Wrap Text
Rulings in relation to Mpact Limited: Competition Tribunal; Takeover Regulation Panel & Johannesburg Stock Exchange
CAXTON AND CTP PUBLISHERS AND PRINTERS LIMITED
(“Caxton” or “the Company”)
(Incorporated in the Republic of South Africa)
(Registration number 1947/026616/06)
Share Code: CAT ISIN: ZAE000043345
RULINGS IN RELATION TO MPACT LIMITED (“MPACT”):
COMPETITION TRIBUNAL (“THE TRIBUNAL”);
TAKEOVER REGULATION PANEL (“THE PANEL”); AND
JOHANNESBURG STOCK EXCHANGE (“THE JSE”)
On 4 October 2022, the Tribunal published the detailed reasons for
its ruling of 22 September 2022, in which it set aside the August 2021
decision of the Competition Commission (“the Commission”) to refuse a
Rule 28 merger notification by Caxton vis-à-vis Mpact. The Tribunal
has referred the Commission’s decision back to the Commission for re-
consideration. The detailed reasons for the Rule 28 ruling are
published on the Tribunal’s website at
https://www.comptrib.co.za/case-detail/19768#
By way of background, Caxton’s Rule 28 merger application and its
review to the Tribunal of the Commission’s decision has led to numerous
conflicts between Caxton and Mpact, which are detailed below.
In its August 2021 decision, the Commission relied heavily on the
prejudice that Mpact claimed it would suffer if Caxton was allowed to
make a Rule 28 merger notification. In the Tribunal’s ruling (“the
Rule 28 ruling”), the Tribunal has found that the claimed customer
flight prejudice triggered by a mere merger filing is an irrelevant
consideration at this stage of a merger process.
Caxton is aware from publicly disclosed information that confidential
submissions concerning this alleged prejudice of customer flight were
made (including by way of sworn affidavits) by both Mpact and its
largest customer, multi-billion Rand packaging firm, Golden Era,
during the course of the Rule 28 merger application.
In this regard, Mpact claims that if Caxton is permitted to make a
merger filing, this will have a “devastating impact” and negative
consequences for Mpact and its shareholders, in that it would trigger
customer flight by Mpact’s largest customer.
Given the Tribunal’s guidance in the Rule 28 ruling and the prevailing
factual matrix, Caxton anticipates a positive outcome in respect of
its reconsidered Rule 28 application. However, there are significant
risks inherent in Mpact’s “poison pill” claims of customer flight
which an Mpact merger notification by Caxton will activate. Such
customer flight would also impact Caxton as a 34% shareholder in
Mpact.
In order to assist Caxton shareholders to appreciate the risks, Caxton
discloses the below information to its shareholders in order to
highlight the circumspection and care which Caxton will need to adopt
vis-à-vis Mpact.
• First, Mpact made confidential submissions to the Commission, which
the Commission relied on in its determination of the Rule 28 merger
application.
o These confidential submissions were not made available to
Caxton or its advisors and Caxton was therefore not able to
respond to these submissions at the time. Only when Caxton
challenged the Commission’s decision did Mpact allow Caxton’s
legal advisors (not Caxton itself) access to the confidential
information.
o Caxton subsequently challenged the claims of confidentiality
and Caxton’s Chairperson, Mr Jenkins, was given access to
some of the information claimed as confidential. See
https://www.comptrib.co.za/case-detail/19945 At this time it
became apparent that some of the information claimed as
confidential was known to Mr Jenkins and Caxton through public
sources or through the non-confidential versions of documents
already circulated to Caxton by Mpact.
o Specifically, Mr Jenkins and Caxton were aware of the identity
and fact of Golden Era’s objection to the proposed merger
between Caxton and Mpact. This is confirmed by the Tribunal
in paragraph 152 of the Rule 28 ruling.
o The customer flight issue, i.e. that Golden Era would cease
to do business with Mpact, and its business would be lost, if
a merger filing is made to the competition authorities, was
confidentially disclosed to Mr Jenkins, but subsequently
brought into the public domain by Mpact.
• Second, one aspect of the information disclosed to Mr Jenkins, i.e.
the customer flight issue, was and remains of grave concern as it
appears to comprise Price Sensitive Information (“PSI”).
o Mr Jenkins confronted Mpact with his view that the customer
flight issue by Mpact comprises PSI, but this was denied. In
turn, Caxton then lodged a formal complaint to the JSE about
Mpact’s non-disclosure of material, non-public PSI in
contravention of the JSE Listings Requirements (“JSELR”).
o Mr Jenkins also made public statements that Mpact was in
possession of PSI that should be shared with Mpact’s
shareholders (including Caxton).
o Caxton further complained to the JSE that executive directors
of Mpact traded in Mpact shares to a value of more than R15m
whilst in possession of this PSI.
o Lastly, Caxton objected to the fact that the board of Mpact,
despite a valid shareholders’ meeting requisition from
Caxton, refused to convene a shareholder meeting to consider
the PSI issue.
o Mpact apparently defends its position by suggesting that the
customer flight issue is not certain and therefore not PSI.
Mpact’s claimed uncertainty of the PSI is expressly
contradicted by the affidavits filed by Mpact in the various
competition proceedings.
o Mpact also alleges that Caxton only seeks to disclose this
information because it wishes to see the Mpact share price
fall. The allegations by Mpact in this regard are egregious
and untrue and have been denied.
o The JSE continues to investigate the Caxton complaint, which
has been forwarded to Mpact by the JSE. The JSE is seeking
further information from Mpact.
• Third, Mpact complained to the Panel that Caxton’s actions comprise
an affected transaction and that all communication about Mpact
should first be vetted by the Panel.
o The Panel agreed with Mpact and the outcome of that complaint
was essentially that Caxton is gagged from referring publicly
to information “about the acquisition of Mpact”.
o Caxton recently filed an appeal to the Takeover Special
Committee (“TSC”) against the Panel’s Gag order.
o In its defence, Mpact raises the motives of Caxton for an
alleged breach of Mpact’s undisclosed confidential
information, as a central point.
o Proceedings before the TSC are continuing.
• Fourth, in a response to Mr Jenkins’ and Caxton’s public statements
and in a further attempt to gag Mr Jenkins and Caxton from airing
publicly available information, Mpact brought an enforcement
application to the Tribunal, asking that Mr Jenkins and Caxton be
interdicted from disclosing the information which Mpact considers
to be confidential, but to which Caxton has access via public
sources.
o Mpact asks for a finding that Mr Jenkins and/or Caxton has
contravened the Competition Act and for a penalty of 10% of
Mr Jenkins and/or Caxton's turnover.
o Caxton and Mr Jenkins are opposing the enforcement
application.
o Proceedings before the Tribunal are continuing.
• Fifth, Caxton, as a 34% shareholder of Mpact, also seeks to hold
the Mpact board accountable for Mpact’s failure to disclose the
risks of the historic cartel with Golden Era, in its reporting to
shareholders.
o Caxton has opposed the approval of non-executive remuneration
on this basis and on the basis of non-compliance with the
JSELR.
o Caxton also notes the disregard by Mpact of the governance
requirements of the Companies Act, 2008, with its appointment
of non-executive directors to a subsidiary of Mpact, solely
to create a formalistic legal basis to bypass shareholder
approval of non-executive directors’ remuneration.
o Caxton seeks transparency and full disclosure from Mpact.
Against the above background, Caxton advises its shareholders that:
• Mpact and its largest carton board customer, competitor, co-
cartel respondent in an ongoing prosecution (which Caxton knows
is packaging giant, Golden Era) oppose a merger filing by Caxton
on the basis that if Caxton is permitted to make a merger filing,
Golden Era will forthwith withdraw its custom from Mpact;
• Such customer flight as referred to in the Rule 28 ruling will
occur, ostensibly, because Caxton is a direct competitor of
Golden Era. Mpact and Golden Era have filed affidavits supporting
their opposition to a merger filing;
• Customer flight by Golden Era will, according to Mpact, have a
“devastating impact” on Mpact and its customers, suppliers and
shareholders (which include Caxton);
• According to Caxton’s own market information, Golden Era
purchases nearly half of the carton board output of Mpact’s
Springs mill, of some 45 000 tons, in addition to its purchase
of tens of thousands of tons of corrugated board from Mpact;
• Independent sources confirm that Golden Era is already seeking
alternative imported carton board sources of supply;
• It is uncertain if Mpact’s banking covenants will be affected
by an adverse event of customer flight with “devastating”
consequences and how the loss of Golden Era’s business will
affect the future of Mpact’s affected operations;
• Golden Era has previously threatened to withdraw its custom from
Mpact, to extract commercial benefits from Mpact;
• Mpact affords Golden Era, unspecified benefits and favoured
nation preferences, including pricing, in its purchase of carton
board;
• Mpact and Golden Era stand accused of cartel conduct. Mpact has
admitted to the conduct and has received conditional corporate
leniency from the Commission, but Golden Era has denied its
participation. Caxton considers the above continued co-ordinated
conduct to be indicative of the fact that the vestiges of the
historic cartel between Mpact and Golden Era continue;
• Where undisclosed cartel activity in regard to Mpact and Golden
Era has occurred or continues to occur, the Commission may revoke
Mpact’s current amnesty for its cartel participation with Golden
Era and levy a fine on Mpact of up to 10% of its turnover;
• The position of Golden Era as a 10% shareholder of Mpact gives
rise to a concern about the potential conflict of the Mpact board
in assessing the best interests of all shareholders; and
• The appointment of all Mpact directors as directors of a
subsidiary of Mpact renders the Mpact board accountable to itself
and places it beyond accountability to Mpact shareholders, which
in turn raises questions about the independence of the Mpact
board.
Caxton has reported in its recent results announcement that as the
largest shareholder in Mpact, it continues to persevere in its efforts
to obtain clarity regarding competition and PSI issues as between
MPact and Golden Era and as between Mpact and its shareholders. The
above matters demand that the Mpact board make full and transparent
disclosure to shareholders, with the prospect of a Caxton merger
filing now a step closer, as a result of the Rule 28 ruling.
The Caxton board accepts responsibility for the information
contained in this announcement and certifies that, to the best of
its knowledge and belief, the information contained in this
announcement is true and that this announcement does not omit
anything that is likely to affect the import of such information.
Paul Jenkins (paul@jenkins.co.za)
Non-Executive Chairman
Caxton and CTP Publishers and Printers Limited
6 October 2022
Sponsor - AcaciaCap Advisors Proprietary Limited
Date: 06-10-2022 05:05:00
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