquired pursuant to the early settlement
offer or otherwise.
14.4 The second respondent (hereinafter referred to as the
“second respondent” or “Norilsk”) shall be and is hereby
interdicted and restrained from voting, or otherwise exercising
interdicted and restrained from voting, or otherwise exercising
any rights attached to, any shares in the share capital of the
applicant which it may hold, insofar as such votes are exercised
in respect of or in connection with or such other rights pertain to
any aspect of the transaction proposed to be implemented
between the applicant and IAMGold Corporation Inc, a company
registered and incorporated in accordance with the laws of
Canada (“IAMGold”), the details of which were notified to
shareholders of the applicant on 11 August 2004 (the IAMGold
transaction”).
15. The cost of this application, including the costs of the application
10
set out in Parts A and B above, shall be paid jointly and
severally by the first respondent, and by such other respondents
as oppose this application, the one paying the others to be
absolved.
16. Granting the applicant such further and/or alternative relief as
this Honourable Tribunal deems fit.
34. The Notice of Motion is thus composed of prayers for interim relief, Part
A, prayers of a procedural nature ancillary to the interim relief, Part B,
and prayers for final relief, Part C.
35. When the matter was heard on 12 November, Mr Van der Nest who
appeared for Gold Fields, advised us that he conceded that the relief
sought against Norilsk, although in Part A, was final in nature. He also
advised us that Gold Fields no longer sought the issue of the
subpoenas in respect of Mr Swanepoel and Mr Rozhetskin. 10 As far as
the remaining relief in Part B was concerned, that is, that relating to the
substituted service on Gold Fields’ shareholders, he advised that if the
Tribunal did not consider their joinder necessary, this too could fall
away. Mr Van der Nest conceded that, if we were so inclined, we could
consider the application for final relief in Part C now.
IN LIMINE ISSUES
36. The relief sought by Gold Fields is, to put it mildly, ambitious. We say
this given the legal uncertainty pertaining to whether the Tribunal
possesses any form of interdictory power over mergers. It is common
cause that, in contrast with restrictive practices, no express power of
interdict is conferred on the Tribunal with regard to mergers. Hence in
order to assume such power it would have to be understood as an
implied power. Reliance for the existence of an implied power is placed
on the language of section 27(1)(d) of the Act, which states:
27(1) The Competition Tribunal may –
(d) make any ruling or order necessary or incidental to
27(1) The Competition Tribunal may –
(d) make any ruling or order necessary or incidental to
the performance of its functions in terms of this Act.
37. Both Harmony and Norilsk argued strenuously against interpreting
10 Mr Swanepoel is the Chief Executive officer of Harmony and Mr Rozethiskin is the deputy
chairman of Norilsk. It appears from the papers that the two had held meetings prior to the launch of
the Harmony bid.
11
such an implied power. The Commission argued that an implied power
existed but that its ambit is constrained by the language of ‘ necessary
and incidental to` which the legislature has inserted in that subsection.
38. Both the Commission and Gold Fields pointed to important policy
reasons why some power of interdict should be inferred – it would, they
argued, be necessary in order to prevent serious and possibly
irremediable abuse of the premerger notification system contained in
the Act. Given the apparent inability of the High Court to issue such an
interdict, this would mean that, absent such an implied power being
conferred on the Tribunal, there was a fatal lacuna in the Act. 11
39. We do not, however, have to decide this issue. We will rather assume
in this decision in the applicants favour, without deciding it, that we
have the power to issue some form of interdictory relief and that purely
for the purpose of this decision that we can follow the common law
standards for interdictory relief. This again was how the applicant
argued the matter and how their opponents argued their defence,
assuming we were not with them on the nature of our powers.
40. This leaves us with following issues to decide. Firstly, we must
determine whether the relief sought in Part A is of an interim or final
nature. Recall that the applicant has argued that at this stage we need
to decide only the relief in Part A, as it is of an interim nature, and that
the final relief Part C, can be decided at a later date, although it is by
no means clear when this would be. Thus, if the applicant is correct on
this point, we need not now trouble ourselves with Part C. Secondly,
the determination is relevant to the standard of proof we require. We
will call this part of the decision the decision as to the standard.
will call this part of the decision the decision as to the standard.
41. The legal propositions in this respect are not controversial and not
contested by the parties. Relief is regarded as interim if a subsequent
order, which may reverse the first order, can undo its consequences. If
not, the relief is final in effect.
42. If the relief is final in effect it is not sufficient for the applicant to make
out a prima facie case, it must establish its right on a balance of
probabilities.12
43. Once the nature of the standard has been determined, the second part
of the decision relates to whether it has on the merits been established.
We will refer to this as the decision on the merits. The relevance of this
is that the standard of proof required for the granting of an interim
11 Seagram Africa (Pty) Ltd v Stellenbosch Farmers’ Winery Group Ltd & Others 2001 (2) (SA 1129
(CC).
12 See Prest: “The Law and practice of Interdicts,” Juta 1996, page 60.
12
interdict is lower than that for a final interdict. It is thus possible that, on
a given set of facts, a court might grant interim relief but might
ultimately decline to make that order final.
44. We must also follow the approach that the courts take to resolving
factual disputes in applications generally. On this approach, the
applicant can only succeed on the basis of facts that are not contested
by the respondents or on facts that are advanced by the
respondents.13
THE STANDARD
45. The only relief sought of an interim nature is that contained in Part A.
Gold Fields, as we stated earlier, has conceded that the relief in part A
sought against Norilsk is of a final nature, as Norilsk would, if the relief
was granted, not be able to vote its shares against the IAMGold
resolution at the Gold Fields’ meeting on the 7 th December.
46. Harmony has argued that the relief sought against it in Part A is also
final in nature. Recall that this relief amounts to interdicting Harmony
from 1) implementing the early settlement offer, 2) accepting shares
pursuant to that offer and 3) voting shares acquired pursuant to the
offer.
47. We agree with this and find difficulty in understanding why any
distinction should be made in this regard between Harmony and
Norilsk. Given that the relief has been designed in such a way that
there is no certainty that Part C would ever be heard at some date prior
to the 7 th December, indeed it is probable that it would not, the relief in
respect of the early settlement offer is final. 14 Firstly, the offer remains
only open for acceptance until 26 November, and secondly, the offer is
all about getting enough shares to defeat the IAMGold resolution, one
of the conditions on which the Harmony offer is predicated. 15 A defeat
of the conditions on which the Harmony offer is predicated. 15 A defeat
on this resolution means the end of the Harmony bid. 16 This makes the
relief in Part A final as well in respect of Harmony, as it is not
something that can be reversed.
13 See Plascon Evans Paints Limited v Van Riebeck Paints (Pty) Ltd 1984 (3) SA 623 (A).
14 The Notice of Motion makes no provision for this in respect of Part C despite the tight deadlines for
the adjudication of Part A.
15 This, despite the claims of Harmony in its circular, that the purpose of the early settlement is to
allow all Gold Fields’ shareholders the benefit of enjoying the full premium inherent within the offers
within as short a time as possible. Hence, it says, the early settlement offer, in order to be offered to US
shareholders, needed to be part of an unconditional offer in order to comply with US law. See record
page 121.
16 Recall that one of the conditions for the subsequent bid is the defeat of this resolution.
13
1) We therefore conclude that the relief, despite its guise is
final in nature.
THE MERITS
48. Having found that the relief is final in nature the standard to be applied
to the interdict is that for a final interdict, a standard, as we observed
earlier, more exacting than for an interim interdict.
49. The requirements for a final interdict are well known, they are:
1) a clear right;
2) an injury actually committed or reasonably apprehended;
3) the absence of similar protection by any other ordinary
remedy.17
50. We will not need to go into all of the requirements here as we find that
the applicant fails to make the case for the first requirement, namely
the existence of a clear right.
51. There was some dispute as to what this clear right would be in the
case of interdicting a merger. Was there indeed a right not to have a
merger implemented in contravention of the Act, and, if so, to whom
does this right accrue, and exactly when.
52. Again we will eschew any determination of these points, and assume,
without deciding it to be correct, that the applicant, as the putative
target firm, has a right to interdict the implementation of a merger, prior
to it being approved in terms of the Act.
53. This right is only enforceable if the acts of implementation
apprehended are preceded by an acquisition of control. If not, then we
have no merger as defined in the Act and, hence, no unlawful
implementation.
54. As already indicated, Gold Fields has three theories as to why the early
settlement constitutes a merger.
1) Single transaction
55. Gold Fields argues that the early settlement offer and the subsequent
17 Setlogela v Setlogela 1914 AD 221 at 227
14
offer are part of a single transaction to acquire 100% of Gold Fields. It
argues that once Harmony has embarked on a strategy to acquire the
whole of Gold Fields it cannot parcel off parts of that grand scheme
and declare that they are discrete and separate. The argument is that
merger control is not about a series of discrete legal transactions, but
about a course of conduct to achieve control over a business.
56. Gold Fields also argues that the separation of the offers is
transparently contrived and artificial. It places much reliance on the
language of the offers in the circulars to shareholders, which in some
passages appear to conflate the two offers as part of a single scheme.
57. Gold Fields also relies on the fact that the surrender form for the early
settlement offer permits shareholders the election to surrender their
shares in respect of the subsequent offer at the same time.
58. The form states:
“If no election is made by marking the particular block above,
the certified shareholder will be deemed to have elected to
tender the Gold Fields shares which have not been settled
under the early settlement offer for acceptance under the
subsequent offer.” 18
59. Gold Fields contentions thus relate, in the first place, to the acquirers’
intentions and, secondly, to the mechanics of the offer.
60. We will accept for Gold Fields’ benefit that a single merger may be
composed of series of legal transactions and that for the purpose of
merger control we must elevate substance over form. 19
61. Whilst intention may have some evidential value in deciding whether a
transaction is a merger it is by no means decisive of the issue. A good
many buyers of shares may have ambitions to control a firm one day
and if all purchases were to be notified as mergers once they have
assumed this intent, any number of people would be jamming the
assumed this intent, any number of people would be jamming the
highways to Pretoria to notify mergers to the Commission. Intent in the
‘air’ does not suffice.
62. Whilst Gold Fields’ case is perhaps stronger on the mechanics of the
transaction inasmuch as the offer documentation purports to facilitate a
smooth passage from the early settlement offer to the final offer, we
nevertheless find that the chain between the transactions is broken for
18 See record page 160.
19 Crown Gold Recoveries (Pty) Ltd and Khumo Bathong Holdings (Pty) Ltd, Tribunal Case No:
31/LM/May02.
15
several reasons and that, accordingly, control is not effected at this, the
first stage. Even if Harmony receives all of its acceptances at the first
stage it does not follow that the second stage is inevitable. Whilst the
second offer is automatic, acceptance of it is not, and many things may
happen between now and then, including the possibility of movement in
both share prices which might lead to arbitrage selling by holders or
opportunistic squeezes for a better offer.
63. This, as Mr Unterhalter for Harmony points out, is the risk his client has
assumed. There is a distinct possibility that the second offer will not be
accepted in sufficient number and, if this does happen, Harmony will sit
with a large tranche of Gold Fields shares but no influence. Indeed, the
irony may be that it gains some shares, but not enough to defeat the
IAMGold resolution, and so sits with shares in the newly constituted
Gold Fields it has thus far so disparaged.
64. Even if we accept that the surrender form has a default weighted in
favour of acceptance of both offers, it still offers shareholders the
choice of an election and, as long as there is choice, there is
contingency, and, hence, no seamless slide of one offer into the other.
65. We find therefore that on a balance of probabilities it has not been
established that the two offers form part of a single offer to acquire
control.
2) Single control
66. That being the case, does the early settlement offer on its own amount
to a change in control? Here Gold Fields commences by arguing that if
Harmony achieves its design of 34,9 % of acceptances, it will, given
the company’s spread of shareholding, amount to an acquisition of
sufficient votes to control a general meeting.
67. It is common cause that one company may control another despite the
fact that it owns less than half of its voting shares. Typically, in widely
fact that it owns less than half of its voting shares. Typically, in widely
held public companies, shareholder dispersal or apathy is such that by
no means 100 % of the shareholders vote. But this is a question of fact
in each case. Although Gold Fields presented us with many cases from
as many jurisdictions where courts or tribunals had found control
existed at low thresholds they are not particularly instructive for our Act,
where there are no presumptive thresholds and where each case must
be judged on its own facts.
68. What are the facts here? We have been presented with the general
meeting voting attendances over the past six years. Gold Fields argues
that, over the past six years, judging by attendances at its general
16
meetings, a shareholder with 34,9% would be able to control a majority
at a general meeting. This is because over this period attendance at
meetings, although subject to fluctuation, was on average 63%.
Harmony, however, points out that this is an average over six years
and that for the last three years the average attendance goes up to
78,4%. At this percentage a holder of 34,9% would not command a
numerical majority. Harmony further argues that there is a European
practice that one should give greater weight to more recent general
meetings as they give a more accurate picture of shareholder
concentration and participation. 20
69. Harmony also relies on two separate statements by Gold Fields’ CEO,
Mr Cockerill, in which he appears to concede that 34,9% does not
amount to control. In one statement he is alleged to have made on 19
October in a conference call he said:
“You don’t have to get Competition Board approval to get a 34,9
per cent as stand alone” 21
70. Later in November he stated, concerning the early settlement offer, that
a 34,9% shareholder was:
“not big enough to exercise any influence, but its still large enough to
become a bit of a nuisance.” 22
71. This is not sufficiently sound evidence to found a case for the
achievement of sole control at a 34,9% holding. As Mr Unterhalter
points out, Gold Fields is in the best position to know when someone
can control it yet it has no better evidence for its proposition than
reliance on dated statistics of its general meetings.
72. We find that it has not been established that Harmony will, on its own,
control Gold Fields if it achieves even a 34,9 % shareholding.
3) Joint control
73. The final theory posited by Gold Fields is that there will be an
assumption of joint control as a result of the relationship between Gold
Fields and Norilsk.
assumption of joint control as a result of the relationship between Gold
Fields and Norilsk.
74. To understand this argument we must first relate some additional
factual issues, which we have omitted thus far.
20 The highest recent attendance of Gold Fields shareholders at a shareholder’s meeting was in 2002
when 91.56% attended. See page 48 of the record.
21 Record page 708 paragraph 114.
22 Record page 708 paragraph 115.
17
75. At some time after Gold Fields had made its IAMGold proposal public,
on 24 August 2004, Harmony and Norilsk were brought together at the
behest of merchant bankers.
76. Harmony states that it has, since last year, been considering a large
investment and it had requested merchant bankers to look for
opportunities. Norilsk, it appears, was known to be disaffected by the
IAMgold announcement and was licking its wounds. Merchant bankers
HSBC and Investec put the two parties in touch. Their first meeting
was on 6 September 2004, and they subsequently reached agreement
over Harmony’s bid. 23 This agreement has been confined to a
document in the form of an irrevocable undertaking. The material terms
of this undertaking, which are public and have been disclosed to
shareholders of Gold Fields, in the circulars are:
1) Norilsk undertakes not to dispose of or encumber its Gold Fields
shares;
2) Norilsk undertakes to vote its 20,03% against the IAMGold
resolution at the 7 th December meeting;
3) Norilsk undertakes not to accept the early settlement offer;
4) Norilsk undertakes not to accept Harmony’s subsequent offer.
(There is a proviso to this that if Norilsk receives an offer that is
15% better than the Harmony offer it will be entitled to accept it
after giving it a first right to make a better offer. There is also
what is termed a ‘material adverse change clause’, which will
allow Norilsk to resile if there is a material change in Harmony’s
business.)
77. Gold Fields argues that by aggregating Norilsk’s 20,03% and
Harmony’s 34,9%, the two will control 54,93 % of the shares at the
general meeting on the 7 th and thus be able to vote down the IAMGold
transaction. This majority would also give them the majority to control a
general meeting and to appoint the majority of the board of directors.
78. Gold Fields nevertheless argues that even Harmony’s acquisition of a
78. Gold Fields nevertheless argues that even Harmony’s acquisition of a
negative right to veto the IAMGold transaction is sufficient to constitute
control, as they will have the ability to determine the destiny of the
company by precluding it from one particular destiny.
79. Harmony and Norilsk vigorously dispute this construction. In the first
place they argue that the only agreement that exists between them is
23 Norilsk, both parties claim, was invited to the meeting by HSBC, its advisor, although it was not
told what subject of the meeting was and who would be meeting with its representative Mr Rozhetskin,
the deputy chairman of Norilsk (see record page 1121 and page 680).
18
the irrevocable undertaking. Beyond that there are no further
arrangements or understandings between the two firms. Although there
were meetings between executives of the firms, and the respective
merchant bankers had made presentations to them individually, the
terms of the undertaking outlined above remain the sole memorial of
their understanding and beyond this the parties have no preagreed
commonality of interest. Thus they argue that the agreement to vote
against the IAMGold resolution is no more than a moment in time
agreement and is insufficient to ground a relationship of joint control.
80. Shareholders frequently agree in advance on how they will vote on a
particular resolution. This, on its own, is insufficient to suggest that they
have acquired joint control – there must be something more lasting to
an understanding to infer control than a mere agreement on how to
vote on a particular resolution albeit one as farreaching for Gold Fields
future as the IAMGold one. Gold Fields alleges that the two
shareholders voting jointly could appoint the majority of the board. This
is correct as a matter of arithmetic but there is no evidence that they
will have any common interest in the composition of the board or that
they have reached some less formal understanding. We have no
evidence about the extent of the relationship except the version given
by Harmony and Norilsk.
81. Norilsk also makes the point, which is not contested, that its attitude to
the IAMGold deal had not been formed in conjunction with Harmony it
had intended to vote against it prior to the undertaking being entered
into and irrespective of whether there had been a rival Harmony bid.
82. At the hearing Gold Fields produced documents that were discovered
by Harmony during the course of our proceedings that relate to
by Harmony during the course of our proceedings that relate to
presentations given by the merchant bankers mentioned in Harmony’s
answering affidavit. 24 Mr Van der Nest read to us extracts from the
merchant bankers’ presentation in an effort to suggest a scenario in
which Norilsk and Harmony are ‘part of concert party arrangements’ in
respect of Gold Fields. 25 However we have no context for these
documents. Are these reflective of the wishes of the parties or the
ambitions of the merchant bankers concerned? 26 As Gold Fields did
not file any subsequent affidavits to suggest a context, and allow their
opponents an opportunity to answer, we must accept the respondents’
version on the papers, which is that there is no further agreement or
understanding beyond the undertaking.
83. But this does not dispose of the joint control possibility. The
24 See pages 679680.
25 See Transcript pages 5960.
26 This is what Mr Unterhalter for Harmony suggests, although it has to be said it’s a statement made
from the bar. The documents were only discovered after all the papers had been filed.
19
undertaking is not as we have seen confined to an agreement on how
to vote on the IAMGold resolution. Norilsk also agrees to sell its shares
to Harmony as part of the subsequent offer and not to accept the early
settlement. It is highly probable that without these latter undertakings it
would have been too risky or too expensive for Harmony to make its
bid.
84. Nevertheless this still does not suggest a sufficient commonality of
interest to suggest joint control. We know that Norilsk has negotiated
for itself the right to resile from the undertaking to purchase the shares
if a better offer is made or if there is a material adverse affect on the
Harmony share price. This right undermines any notion of joint control
as it suggests that Harmony would be vulnerable at any moment to its
alleged partner, which, as Gold Fields has already discovered, is no
mere cat’s paw, being bought off or shying away. 27
85. Control for purposes of the competition act is relevant to the controllers’
ability to affect the behaviour of the controlled firm in some firm. For
instance section 12(2)(g) refers to the fact that one has the ability to
materially influence the policy of the firm . This kind of evidence is
entirely lacking in the applicants’ papers – there is no allegation of the
existence of further agreements or even the fact that they will have a
common incentive to control jointly. Whilst Gold Fields is entitled to be
incredulous that the discussions between Harmony and Norilsk would
not have gone further than agreement on the undertaking, we must, in
the absence of any other evidence, accept the respondents’
unequivocal version on this aspect.
86. We find then that there is insufficient evidence that there is any
arrangement or understanding between Norilsk and Harmony beyond
the undertaking and that, on its own, the undertaking is insufficient to
the undertaking and that, on its own, the undertaking is insufficient to
establish the existence of a joint controlling relationship.
CONCLUSION
87. The applicant has in our view failed to make out a clear right for
interdictory relief assuming it was competent. The application
accordingly fails and there is no need for us to decide on any of the
other issues raised such as joinder.
88. It follows also that the subpoenas issued in respect of Mr Swanepoel
and Mr Rozhetskin are withdrawn.
27 Although the other offer must exceed a certain threshold, we have no evidence that this escape
clause is a sham and that it sets so high a threshold that noone is likely to make a counter offer that
exceeds it.
20
COSTS
89. The applicant is to pay the first and second respondents party and
party costs including the costs occasioned by the employment of
attorney and two counsel.
90. In respect of the interlocutory Rule 35(12) application, whose costs
were reserved, the first respondent is to pay the costs of this
application to the applicant, although, as the application was not
complicated, these costs are to include only the costs of the attorney
and one counsel. 28
________________ 18 November 2004
N. Manoim Date
Concurring: M. R. Madlanga
For Goldfields : Lee Mendelsohn of Edward Nathan and Friedland,
Council: Mike van der Nest and Alfred Cockrell
For Harmony: Jean Meyer of Cliffe Dekker Inc, Council: David Unterhalter
and J Wilson
For Norilsk: Morne van der Merwe of Werksmans Inc, Council : Arnold
Subel and Anthony Stein
For CC: Koekie Mdlulwa of Mdlulwa Nkuhlu, Council Dennis Fine
per D. Lewis
1. I have read the above with which I fully concur. However, I wish to
underline that this decision rests, in significant part, on the absence of
evidence sufficient to support, for the purposes of interdictory relief, the
applicant’s contention that the early settlement offer, on its own ,
amounts to either the assumption by Harmony of sole control of Gold
Fields or the assumption of joint control by Harmony and Norilsk. The
28 The reason for awarding the applicant the costs were that the documents were eventually produced
and then, in a large part at the hearing, confidentiality was waived.
21
panel has decided, inter alia, that this conclusion is unaffected by the
existence of the agreement between Harmony and Norilsk to vote their
shares against the IAMGold transaction proposed by the Gold Fields
board. Important though the IAMGold decision may be, the
Harmony/Norilsk agreement to vote it down is nothing more than two
shareholders exercising their right to participate in the governance of
the company in whose ownership they will, pending acceptances
pursuant to the early settlement offer, both participate. It would be
intolerable were the Competition Act to require a change of control to
be notified on every occasion that shareholders attempted to co
operate in efforts to impose their views on companies in which they
have invested – it would be a charter for shareholder subjugation by
management.
2. However, a different finding on joint control may well have been
justified had there been other agreements already concluded between
Harmony and Norilsk. There has, in fact, been much speculation in the
media regarding the existence of other agreements between Harmony
and Norilsk, largely regarding the fate of Gold Fields’ nonSouth African
assets and their possible combination with certain of Norilsk’s assets,
notably its small interests in gold mining. These allegations have been
repeated by Gold Fields in these hearings. However, the panel has
found that the evidence presented to the hearing in support of these
allegations is sparse and unpersuasive. Harmony and Norilsk, for their
part, strenuously deny these allegations and insist that the agreement
to cast their votes against the IAMGold decision is the only agreement
between the parties regarding the strategic direction of Gold Fields.
3. I have been content to accept Harmony and Norilsk’s undertakings in
this regard. Norilsk’s longstanding opposition to the IAMGold
this regard. Norilsk’s longstanding opposition to the IAMGold
transaction is a matter of public record – essentially I accept that
Harmony and Norilsk have formed an opportunistic alliance
underpinned by their desire, mutual albeit rooted in diverse objectives,
to torpedo the IAMGold transaction. However, my willingness to
accept Harmony and Norilsk’s undertakings in this regard is bolstered
by the knowledge – and, I have no doubt, Harmony and Norilsk are
accordingly advised by their legal advisers – of the serious
consequences that would flow should they have perjured themselves
before several regulatory bodies both in South Africa and the United
States. Apart from the criminal sanction that this would invite, in terms
of the Competition Act alone, they would also lay themselves open to a
swingeing administrative penalty as well as the very real prospect of
having to unwind a merger deceitfully implemented. The reputational
consequences for both Harmony and Norilsk, would, of course, be
incalculable.
22
4. Previous decisions of the Tribunal have demonstrated sensitivity to the
prospect of merging parties structuring transactions with the specific
intent of evading regulatory oversight and, in this way, undermining the
objectives and administration of the Act. This has underpinned –
appropriately in my view an expansive view of control, a perspective
endorsed by the Competition Appeal Court. I believe that this decision
has been approached from this perspective and am confident that it in
no way represents a relaxation of the Tribunal’s commitment to ensure
that the procedures of the Act are respected so as to enable effective
regulation of merger activity. However, I am also of the view that this
transaction has served to highlight a second danger and that is that the
management of target companies may well seek to use the provisions
of the Competition Act to chill hostile mergers, in effect to prevent their
own shareholders from exercising the rights that attach to their share in
the ownership of the company in question. Hostile mergers – red of
tooth and claw though they may be – are an important part of the very
competitive process that we are mandated to defend and to promote. I
am, accordingly, confident that this decision does not fall prey to
entreaties that may be designed to protect incumbent managers from
the wishes of their owners.
18 November 2004
Date
23