Over the past 12 months, the change on the M&A market has been insignificant, with 2020 realising almost the same number of transactions as those realised in 2019. Although the number went down early in the year, presumably due to lockdowns, the volume of transactions picked up towards the end of 2020.
Most of the transactions that happened in 2020 were in the form of acquisition of shares in retail and immovable property-owning companies. There has now been a steady increase in the number of cases or appeals before the Competition and Consumer Tribunal against decisions emanating from the Competition Authority. Before the enactment of the current competitions laws, appeals against decisions of the Competition Authority could only be taken to the High Court.
The industries with recent significant M&A activities are (i) property, (ii) tourism and hospitality, and (iii) retail. The restriction of movement of people globally in order to combat the spread of COVID-19 has had a significantly negative effect on the tourism and hospitality industry in Botswana. A number of operators who felt the financial impact of the reduced guests opted to sell their operations, which resulted in a number of M&A transactions in the sector.
Average prices for property and tourism-based M&A deals have contracted, mainly due to the recent amendment of the Transfer Duty Act (which has increased the acquisition tax payable by foreign buyers of immovable property or immovable property-owning businesses). Furthermore, there was an oversupply of properties, which also created a buyers' market and drove prices down.
The primary techniques and legal means for acquiring a company in Botswana include:
The primary regulator for M&A in Botswana is the Competition and Consumer Authority. Where a transaction constitutes a merger under the Botswana Competition Act, 2018 (the “Competition Act”) – that is, where one entity acquires control of another entity and specified thresholds are met – notification of the merger will have to be made and approval sought from the Botswana Competition and Consumer Authority (the “Authority”).
M&A relating to companies listed on the Botswana Stock Exchange (BSE) are further regulated by the BSE and must comply with the BSE Listings Requirements; where such companies wish to enter into a transaction that constitutes a takeover or merger, they are required to comply with the requirements as detailed in the South African Companies Law and Practice Regulations, 2011 (the “South African Takeover Regulations”).
Furthermore, companies may be subject to different sector regulations and, before undertaking any M&A, may require approval or consent from the relevant regulators/overseeing government authorities.
Generally, there are no restrictions on foreign investment in Botswana. However, in respect of certain sectors and activities, there are laws that stipulate certain minimum shareholding levels for citizens of Botswana. For instance, the Industrial Development Act is one such legislation whereby joint ventures between citizen and non-citizens are permitted to operate certain manufacturing enterprises provided that citizens hold at least 51% of the stake in such enterprises. Similarly, Botswana laws allow for reservation of certain other industries/businesses for its citizens – manufacturing, under the Industrial Development Act, is one such legislation where joint ventures between citizen and non-citizens are permitted to operate certain manufacturing enterprises provided that citizens hold at least 51% of the stake in such enterprises.
Parties to a transaction must notify and obtain approval from the Authority where the proposed transaction constitutes a merger under the Competition Act and meets the specified requirements. Currently, a merger will be notifiable to the Authority if there is a change in control of a target enterprise and either: (i) the combined annual turnover or combined asset value in Botswana of the merging enterprises exceeds BWP10 million; or (ii) the enterprises concerned would, following implementation of the merger, supply or acquire at least 20% of a particular description of goods or services in Botswana. The merger notification attracts a filing fee of 0.01% of the merging enterprises' combined turnover or assets in Botswana, whichever is higher
The acquirer has an option to acquire the business as a going concern and take over the employees or, alternatively, may opt not to take over the employees. In the latter case; the seller will have to terminate the contract of employment prior to the acquisition. In case where employees are taken over as part of the acquisition, their employment will be regarded as continuous; this means the acquirer will be responsible for the employees, including the accrued benefits as at the time of acquisition. However, the practice in the market is that the acquirer will require the seller to take care of all business liabilities, including employees’ accrued benefit up to the time of takeover.
All acquisitions and capital flows in and out the country are scrutinised from an anti-money laundering and national security perspective. The Financial Intelligence Agency, under the auspices of the Financial Intelligence Act [CAP 08:07], monitors payment transaction made into or out of Botswana. Other regulators also do their own vetting before approving acquisition transaction in their space. For example, the Non-Bank Financial Institutions Regulatory Authority (NBFIRA) vets controllers (who include shareholders and directors) of non-bank financial institutions before they can approve acquisitions of businesses in that sector.
There have been no court cases relating to M&A in Botswana in the past three years. This is probably due to the fact that parties normally opt to resolve their disputes through arbitration.
There are no significant changes to takeover laws that have occurred in the past 12 months.
Although it is not mandatory for a bidder to build a stake in the target before launching an offer, that practice is not uncommon. A bidder may build a stake by either gradually subscribing to new shares or buying shares from existing shareholders. Although shares in a company are generally freely transferable, before the shares in a company may be offered to a third party they must be first be offered to existing shareholders. Therefore, where a company issues new shares, those shares must first be offered to the existing shareholders; likewise, before a shareholder can transfer his or her own shares to a third party they must first be offered and declined by existing shareholders.
For listed companies, any person who holds at least 35% of securities of a listed company is required to make a mandatory offer to minority shareholders. A bidder may, therefore, acquire a smaller stake bit by bit, until he or she reaches the 35%, after which he or she can make an acquisition offer.
To ensure successful bidding, bidders normally obtain irrevocable undertakings from the shareholders to waive their pre-emptive rights before putting in their own bid, or, where a mandatory offer is to be made, bidders get irrevocable undertakings from the shareholders to accept any offer to be made by the bidder and to co-operate with the bidder to achieve the intended objective.
The Companies Act requires disclosure in instances where any number of securities of a listed company are registered in the name of a person who is not the beneficial owner of those securities. The listed person would therefore be required to disclose (i) the identity of each person on whose behalf it holds the securities, and (ii) the number and class of securities held on behalf of each such person.
Every shareholder or person holding at least 5% of the securities in any listed company is required to be registered in the register of substantial shareholders, and such people are mandated to provide the listed company and the BSE with a written notice of:
Where a bidder acquires 35% securities in a listed company, the bidder will be required to inform the company so that the board of directors may issue a "firm intention" announcement.
A company can introduce higher reporting thresholds in its constitution but it cannot introduce lower reporting thresholds than those set under any legislation.
The common hurdles to stakebuilding include: pre-emptive rights of existing shareholders; compliance with the BSE Listings Requirements for listed companies; and the requirement of obtaining regulatory approvals for certain sectors. In the banking sector, for example, transfer of any shares exceeding 5% must be approved by the Central Bank of Botswana, while NBFIRA has to approve any change of directors and shareholders and transfer of at least 20% of shares in any business that falls within its regulatory ambit.
Dealing in derivatives is allowed in Botswana.
There are no filing/reporting obligations for derivatives under securities disclosure and competition laws.
There is no obligation on private companies to disclose the purpose of their acquisition. However, where the transaction requires merger notification to be filed with the Authority, the bidders have to disclose to the Authority the purpose of their acquisition and the impact thereof on competition in the market, as well as consideration of issues of public interest, such as likelihood of retrenching employees.
Where the transaction relates to a listed company and an offer circular is issued, the bidder shall be required to disclose the reasons for the offer and the bidder’s intentions regarding the continuation of the business of the listed company.
There is no requirement on a target company to disclose a deal during the negotiation stage or at any stage for private and unregulated companies. With respect to regulated entities, no such obligation arises, unless such requirement is placed on it by the relevant regulatory authority. Where no obligation is placed on a regulated entity but the approval of the transaction is subject to regulation, it is always useful to forewarn the relevant regulator of the proposed transactions (at a high level and usually with limited disclosure), to enable a faster processing of the ultimate application for approval once the deal has been reached.
A listed company is, however, required under the BSE listings requirements to issue a cautionary announcement, as soon as possible, after it is in possession of material price-sensitive information, where the necessary degree of confidentiality cannot be maintained or when such information has or may have been leaked to the market. In instances where the requirements for a cautionary announcement are not met, the target will disclose the proposed transaction by issuing a firm intention announcement immediately upon receipt of a formal written offer from a bidder or upon a trigger of a mandatory offer. The announcement should contain the details of the transaction giving rise to the mandatory offer.
The market practice on timing of disclosure is aligned with the legal requirements.
The acquirer would normally undertake a comprehensive legal, financial and (where appropriate) technical due diligence on the affairs of the target. The focus of the legal due diligence is normally an investigation on the status of the company’s affairs such as compliance with applicable laws (ie, company laws, tax laws, environmental laws), review of material contracts (which include employment contracts and review of title documents on property), financing arrangement, verification of assets and title, review and confirmation of corporate structure, etc. Through the financial due diligence, the acquirer would also undertake financial investigations, to assess the financial position of the target.
This process is, in most instances, conducted through an online platform. Companies have adopted the use of a data room, through which the target would grant the acquirer access to its information without physical contact. This method has made it possible for due diligence investigations to remain viable during the pandemic.
Companies in Botswana are given freedom to contract. Companies, therefore, have the liberty to choose the terms of their agreements. Parties normally conclude their agreements on an exclusivity basis. A prospective bidder would ordinarily, before ensuing any due diligence investigations and negotiations, demand protection against losing out to a rival bidder during a specified time and require inclusion of an exclusivity clause to any preliminary agreement concluded between the parties.
It is permissible and common for tender offer terms and conditions to be documented in a definitive agreement. Tender offers are often documented in the firm intention letter that is delivered to the board of a listed company, which would commonly trigger a firm intention announcement to be issued by the listed company. The firm intention announcement must contain, among other things, the terms of the offer, including the type of offer and mechanics of implementation.
The timeline for completion of an acquisition or sale of a business of a listed company differs from that of a private company. Although there are generally no stipulated timelines for the process of acquiring and/or selling a business in Botswana, acquisition of a private company (post-negotiations and execution of definitive agreements) will usually be completed within three months where regulatory approvals are required.
Acquisition of listed companies, on the other hand, may take up to six months to conclude, due to the need to comply with the BSE Listings Requirements over and above other regulatory approvals and requirements that may be applicable. There are mandatory timelines attached to certain transactions, such as the following.
Transactions Involving Scheme of Arrangement, Major Transactions or Amalgamation
In respect of a scheme of arrangement, a major transaction or amalgamation, a circular convening the shareholders’ meeting must be posted within 20 business days of the firm intention announcement being published. Shareholders must be furnished with the notice, including the agenda of the meeting, at least 21 days prior to it. Upon obtaining at least 75% of the shareholders’ approval of the transaction at the general meeting and all other conditions being met, the transaction may be implemented.
Announcement of an Offer
Once the target receives a formal offer from a bidder or a mandatory offer is triggered, the target is required to issue a firm intention announcement. Once the firm intention announcement is published, the bidder has 20 business days to issue the offer document to the target’s shareholders. The offer must be open for acceptance for at least 30 business days from the date of publication; during this time, the target’s board of directors should advise its shareholders of their views on the offer. The offer must be declared unconditional as to acceptances within 45 business days from publication of the offer document or the offer will lapse, unless the independent board agrees otherwise. Within six business days of the offer becoming or being declared unconditional, or the offer being accepted, whichever is the later, the consideration for the shares must be made.
Review of documents by the BSE
Communication issued by a listed company has to be approved by the BSE. The BSE takes approximately five business days to approve documents submitted to it.
The mandatory offer provisions applicable in Botswana are those provided for under the South African Takeover Regulations. Once an entity acquires at least 35% of the securities of a listed entity, the requirement to make an offer to minority shareholders for their stake is triggered.
Although both cash and shares are legally permissible as consideration under the Companies Act and are both used in transactions, cash is more commonly used as consideration in Botswana. In order to bridge the value gaps, companies normally adopt several closings of the investment. In some instances, the company is required to pay a portion of the price upfront, then the balance thereof will be payable once certain milestones are achieved or before a specified date, depending on how the company performs or in instances where there is a pending major issue against the company upon resolution of such issue. The buyer may also opt to have the seller as part of the business for a certain time before totally exiting the company to ensure continuity as the buyer familiarises himself with the company operations.
The conditions that are common in a takeover offer include acquiring the requisite board of directors’ approval through the board resolution and obtaining the shareholders’ approval through shareholders’ resolution, as well as obtaining the approval of the Authority and, in certain instances, the respective industry’s regulatory approval and/or the BSE approval.
Additionally, where the bidder intends to obtain 100% of the target’s shares or intends to obtain control of the target, at least 90% and 50% of the target's shareholders must accept the offer, respectively.
The minimum acceptance condition in respect of mandatory offers is 35% of securities in a listed company. Where a bidder intends to acquire all of the shares in a company, it will be obliged to acquire a minimum acceptance of 90% of shares of a company, within four months after making the offer, thus allowing the bidder to squeeze out the remaining shareholders by issuing them with notice to acquire their shares, and the bidder shall be entitled and bound to acquire those remaining shares on the same terms accepted by the other shareholders.
In respect of major transactions, the minimum requirement is approval by at least 75% of shareholders. A major transaction is defined under Section 128 of the Companies Act as a transaction entailing:
There is no prohibition on private companies to add as a term of their agreement that the business combination is subject to obtaining financing. However, where a transaction relates to a listed company it cannot be made conditional on the bidder obtaining financing, as there is a requirement for disclosure of proof of funding in the offer document.
According to the South African Takeover Regulations, an offer circular relating to a highly leveraged offer must contain a description of the financing arrangements concluded by the bidder, including capital amount, interest rate, security given, and period and repayment terms. A highly leveraged offer refers to an offer as a consequence of which the bidder will incur a high amount of debt and the payment of interest repayments or security for the debt will substantially depend on the business of the offeree company.
Parties to a potential transaction may contractually agree to break fees, match rights, exclusivity arrangements and non-solicitation provisions. Normally, offerors will look to key shareholders in an attempt to receive irrevocable undertakings to vote in favour of a potential transaction, not to sell their interest in the interim, and to do all things to partake in the transaction. When engaging in such negotiations it is imperative that parties to these arrangements should take into consideration the legal implications relating to acting in concert.
Currently there have been no new contractual considerations or tools for managing “pandemic risk”, except the bidder – in instances where it is curtailed by the pandemic from performing – may rely either on the contractual provision of force majeure or the common law supervening impossibility of performance.
There are no changes to the regulatory environment.
A bidder who does not hold 100%, but holds at least 75% of the shares, may still have influence in the major decision of the company without seeking additional governance rights. However, a bidder who seeks additional governance rights may generally do so by obtaining representation in the board of directors of the company. The bidder may further be entitled, in accordance with the Companies Act, to have the company: (i) increase the threshold for approval of a special resolution to a percentage higher than 75%; and (ii) increase the threshold for shareholder approval for matters that ordinarily require 50% approval. In this way, minority shareholders can effectively block certain resolutions, notwithstanding their smaller shareholding. The company may also amend its constitution to require a special resolution to approve any other matter not already contemplated in the Act as a special resolution. Shareholders may further, in accordance with the Companies Act, conclude shareholders’ agreements to impose higher standards
Unless the company’s constitution states otherwise, shareholders are permitted to vote by proxy in Botswana.
Where an offer for the acquisition of securities has been accepted within four months after the date of making of such offer, by at least 90% of the shareholders, the offeror may – within two months after acceptance – give notice to any other holder of the remaining shares of its intention to acquire their shares, and the offeror shall be entitled and bound to acquire those remaining shares on the same terms accepted by the other shareholders.
It is common practise that, before making any firm offer, the offerors would seek to obtain principal shareholders’ irrevocable undertakings to vote in favour of a potential transaction, and not to sell their interest in the interim period. The undertakings are, however, normally subject to the offer being made within a stipulated period, and the target having not received a more favourable offer. Details of irrevocable undertakings received must be disclosed in the firm intention announcement and offer circular.
Negotiations normally take place before a firm intention offer is made.
In a private company context, bids ordinarily remain private, unless voluntarily disclosed to the media by the parties thereto.
A listed company, on the other hand, is required to make disclosure to the target, BSE and the public with respect to acquisition of shares prior to launching a takeover transaction, in instances where the shareholder holds more than 5% securities in the listed company. An acquisition below 35% of the total number of the target’s shares in issue does not trigger any takeover consequences. A cautionary statement must be released in instances where the parties wish to maintain the confidentiality of any price-sensitive information. This informs the existing shareholders to exercise caution when dealing in their shares. When a takeover deal has been agreed to between the parties, the target must publish a firm intention announcement. The publication of the firm intention announcement signals that the offeror is committed to the transaction and that the transaction must proceed, subject to conditions being satisfied.
If consideration consists wholly or partly of shares, among other things, the offer circular must contain the annual financial statements of the offeror for the last three financial periods, an audit-reviewed pro forma balance sheet and pro forma income statement, pro forma earnings and assets per share, as at last year end.
Bidders do not ordinarily need to produce their financial statements in disclosure documents, other than where consideration consists wholly or partly in shares. Audited financial reports are required to be prepared in accordance with the International Financial Reporting Standards.
Material terms of the agreements are usually sufficient. However, where the Authority’s approval is required, complete transaction documents will have to be submitted to the Authority for consideration.
The board of any company owes fiduciary duty towards the company and is therefore obliged to act in the best interests of the relevant company, and to ensure compliance with all applicable legislation. The directors are, therefore, expected to take all reasonable steps to receive all necessary information on the offer, to meet with advisers who shall provide their fair and reasonable opinion which shall be used to assist and direct the board in decision making, and to allow sufficient time, subject to the statutory confines, to discharge all duties and responsibilities.
The board of the target must record and document their views on any offer, together with appropriate independent expert advice. In instances where a board member has a personal financial interest in any contemplated transaction, such director must recuse himself or herself from any decisions relating to that matter. The board of directors further owes duty of care to company shareholders and all other stakeholders.
It is uncommon for boards of directors to establish ad hoc committees in business combinations in Botswana. However, in instances where certain directors have an interest in a particular transaction, such director should – upon declaration of his or her interest – be recused or be excluded from voting in connection with the transaction. This, however, applies to all matters dealt with by the board, not just issues of business combination.
Although directors have fiduciary duty towards the company and are therefore required in performing their duties to act in good faith and in the best interest of the company, directors will ordinarily be safe from any allegations of breaching these duties if such director has taken reasonable and diligent steps to become informed on the matter, had no conflict of interest (or, if they were conflicted, then they declared their interest and recused themselves) and had a rational basis for believing and did believe that the decision made was in the best interest of the company and in line with the advice provided by qualified advisers, complying with all governing laws and the constitution of the company. Where the board has acted reasonably in the circumstances, a court will not substitute its own judgment on a matter.
The board of the target tasked with forming an opinion on the offer is required to obtain advice from an independent expert in the form of an opinion that deals with the fairness and reasonableness of the consideration for an offer, taking account of value and price. The directors are further offered an opinion on whether the purported transaction does not infringe on any applicable laws, as well as any regulatory hurdles that the parties may face to conclude the transaction.
Conflicts of interest, especially relating to directors and shareholders, have been subject to judicial scrutiny before the courts of Botswana, with the main focus being on issues relating to: the duty to act with care, skill and diligence; the duty to avoid conflicts of interest; the duty to act within legitimate powers; and the duty to maintain and exercise unfettered discretion and independent judgement.
Hostile tender offers are permitted in Botswana, but they are not common.
There is no statute that deals with defensive measures under Botswana law. However, the South African Takeover Regulations which are applicable for takeovers and mergers of listed companies prevent actions by regulated companies designed to impede, frustrate or defeat a bona fide offer, or the making of fair and informed decisions by the holders of shares.
A hostile takeover is often fought over technical issues, particularly the target attempts to frustrate regulatory approvals or procedures, resulting in cost implications and time delays. The board of the target may also produce an opinion against the offer, advising the shareholders to vote against an offer despite an independent expert opinion supporting the offer. The directors should, however, have a clear basis for the expression of such an opinion – albeit, this does not guarantee that the transaction will be frustrated.
Although we are not aware of any change in the defensive measures, there is a possibility that due to the pandemic the parties have been able to rely on supervening impossibility of performance to delay carrying out their tasks. Further, with the prolonged processes resulting from constant lockdowns and closure of regulatory authorities, many transactions have taken quite a long time, which has probably resulted in frustration of certain transactions.
As previously detailed in 8.1 Principal Directors' Duties, directors owe a duty to act in good faith and in the best interests of the company and shareholders, so are obliged not to frustrate genuine offers which are in the interests of the company.
Directors are obliged to express a well-thought and considered view supported by objective reasons – they cannot “just say no”.
Litigation in connection with M&A is not common in Botswana. Most disputes which arise in this jurisdiction are resolved through arbitration.
As arbitration is preferred, approaching courts may only be done when interim orders are sought or when confirmation of arbitral award is to be confirmed.
As indicated in 10.1 Frequency of Litigation, Botswana companies ordinarily opt to resolve their disputes through arbitration, which is usually a private engagement, and we are not aware of any broken deal disputes which were pending in early 2020.
Shareholder activism is not an important force in Botswana.
Shareholder activism is very uncommon in Botswana and its status remain the same even through the pandemic.
As already indicated, shareholders’ activism is a fairly uncommon concept in Botswana.