12 February 2018

East Africa: EAC Agrees to Protect Small Traders in Cross-Listed Firms

Small and individual investors of cross-listed companies in East Africa have been handed a lifeline after the Council of Ministers agreed on rules that give them powers to prevent hostile takeovers engineered by majority shareholders.

The EAC member states have up to October this year to pass and ratify laws to cement the regulation that will see shareholders with less than 50 per cent of the total shares of companies challenge decisions on mergers and acquisitions taken by majority shareholders.

The directive, which has been gazetted, will clip the wings of domineering majority shareholders and encourage cross-border investments in the region.

"The objective of this directive is to establish minimum guidelines for the conduct of takeover bids and mergers and ensure an adequate level of protection for holders of securities throughout the Community," said Dr Haji Ali Kirunda Kivejinja, chairperson of the Council of ministers and Uganda's Minister for East African Affairs.

Equal treatment

According to the directive, all shareholders holding the same class of shares in a company will be treated equally and the boards of these companies will be required to give all shareholders an equal chance to decide on the merits of a takeover.

"The board of an offeree company (company selling the shares) shall act in the interests of the company as a whole and shall not deny the holders of securities the opportunity to decide on the merits of the bid," said Kivejinja.

According to the EAC gazette notice, the partner states are required to ensure that the interests of minority shareholders in listed firms is protected.

The partner states will also report to the Council, at least once every year, stating the laws, regulations and administrative provisions it has taken to comply with this directive.

Informed decision

Investors in a company whose shares are being sold will be given sufficient time and information to enable them to reach an informed decision on the bid.

The board of the company will be expected to give its views on the effects of the share sale on employment, conditions of employment and the locations of the company's places of business.

The buying firm will be required to announce the bid only after ensuring that it can fulfil in full any cash considerations, if such is offered, and after taking all reasonable measures to secure the implementation of any other type of consideration.

The time allowed for the acceptance of a bid may not be less than 30 days nor more than 60 days from the date of publication of the offer document, according to the regulations.


But the period of 60 days may still be extended if the buyer of the shares gives at least two weeks' notice of his intention to close the bid.

The ministers say that the bid should be made public in order to prevent the publication or dissemination of false or misleading information.

According to the rules, a person who acquires any shareholding of 25 per cent or more in a subsidiary of a listed company that has contributed 50 per cent or more to the average annual turnover in the latest three financial years of the listed company preceding the acquisition will be presumed to have a firm intention to make a takeover of that company and required to comply with the takeover procedures.

But a company that is already in control of 25 per cent but less than 50 per cent of the voting rights of a listed company may, without the need to comply with the takeover procedures, acquire up to an additional 5 per cent in any one year in that company, up to a maximum of 50 per cent.

Currently, minority shareholders find it difficult to protect themselves against the 'oppressive' conduct of majority shareholders since the latter have advantage in annual general meetings where key decisions are made by the majority.

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