Adcock’s refusal may save Bidvest from breaching law

Johannesburg - By opposing the immediate implementation of demands made by Bidvest and the Public Investment Corporation (PIC) earlier this week, the Adcock Ingram board might have helped to ensure that Bidvest did not contravene the Competition Act.

The Competition Act relies on a wider definition of “control” than that used by the JSE and the Takeover Regulation Panel, which sees control in terms of the percentage shares held.

Section 12 (2) of the Competition Act deals with the definition of control, which includes ownership of more than 50 percent of the equity of a firm, as well as the ability to appoint directors. In addition, however, is section 12(2)(g) which states that a person is deemed to control a firm if that person “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…”

In a contested takeover, the issue of who controls a company often becomes highly contentious. At Competition Tribunal hearings over the years, millions of rand of lawyers’ fees have been spent on determining precisely if or when the “bright lines” of control have been crossed.

In the battle for control of Johnnic’s gaming assets, the minutes of an annual general meeting were submitted as evidence that certain parties, without sufficient equity, did in fact control the company.

One leading competition lawyer said yesterday that the competition authorities would look beyond the 34.5 percent stake held by Bidvest for any evidence that Bidvest had an ongoing ability to influence policy at Adcock. In addition, the fact that Bidvest and the PIC were only looking to appoint four directors to a board that currently has nine directors would not necessarily be evidence that the “bright line” of control had not been passed.

“Is the appointment of directors a once-off issue or is it likely to be part of a process that would push Bidvest across the ‘bright line’ of control? That is what the competition authorities would try to determine, and in doing so would draw inferences from all the facts,” said the lawyer.

He acknowledged that the tone of the response issued by the Adcock board indicated that it acted independently from Bidvest. This independence indicated that Bidvest had not crossed the bright line of control.

On Tuesday, shortly before 4pm, the Adcock board received two letters, one from Bidvest and one from the PIC, demanding the resignation of the Adcock chairman and the appointment of four directors nominated by Bidvest and the PIC, to be implemented by 5pm on the same day.

While the chairman of the board did resign on Tuesday, the other board members made no effort to comply with the demands of Bidvest and the PIC.

Instead, in what has been described as a demonstration of independence, the board issued a stock exchange news service announcement on Wednesday outlining details of the demands and its proposed response.

The competition authorities and Bidvest confirmed yesterday that Bidvest had not filed papers with the competition authorities. Yesterday, the Adcock share price climbed 4.1 percent to R60.66. Analysts said that this was on the back of expectations of an offer from Bidvest or of an improved performance from Adcock under Bidvest’s guidance. - Business Report