Sovereign and Country Bird

The judgment

The court's own file

COMPETITIONTRIBUNALOFSOUTHAFRICA Inthematterbetween: CaseNo:PM249Mari6 SOVEREIGN FOOD INVESTMENTS LTD And COUNTRYBIRDHOLDINGS(PTY)LTD.'SYNAPPINTERNATIONALLTD KEVINWILLIAMJAMES:KEVINWILLIAMJAMESNOCLIVEDENNISKERNNOCLINTONCHARLESHOLINGNO COLINRODNEYJAMESLYALLCLIFFORDMcNEILL MARIELLECOLETTEREGINELECLUSE FRITZGROBBELAAR THECOMPETITIONCOMMISSION ApplicantFirstRespondentSecondRespondentThirdRespondentFourthRespondentFifthRespondentSixthRespondent Seventh Respondent EighthRespondentNinthRespondentTenthRespondentEleventhRespondent Panel :FionaTregenna(TribunalMember):MediMokuena(TribunalMember) Heardon OrderissuedonReasonsIssuedon :22March2016:24March2016:07June2016 :NormanManoim(PresidingMember) ReasonsforDecision Introduction 1) Inthiscasetheapplicantseeksadeclaratoryorderandaninterdictagainstthefirsttotenthrespondents(referredtointhepapersinthesingularasthe “Country Bird group") to prevent them voting their shares at a forthcoming generalmeetingofthecompany.'Theapplicantapprehendsthattherespondentswilleitherthemselvesorabettedbyunknownothers,attemptto take control of the company by vetoing certain speci proposedatthegeneralmeeting.On24March2016wegaveourorder dismissingtheappli ‘TMdissenting).Thereasonsforthedismissaloftheapplicationbythemajority ofthepanelandthereasonsforthedissentfollow. resolutionstobe jon (as per Manoim PM and Tregenna TM with Mokuena Majoritydecision (2)8) abidebythedeci The relief sought by the applicant is rather lengthy but can be summarised as follows: 2.1. The applicant seeks a declaratory order that if it votes at least 25% of the sharesrepresentedatashareholdersmeetingtobeheldon29March2016,soastoenableittodefeatthespecialresolutionstobeproposed and passed there, it will acquire control of Sovereign for the purposes of section12(2a)readwithsections12(2)(b),alternatively12(2)(g)ofthe CompetitionAct,Act89of1998(theAct). 2.2.Second,adeclaratoryorderthatitbeobligedtonotifythemergerintermsofsection13A(1)andnotimplementit,asrequiredbysection13(A)3of theAct? The declaratory prayers are followed by two more prayers that follow the assumptionthattheCountryBirdgroupacquiresthesharescontemplatedinthe as the eleventh respondent the Commission has not filed any papers and has indicated it would ionoftheTribunal.?NoticeofMotion,prayer2.1. *Supra,prayer declaratoryprayers:Thefirstistodirectittonotifythemerger,andthesecond interdict it from implementing the merger inter alia by voting any shares it has SovereignuntilthechangeofcontrolhasbeenapprovedbytheCompetition authorities.” [4]ThepracticaleffectofthisreliefistopreventtheCountryBirdgroupfromvotingagainsttheresolutionsattheapplicant'sgeneralmeetingofthe29March2016, either by voting these shares if they have them or to discourage them from acquiringthem,iftheyintenddoingso. 5) is common cause that: 5.1.Iftheexerciseofvotingtheshares,ascontemplatedintheNoticeof fituted a merger, then in terms of the turnover and asset size wolved,theacquisitionbytheCountryBirdgroupwould constituteanotifiablemerger; 5.2. A notifiable merger may not be implemented without the approval of the CompetitionAuthorities;and 5.3. The Country Bird group has not been given such approval. [6]Theremainingissuesareindispute. (71Specificallytheapplicationraisesthreethresholdissues;dotherespondents presently have the means to effect the veto; alternatively even if they don't at thetimeofhearing,isthereareasonableapprehensionthattheymightatthe time of the general meeting; and thirdly, if this apprehension is found to be reasonable, does the exercise of the vetoing of the resolution constitute a form

[8]wouldconstituteaformofcontrol. +Supra,prayers3.1and3.2. History (9) [10](4)(13) CountryBird'sinitialacq (14] Accordingtotheapplicant,thefirsttotenthrespondents,althoughseparatelegalpersons,areallinterconnectedandhavethesameunityofpurposeinsofarastheapplicant'sbusinessisconcemed.Forthisreasontheapplicanthas referred to them as the “Country Bird group’, although technically no such entity ice these respondents do not deny that an interconnection exists amongstthem,wewillsimplifyissuesbyusingthesameterminologyasthe exits. applicantsdotorefertothefirsttothetenthrespondents.Asafindingoffactwewillassume,becauseithasnotbeenseriouslydisputed,thatthefirsttotenthrespondentscanbeconsideredtobeasinglegroupingforthepurposeofthis decision. Theapplicant'scasereliesonahistoryofinter-actionsbetweenitandsomemembersoftheCountryBirdgroup,whichitallegesitwillshowthelatter’s intenttocontroli Itisnecessaryforustoconsiderthishistorybriefly. SovereignallegedthattheCountryBirdgrouphadpreviouslymeddledinkeycorporateandstrategicaffairsofSovereign.Insupportofthisaccusation Sovereign relied on two episodes of share purchases made by the Country Bird grouporsomeofitsconstituents,firstin2009andthenlaterin2015.Whilstthe CountryBirdgrouphasnotde conclusionsthatSovereignseekstodraw. id the purchases, it does dispute some of the Wenowgoontoconsidertheseacquisitions. ionanddisposalofsharesinSovereign In mid-2009, when it was facing financial difficulties, Sovereign announced that itwasinnegotiationswithapossiblesuitorwhocouldalleviatethecashflowproblemsitwasencountering.Theenvisagedtransactioninvolvedaproposed “reverse” listing of Afgri Operations Limited's (“Afgri") food division into Sovereign.ThistransactionconstitutedanimportantstrategictransactionforSovereignandrequiredaspecialresolutionofSovereignmemberstobringit

[15]about.DuringthistimeCountryBirdacquireda22.76%interestinSovereign which resulted in Country Bird being the second largest Sovereign shareholder enabling it de facto to defeat the special resolution. It was common cause that CountryBirdwasagainsttheimplementationoftheAfgritransaction,which Sovereignsubsequentlyabandoned. ToaddressSovereign'spredicament,theboardproposedaR100millionrights issue, which once again required a special resolution of Sovereign shareholders.SovereignallegesthattheCountryBirdgroupsoughttostymieiitcoulddobyvirtueofitsstakeinSovereign.Sovereign it could only proceed with a “claw-back” offer, because that did not requireaspecialresolution.Butthedrawbackwasthisrestricteditsabilityto raise capital. Country Bird elected not to follow its rights and subsequently disposedofitssharesinearly2010. CountryBirdgroup'ssubsequentacquisitionofsharesinSovereign [6]a7)[18] FromJuly2015onwards,inaseriesoftransactions,theCountryBirdgroup acquired further shares in Sovereign, so that by October of that year it held 1,263,563shares.ItisunclearwhatsparkedthisinitialinvestmentinSovereign shares.® In that same month, Sovereign announced an intention to implement certainstrategictransactionsforwhichitrequiredthepassingofcertainspecial resolutions.Thematerialaspectsoftheseresolutionswere:a.therepurchaseof10%ofitssharesatapriceofR8.50;and b. The creation of a trust that would take up these shares that inter alia consistedofamanagementgroupingandaBEEEgroup(“theproposed transactions") Shareholderswerenotifiedthattheseresolutionsweretobeproposedfor adoption at a general meeting on 14 January 2016 (‘the first meeting’). On 31 December 2015, being the last day on which shares in Sovereign could betradedfortheirholderstoattendandvoteatthefirstmeeting,theCountry * The Country Bird Group acknowledges these acquisitions in its answering papers, but does not explain it. 5 Birdgroupthroughoneofitsinvestmentvehiclesacquiredanother3.7millionSovereignsharesthusincreasingitsinterestto6,173,742sharesrepresenting 8.1%oftheissuedsharecapitalinSovereign.

[19]Sovereign suggests that because the purchases were made subsequent to the postingofthecircular,theywereevidenceoftheCountryBirdgroup'sconformingtowhatittermeditshistoricstrategyofacquiringsufficientofSovereign'ssharestoenabletheCountryBirdgrouptoblockitsstrategicresolutions.Presumablythereferencetohistoricstrategymeanttheeventsof2009referredtoabove.TheCountryBirdgroupdeniedthisintentionandsaidits reasons were motivated by the discount between the shares as they were then trading,andthebuyoutpremiumofR8.50. [20]However,claimsSovereign,intheensuingfortnight,theCountryBirdgroup,representedbyInvestecBankLimited'scorporatefinanceteam,soughtto persuade Sovereign's institutional shareholders to vote against the proposed transactions.TheCountryBirdgroupchosenottorespondtoittothisallegation claimingitwasvagueandunsubstantiated.[21]Atthesametime,membersofthegroup: 21.1Tookstepstoberepresentedatthefirstmeetingtospeakandvote againsttheproposedresolutions;and 21.2NotifiedSovereignthatthe2ndrespondent(Snyapp),theBuzbyTrust’,ColinJames(7threspondent)andMarielleLecluse(9th21.2.1weredissentingshareholdersforpurposesofsection164(3)oftheCompaniesAct,asregardstheresolutionsproposed tobepassedatthefirstmeeting;”and 21.2.2intendedopposingtheresolutionsasenvisagedinsection 115(8) of the Companies Act. ©OfwhichKevinJames(thefourthrespondent)isatrustee. 7Theappraisalremedy,providedfortion164oftheCompaniesAct,allowsaShareholdertooptoutofthecompanyforafaircashconsiderationifthecompanyproceedswithcertaincorporatetransactionswith whichtheShareholderdoesnotagree. Sovereign'sgeneralmeetingof14January2016 [22[23](24)[25][26](27) Sovereignshareholdersrepresenting84.27%ofallthevotingsharesattendedthemeetinginpersonorbyproxy.Althoughthedissentingshareholdersvoted all their shares (representing about 10% of voting rights at the first meeting) againstalltheproposedresolutions,eachofthemwaspassedbyaround85% ofallthesharesrepresentedatthefirstmeeting. On15January2016Sovereigninformedthedissentingshareholdersoftheir rights under section 164 of the Companies Act. In response the dissenting shareholdersdemandedpaymentatfairvaluefortheirSovereignshares,which wasclaimedatR8.50ashare. ‘A war of words then broke out between the Sovereign Board and the Country Bird Group. This involved the intricacies of the appraisal rights of a dissenting shareholdertobeboughtoutintermsoftheCompaniesAct.Thisdisputewas later to form the subject matter of a High Court dispute that need not concern us here.Sovereignseekstorelyonwhatwasstatedduringthevariousangry ‘exchanges that took place between the respective parties. Sovereign accused the Country Bird group of attempting to foil its BEE transaction, or weaken the companyfinanciallybyforcingittobuyitout.® InanothertwistofthetaleCountryBird'sJamessentanemailmeantforhis attorney, inadvertently to Sovereign's attorney. The email states “No worries Clint{thenameofCountryBirdgroup'sattorney]westoppingat9.9%.”‘SovereignsuggeststhatJamesintendedwiththisemailtoeithermisrepresent Country Bird group's true intentions or that he later changed his mind ‘subsequenttosendinghisem responsetoaprecedingemailfromhisattorneywarninghimthatifthey exceeded a 10% shareholding, they would have to notify this fact in terms of the CompaniesAct. isthathisemailwasaByFebruary2016thegermofSovereign'sapproachunderpinningthecurrent transaction emerged. Sovereign's attomeys accused the Country Bird Group of *SeeRecordpage35,para71.2.3. *SeeRecord40para83. [28][29][30](31) actinginconcerttodefeatatransactionofstrategicimportancetoSovereignthe “achievementofwhichwouldconstituteanotifiablemerger.”*°AlthoughtheSovereignboardcouldhaveelectedtopurchasethedissentingshareholders’shares,itchosenottodoso.Thereasonwasapparentlyaffordability.HaditrepurchasedthesesharesitwouldhavefacedtheprospectInsteadittriedtoresolvetheproblembyproposinganamendedspecialresolutiontoputtoshareholders.ThematerialtermsoftheBEEtransactionremained.Whatchangedwasthatinsteadofofferingtorepurchase10%oftheshares,itreducedtheofferto5%,althoughtherepurchasepriceremained R850. Sovereignshareholdersarerequiredtoapprovetherevisedtransactionsbyspecialresolutions.ItisthefateofthisresolutionthatunderpinnedthepresentoftheCountryBirdgroupapproachedinstitutionalshareholdersofSovereignofferingtoacquiretheirsharesinthecompany.DiscussionswerealsoheldbetweenaMarthinusStanderandEttieneDuPreez,respectivelyexecutivesofCountryBirdandSovereign,whereStanderappearedtofeeloutthelatteraroundmediareportsthatanotherpoultryproducer,AstralFoods,mightbeinterestedinacquiringSovereign.Nothingmuchcameofthisdiscussion.DuToitallegesthatStanderhadtoldhimthatCountryBirdwasopposingtheBEEresolutionsbecauseiftheywerepasseditwouldincreasethecostsofCountry Birds’intendedacqi ition.Sovereign'sgeneralmeetingof29March2016 [32]On24February2016Sovereignconvenedageneralmeetingon29March2016(‘thesecondmeeting’)andnotifiedshareholdersoftheproposed:32.1Revocationoftheresolutionspassedatthefirstmeeting;and32.2Implementationoftherevisedtransactionswhichwereoffundamental [33][34][35][36](37][38] Dissenting shareholders whose rights had not been reinstated in terms of section 164(10) of the Companies Act that by virtue of section 164(9), were advisedthattheywouldnotbeentitledtoattendorvoteatthesecondmeeting unless and until they withdraw their demands to have their shares repurchased atThelastdayonwhichsharesinSovereigncouldbetradedfor their holders to attend and vote at the second meeting was 11 March 2016. valu Sovereignshareholdersarerequiredtoapprovetherevisedtransactionsby specialresolutions. Itiscommoncausethatatthedateofourhearingon22March2016the Country Bird Group controlled just under 10% of the shares of the applicant. A resolutionrequirestheapprovalof75%ofthememberspresentand atthemeeting. Itisqui clear that with 10% of the votes, the Country Bird Group cannot veto a special resolution unless less than 40% of its members were in attendance and voted.Itisalsocommoncausethatonaverageoverthepastfewyears attendance at general meetings of the applicant was 67% and at the recent general meeting this figure was higher than average at 84%, causethatins isalsocommon ional shareholders representing 70% of the shares have indicated to the company that they will vote in favour of the special resolution. There is no suggestion on the papers that these shares will not be voted at the meeting. This means that the possibilty of a low turnout at the general meeting wherethequorumislessthan40%ishighlyunlikely. is thus improbable that the Country Bird group can veto a special resolution withitscurrentshareholding. It is of course possible that of the approximately 20% of the remaining shareholders (if we exclude the 70% itutional shareholders and the 10% of the Country Bird group) some proportion may vote with the Country Bird group todefeatthespecialresolution. '" In terms of section 164(9) a shareholder who has senta demand in terms of subsection 5, has no further rights inrespectofthoseshares,otherthantobepaidtheirfbeforethecompanymakesanofferforthoseshareso value unless the shareholder withdraws that demand ws such offer to lapse.

[39]However, in order to do so it would require an additional 14% of shareholders voting in person or by proxy, all of whom would have to vote against the special resolution.”Ifanyvotedforit,CountryBirdgroup'staskwouldbeevenmore daunting. This figure exceeds both the average general meeting attendance figure and the higher figure at the recent general meeting where a similar specialresolutionwastobevotedon.Onecanassumethatevenifthisresolutionattractsgreatershareholderattentionthandoestheaveragegeneral meeting, the attendance figure would not be markedly higher than the January attendancefigureof84%.

[40]But even if we are wrong on the probable attendance figure remaining si thatinJanuary2016,thearithmeticonitsownsuggeststhattheprobabilitiesof ‘success for Country Bird group defeating the special resolution are remote. This alsoassumesofcourseintheapplicant'sfavourthattherespondentsorother dissentingshareholdersarenotprecludedfromvoting."* [41]Alivetothisproblemwiththeshareholderarithmetic,theapplicant'schief executive officer Christopher Coombes indicated in his replying affidavit that the precisenumberofsharestheCountryBirdgroupmayhaveacquiredmighthave increased between the time of the filing of the papers and the time of the hearing, sufficient for it to exercise the form’ of control at issue."* He did however makethefollowingconcession: “HoweverifittranspiresbeforeoronthedayofthehearingthattheCountryBirdgrouptooknostepstoincreaseitsinterestinSovereignintherelevantperiod,thenSovereignacceptsthattheremaybenoneedforinterdictoryreliefbutreservesitsrightstoseekan‘orderfromtheTribunalintermsofprayers2and4oftheNoticeofMotion."[42]Atthehearingtheapplicantadvisedusthatithadatthattimenofurther information about an increase in the Country Bird group's shareholding. © This assumes 94% of the shares are voted (70% for the inst shareholders + 1 ofourhearingthiswasanaspectofseparatedisputegoingbeforetheHighCour. “Applicant'sreplyingaffidavitparagraphs9-11recordpages284-5‘5Applicant'sreplyingaffidavitparagraph12oftherecordpage285. 10 [43][44](45)(46)(47)[48] Onewouldhavethoughtthatthiswouldhavebeentheendofthematter. However, the applicant at the hearing shifted the emphasis of its application fromactualapprehensiontoareasonableapprehension. This too arises from the replying affidavit. After receiving the answering affidavit theapplicant'sattorneyswrotetotherespondents’attorneystorequest: “.. an unequivocal confirmation that no Country Bird group member or associate whetherdirectlyorindirectlyand/orbeneficially,throughnomineecompaniesorthird parties: acquired any additional shares in Sovereign in the relevant period; ... and/or secured anycontractualorotherrightsinandtoadditionalsharesinSovereign,withtheintentionofvotingtheminconcertwiththerespondents,intherelevantperiod.”*®Thisundertakingwasrefused.TheCountryBirdgroup'sattorneyswrotebacktosaythattheirclientshadansweredthefactualavermentsmadeinthefoundingaffidavitintheiransweringaffidavitandaccusedtheapplicantofusingthelettertoextendthereliefsoughtbeyondthatcontainedintheapplication,Theyadvisedthatforthisreasontheywerenotwillingtoprovidesuchconfirmation."”Thethrustoftheapplicant'sargumentnowhasbeentoseizeonthisrefusaltojustifythegrantofadeclaratoryorder.AccordingtoCoombesinhisreplyingaffidavittherefusaltoprovidetheconfirmationwassignificantasit“...would havebeeneasytoprovidesuchconfirmationifitweretrue.” MrSnyckers,whoappearedfortheapplicant,focusedhiscaseonthispoint.Hearguedthatthesituationwasanalogoustothesituationofanapplicantwhoasksarespondentwhohasthreatenedhimorherwithviolencetogivean undertaking that he would not carry out the threat in future. If the respondent refused,theapplicantwouldhavesufficientbasistoapprehendharmandseek interdictoryrelief.‘©Replyingaffidavitsupraparagraph15. "”SeeletterfromBowmanGilfillandated17March2016,recordpage317. iW [49](50)51](52)(53)(54)(55)(56) However,wedonotthinktheanalogyisappositeinthiscase.Votingsharesis, unlike an assault, not a prima facie unlawful act which a party seeking to reassureanotherthatitsactionswerelawfulmightbeexpectedtoconfirm.OrdinarilythevotingofsharesisalawfulactandtheCountryBirdGroup'srefusaltosubmittotheapplicant'ssetofinterrogatoriescannotformabasisto inferanapprehensionofunlawfulness. Norshouldtheapplicantbeallowedtomakeitscaseoutinreply. ‘Thusonthisbasisaswellthecaseshouldfail. However,justincasewearewrongonthispointwemustthenconsiderthefurtherorthirdlegofthecase,whichiswhethertheactofvetoingagainstthe specialresolutionsconstitutesanacquisitionofcontrol. OnthispointtheapplicantreliedstronglyonadecisionoftheCompetition Appeal Court (CAC) in the case of Gold Fields Limited v Harmony Gold Mining CompanyLtdandAnotherwherethecourtinterdictedashareholderfromvoting itssharespendingnotificationoftheacquisitionasamerger."®GoldFieldshadproposedaresolutiontoitsshareholderstovoteonatageneral meeting. The resolution was to permit Goldfields to pool its assets outside of SADCwiththoseofanotherfirmIAMGold,InretumGoldfieldswouldreceive70%oftheequityofIAMGold.ThesalewasconsideredbyGoldFieldstoaddto.itasignificantportfolioofnon-SADCassets."*ItalsoconstitutedasignificantrestructuringofGoldFieldsasittransferredsignificantassetsofitsowninto One shareholder Norilsk, which held 20% of Gold Fields, had indicated to the boarditsoppositiontotheproposalbutwasunsuccessfulinthis. The situation changed when Harmony, a rival gold miner entered the fray with itsownproposal.Structuredintwostages,theHarmonyoffer,initsfirststage,wastoacquireonly34.9%oftheshareholdersshares.Intermsofthesecond "SeeGoldFieldssuprapage91 12 87](58)59](60)[61][63] stage,HarmonyofferedtoacquirefurtherGoldFieldsshares,sothatattheend itwouldacquiremorethan50%oftheshares. AtthesametimeHarmonyobtainedanirrevocableundertakingfromNorilskthatitwouldvotewithHarmonyattheGoldFieldsgeneralmeetingtovetotheIAM Goldresolutions. AtthetimeofthegeneralmeetinginquestionitwaspossiblethatifshareholdersacceptedthefirststageoftheHarmonyoffer,ittogetherwithNorilskcouldvoteatleast54%ofthesharesandthussuccessfullyvoteagainst theIAMGoldtransaction. Althoughpartsofthedecision,andanearlieronebytheTribunal,dealwithquestionofwhethertheHarmonytwo-partofferwasseverable,wedonotneed toconsiderthatquestionnow. Whattheapplicantrelieson,anditiscleartheCACmadefindingsonaswell,wasthequestionofwhether,ifthefirstofferhadbeenacceptedbythetimeofthegeneralmeeting,andthatHarmonyandNorilskvotedtheir54%sharestotorpedotheIAMGoldtransaction,thiswouldconstituteanacquisitionofcontrol forthepurposeofsection12(2)(g)oftheAct. Harmonyhadarguedthatitwasn'tanacquisitionofcontro!astheresolutionwasatemporaryalliance.Theargumentwasthatifshareholdersweretobeconstruedasjointcontrollers(neitheronitsownhadavotingmajority)then there must at least be some showing of an interest that they would always or almostalwaysvotetogetheronmaterialdecisions. TheCACrejectedthisinterpretationandheldthat“...therewasnotextualbasisfordistinguishingbetweenshortandlongtermcontrolparticularlywhenthe wording of section 12(2)(q) is carefully considered.” Butalthoughthecourtseemstohaverejectedtheideathattheacquisitionofcontrolrequiredsometimedimension,itwasthematerialityoftheresolutionthatstoodtobedefeatedbyHarmonyandNorilskthatcountedintheCAC's determination of the acquisition of control. The judgement notes: 13 *..ASaresultoftheearlysettlementofferandtheirrevocableundertakingfromNorilskthefirstrespondentwillbeabletoeffectapermanentandirreversiblechangetothestructureof@competitor;attheveryleastitwillbeabletomateriallyinterest(sic)@keypolicyofappellant ‘by ensuring that appellants long term strategy of entering into the IAMGold transaction could

[64]The question in this case is whether, if we assume for the applicants that the CountryBirdgrouphasobtainedsufficientundertakingsfromothershareholders 50 as to enable it to defeat the special resolutions, this would amount to an acquisitionofcontrol.Putinthecourt'slanguage,doesthevetoofthespecial resolutions amount to effecting a permanent and irreversible change to the structureoftheapplicant.[65]Neitherthecontentoftheresol ionsnorthehistoryofhowtheycametobeproposed,suggeststhisisthecase.Theresolutionsdonotchangethestructure of the applicant in the way the thwarted |AMGold resolution would have for Gold Fields. Granted the proposed special resolutions change the shareholding ratios, diluting some in favour of others, but the structure of the firm remains the same;nordoesthepassingoftheresol thehistoryoftheresolutionsshowsthattheyarenotimmutable.Sincethe unsuccessful attempt to pass them at the January meeting, the directors made ions lead to a new controller. Second, some changes to the special resolutions and proposed them again in changed leform.Thissuggeststhatfromacontentpointofviewthereisnothingirrever about them. No doubt even if defeated at the March meeting, the scheme could moreappealingtosomeoftheobjecting successful does not lead to a permanent and againbeamendedtomakeshareholders.Thevetoever irreversible change which was feature that the CAC identified as determinative inGoldFields. for

[66]Further guishing this case from Gold Fields is that the Country Bird group has made no takeover offer contingent on the defeat of the special resolutions. There is no inevital inevitable contro! of the applicant by the Country Bird Group. Nor does the past history of Country Bird group's actions with respect to the applicant, constitute a sufficientevidenti Gold Fields. \f anything the Country Bird Group's past history has been ambiguous ~ it is unclear if it has ambitions to take control, to get a better offer tythatiftheresolutionsaredefeatedthenextstageisthebasistoplacethepresentcaseonalllfourswiththosein 14 [67][68] for someone to buy its shares by applying pressure on the board, or if it wants to do no more than make life difficult for a rival. In Gold Fields, the dissenting shareholder(Harmony)hadputaformaltakeoveroffertoshareholders—no suchcommunicationispresentfromtheCountryBirdGroup.WethusfindthateveniftheCountryBirdgrouphadobtainedimevocableundertakingsfromasufficientnumberofshareholderstoeffectavetoofthe ‘special resolutions, such an action would not amount to the acquisition of control forthepurposesoftheAct. We must be careful not to allow companies facing hostility to board proposals to usetheCompetitionAct’smergerprovisionstothwartshareholdervoting activity. This would be an unwarranted interference in the govemance of companiesandtheacquisitionofcontrolbywayofanabilitytovetoaboard's proposedresolutionshouldnotbelightlyinferred. Conclusion

[69]Theapplicationfailsinthreerespects.Theapplicantshavefailedto demonstrate that the Country Bird group will be able to vote more than 25% of thesharesatthegeneralmeeting,northatithasshownareasonable apprehgnsion that they might, and finally, even if they could, this would not DATE 07 JUNE 2016 DISSENTINGOPINION MrsMokuena'sReasons

[70]|havereadthereasonsofmycolleaguesinthismatter.|regret|cannotagree with their conclusion. In my view the applicant should have been granted the 15 71)[72][73](74][75](76) declaratoryorderandinterdictagainstthefirsttothetenthrespondents.|differ withmycolleaguesapproachandconclusiononthreeissues: (a) the first to the tenth respondents do not have the means to effect the veto; timeofthegeneralmeetingtoeffectthevet notreasonableapprehensionthattheymighthavethemeansatthe In these reasons | will not repeat facts already traversed by my colleagues. | will supplement the summary of facts (in the reasons) and bring into sharp focus thosefactswhicharenotaddressedbymycolleagues,which|consider portantformydissent. Sovereignissuedacautionarynoteon5"March2009and21April2009,tothe effectthal was in negotiations and the price of the shares of the company couldbeaffected.SubsequentlyCountryBirdincreaseditssharesinSovereign to13.4%on14May2009. Sovereign and Afgri Operations Limited (Afgri) made a further announcement ingofthefooddivisionofAfgriintoSovereign.Theeffectofthe“reverse”listingwould injectthemuchneededcash transactionstrategicandananswertoitsfinancialproblems. about negotiations that they were engaged in to effect a “reverse” Ii Inconsideredthe ito Sovereign. Sover Country Bird purchased more shares in Sovereign making it the second largest shareholderwith22.76%on1%June2009.Priortoincreasingitsstakein Sovereign to 22.76%, Country Bird had already announced on 20 May 2009, intentiontomakeanoffertopurchaseallthesharesofshareholdersof Sovereign. Theannouncedintentiontomakeanoffertopurchasesharesofshareholdersof Sovereign did not materialise. Instead, Country Bird informed Sovereign that, it will not support the special resolutions for the Afgri transaction. The Afgri transactionwasabandoned. SovereignendeavouredtoraiseR100millionthroughrightsissueinrespectof Sovereign's 17 million unissued shares. The rights issue also required a spe 16 resolutionofshareholders.AgainCountryBirdfrustratedtherightsissueby advising Sovereign that it will not support the necessary special resolution for therightsissue.Sovereignsettledforthelessattractiveoption,toraisefundsthrougha“claw-backoffer"which,CountryBirddidnotsupport.CountryBird failedtofundSovereign. [77]Subsequently,CountryBirdsoldits22.76%Sovereignshares.CountryBirdinitsannouncementinFebruary2010said“...whenCBHidentifiedSovereignasapotentialtake-overtarget.Followingunsuccessfulnegotiationsbetweentheparties,Sovereignproceededwitharightsissuewhichwasnotsupportedby CBH and talks were therefore terminated. Following this development the CBH boardhasdecidedthatitwasinthebestinterestofCBHtosellitsinvestmentinSovereignandapplythecashflowtoCBH'srequirement.”ThissalefollowedshortlyafterCountryBirdhadscupperedtheSovereignAfgridealand Sovereign'sfinancialwoescontinued. 178}CountryBirdisSovereign'scompetitorandbecameawareofitsfinancialproblems,andscupperedeveryendeavourSovereignmadetomalattractiveinthemarketandbolsteritsfinances.CountryBird'srefusaltosupporttheproposedspecialresolutionstorevisetheremunerationofSovereign's incentive scheme of its executives and non-executive directors and the introductionofaBEE,ofanemergingpatterntocontrolthedestiny ofSovereign. itsshares[79]Interestinglyfiveyearslater,CountryBirdbetweenJulyandOctober2015,acquiredsharesinSovereignagain.”InOctober2015Sovereignannounceditsintentiontobuybackitsshares,bringinaBEEandchangetheshortandlong term incentive scheme of its Executive Committee and the non-executive directors’feespolicy.

[80]Country Bird voted against the special resolutions which were intended to effectuatethestrategictransactionsofSovereigninthemeetingof14January 2016. Due to Country Bird voting against these special resolutions, this gives risetoanobligationonSovereigntoforkoutR70milliontorepurchaseCountry®Seepage67oftherecord.CountryBirdsaiditwassellingthesharestoapplythemoneytoitsrequirements. TMSeethesummaryofthefactsinthemajorityreasonsatparagraph15to23. 17 Bird'sshares.ThisobligationputafurtherfinancialstrainonSovereign's alreadyconstrainedfinancialposition.

[81]Cognizant of its financial constraints, Sovereign opted to revise the resolutions passedon14January2016.Sovereignproposedarevisedtransactiontoitsshareholdersofthemajority'sreasons.”|agreewiththemajoritythat10%shareholdingonitsowncannotvetospecialresolutionsofshareholders.However,|donotdiscountthepossibilitythatCountryBirdcouldpersuadeothershareholderstovotewithit.Ifitistosucceed,its10%votingrightsandthebalanceof20%ofothershareholdersifsuccessfullypersuadedbyCountryBird,wouldcarrythevotewhichvetothespecialresolutionsasproposedbythe BoardofSovereigntotheshareholders. [82]Therefore,itisnotfarfetchedofSovereigntobringthisapplication.CountryBirdhasapproximately10%sharesinSovereign.Sovereign'sapprehensionthatCountryBirdcouldvetothespecialresolutionswithothershareholdersisreasonableordirectlybyhavingincreaseditssharespriorto11March2016shouldnotbediscounted.SovereignrequestedCountryBirdtocategoricallystatethatitdoesnothaveanagreementwithothershareholderstovetothespecialresolutions,and,hasnotincreaseditsshareholdinginSovereign,butdeclinedtodoso.ThequestionthatCountryBirddidnotanswerduringthehearingwas,“whywasCountryBirdnotwillingtoputthismattertorestby simplyunequivocallyansweringthequestion?”Whywasi application for an interdict and a declaratory order, incur legal costs when, that couldhavebeenavoidedbyananswer?|amthereforeoftheviewthatSovereign'sapprehensionisnotunfoundedandunreasonableunderthecircumstances.ThereforegrantinganinterdicttoSovereignwasappropriate.[83]|agreewithmycolleaguesthatitistritethatanapplicantcannotmakeitscaseinareply;however,|cannotupholdtherespondent'ssubmissionthat,thatisthecaseinthisinstance.Sovereigndidnotmakeitscaseinthereply.SovereignrespondedtoCountryBird'sanswer,whichwasequivocal.Ifreplyingtoananswerisconsideredmakingacase,wouldn'tthatdefeattheneedandpurpose ofareply. ®Seesub-paragraph21.1and21.2. 18 [84](85)(86)(87) |amcognizantofthefactthatCountryBird'sbidtogetthesupporttovetothespecialresolutionsattheshareholdersmeetingon14January2016wasnotsupported.|amhoweveroftheviewthat,thatdoesnotmeanthatthistimeCountryBirdwillnotsucceed.Ifithasnothingtohide,itcouldhavejustgivenSovereignthenecessaryassurance.Itistritethatifanundertakingisgiven,the courtsusuallydonotgrantaninterdict. TheconcessionmadebyChristopherCoombesreferredtobymycolleaguesdoesnotinanywaysuggestthateverythingiswellinallmaterialrespects.ThisdoesnotmeanthatcontrolcannotbeexercisedbyCountryBirdandothershareholdersthroughvotinginlinewith$12(2)(g)oftheAct.Accordingtothelaw“Itisnotnecessaryfortheapplicanttoestablishonabalanceofprobabilitiesthattheinjurywilloccur,hesimplyestablishonabalanceofprobabilitiesthattherearegroundsforareasonableapprehensionthathisrights willbedetrimentallyaffected. |donotappreciatewhythisdisputehadtocometotheTribunal,whenitcouldhavebeenresolvedquickly.WhatSovereignwishedtoknowcouldhavebeenansweredwithasimpleno!CountryBirdcouldhavejustindicatedunequivocallythatitdoesnothaveagreement(s)withothershareholderstovetothespecialresolutions,andhasnotacquiredmoresharesbefore11March2016.Ofimportanceisthat,aninterdictisnotgrantedincircumstanceswheretheapprehendedactionhasalreadyoccurred.Ifthehorsehasbolted,itcannotbestopped,thusourlawprovidesforinterdicts.Whathascomeandgonecannotbeinterdicted.Inthisdisputebeforeus,CountryBirdhasonmorethanoneoccasionendeavouredtothwartSovereign'sstrategicdecision,whichgoesto its ability to survive as a business. There is a history which should not be ignoredand,itisnotunreasonableorunjustifiedofSovereigntohavebrought anapplicationforaninterdicttothisTribunal. Thelawisclearandsimplewithregardto,ornottograntaninte’arepreventiveinnatureandfunction.‘Whenthereisathreatenedinfringementofanapplicant'sclearrightheneednotwaitfortheactualinfringementtooccur,®HerbsteinandVanWinseninTheCivilPracticeoftheHighCourtsofSouthAfrica,Volume1,5®Edition, page146. 19 but may approach the court to restrain the threatened conduct.’* The applicant doesnothavetoshowthattheactoccurred,butthatthereisapprehensionofit occurring. We are dealing here with a determined shareholder which has approached institutional shareholders, and it is unclear who else Country Bird sentfeelersto.CountryBirdaloneknowswhoelseitapproached.|amofthe opinion that Sovereign's application for an interdict is not an abuse of the legal processassubmittedbyCountryBird.

[88]Taking into consideration the history outlined in these reasons, the applicable Principlestograntaninterdict,thepublicinterest(BEE)andthepurposeofthe Act, | am persuaded and satisfied that the apprehension of Sovereign, was neitherhypotheticalnorimaginarybut,wasreasonableunderthecircumstances therefore,aninterdictshouldbegranted.

[89]ithregardtotheconclusionthatvetoingthespecialresol constitute a form of acquisition of control, and must be contextualised taking into account$12(2\q)oftheAct.Section12(2)(g)providesthat“Apersoncontrols a firm if that person- has ability to materially influence the policy of the firm in a manner comparable to a person who, in ordinary commercial practice, can exerciseanelementofcontrolreferredtoinparagraphs(a)to(f".CountryBird not once but thrice has conducted itself in a manner that has materially influencedthestrategicdirectionorpolicyofSovereign. [90]CountryBirdcommunicateditsintentionnottosupporttherescissionofthe special resolutions of 14 January 2016, and the passing of the revised resolution which permits Sovereign to buy back 5% of its own shares (instead of 10%), and theimplementationoftheBEEtransaction.

[91]Sovereign submitted that, to grow its sales and get continued support from companies such as Bidvest, it is necessary to be BEE compliant. Perhaps it is appropriate at this stage to refer to the Preamble of the Act, which provides that theActisintendedtofac restrictions, which prevented others from participating in the economy of South Africa.ThestrategicdecisionofSovereignwouldaddressthataspectofour litatetheeradicationorremovalofunjusthistorical * Herbstein and Van Winsen, The Civil Practice of the High Courts of South Africa, 5* Edition, Volume 1, page 1465. 20 history.Givingpreviouslydisadvantagedpersonstheopportunitytobepartof Sovereign should be commended. Taking the necessary strategic steps to do so isgoodpolicythatcomplieswiththeprovisionsofs2{f)oftheAct.This,Country Birdstymied,contrarytopublicinterestconsiderations. {92]|agreewiththemajoritythat“Ordinarilythevotingofsharesisalawfulactand the Country Bird group's refusal to submit to the applicant's set or interrogatoriescannotformthebasistoinferanapprehensionofunlawfulness.”However,theconductofCountryBirdcannotbeignored.Thehistorytothis dispute points to Country Bird having exercised control over Sovereign in the past,byforcingSovereigntoabortimplementingitsstrategicdecisions.EffectivelyCountryBird'sconductinfluencedthestrategicdirectionofSovereigninthepastand,wasplanningtocontinuedoingsoon29March2016,whichgaverisetotheapplication.Forexample,SovereignabandonedtheAfgritransaction,therightsissueandoptingfortheclaw-backoffer,andendeavouringtorescinditsdecisionof14January2016andreducetheriskof having to pay R70 million, which would have aggravated its precarious cash position. CAC in Distillers Corporation (SA) Ltd v Bulmer (SA) (Pty) Ltd saidthat,s12oftheActenvisaged‘awidedefinitionofcontrol,soastoallow the relevant competition authorities to examine a wide range of transactions whichcouldresultinanalterationofthemarketstructure,andinparticular reducesthelevelofcompetitionintherelevantmarket.’ [93]TheOfficialJournaloftheEuropeanUnionprovidesthat“ControlisdefinedbyArticle3.2oftheMergerRegulationasthepossibilityofexercisingdecisiveinfluenceonanundertaking.Itisthereforenotnecessarytoshowthatthe decisive influence will be actually exercised. However, the possibility of exercisingthatinfluencemustbeeffective.(18)Article3.2furtherprovidesthatthepossibilityofexercisingdecisiveinfluenceonanundertakingcanexistonthebasisofrights,contractsoranyothermeans,eitherseparatelyorincombination,andhavingregardtotheconsiderationsoffactsandlawinvolved. A control may occur on a legal basis or de facto basis, may take the form of sole orjointcontrol,andextendtothewholeorpartsofoneormoreundertaking.” Control canbeexercisedbyashareholderwithlesssharesbyothermeans,whichis notexercisedonlyifashareholderhas25%ormoreinacompany.It 2 (95)(96) whatSovereignisconcernedabout.CountryBirddidnotgiveanundertakingtonordiditassureSovereignthattherearenoothermeanswhichitcanvetothe specialresolutionsproposedfor29March2016. My philosophy of the application of the Act is that, the Act must be applied, interpretedandimplementedmindfuloftheConsti thattheConstitutionisthepillarwhichguidestheapplicationofalllegislationin the Republic. In particular s9(2) of the Constitution provides that “Equality includesthefullandequalenjoymentofallrightsandfreedoms.Topromotetheachievementofequality,legislativeandothermeasuresdesignedtoprotectoradvancepersons,orcategoriesofpersons,disadvantagedbyunfairdiscriminationmaybetaken.”TheActisoneofthemanymeasurestakenand itspurposeins2(f)isrelevantinthisapplication. ion.|ammindfulofthefactCountryBird'sconductcannotbeconsideredanormalapplicationoftheCompaniesAct,withoutbalancingthatagainstthepurposeoftheAct,inparticulars2(f)i.e.topromoteBEE.””ThwartingSovereign'simportantstrategic directionandbusinessdeci consequentlyexercisingcontroloverit. tantamount to materially influencing its policy, Inconclusion,vetoingthespecialresolutionsofSovereigninthemannerCountryBirdhasdone,(inthepast)itisexercisingcontrolandifitdoessoat the shareholder's meeting, the declaratory order is appropriate and am satisfied thatitshouldbegrantedtogetherwiththeinterdictsought. 07June2016 MsMediMokuenadissenting TribunalResearchers:DerrickBowlesassistedbyKameel Pancham For the Applicant's Adv FA Snyckers SC, Adv RM Pearse as instructedbyCliffeDekkerHofmeyr Attorneys. *TheConstitution,Act108of1996. 2” The purpose of this Act is to promote and maintain competition in the Republic in order- to promote a greater spread of ownership, in particular to increase the ownership stakes of historically disadvantaged persons. 22 FortheFirsttotenthRespondents:Adv.MJEngelbrechtasinstructedby BowmanlanAttorneys. 23