Listed packaging group Mpact published a Sens statement on Monday in response to a Sens statement published by Caxton and CTP Publishers and Printers on Friday.
The statements refer to Caxton’s take on a decision by the Competition Tribunal to refer a recent Competition Commission decision back to the commission for reconsideration.
“Mpact wishes to ensure that shareholders are accurately informed of these matters and, accordingly, makes this announcement to provide further details regarding the tribunal’s decision and certain incorrect and misleading statements made in the Caxton announcement,” states Mpact.
“Shareholders should note, however, that as Sens is not a forum for argument, Mpact does not intend to respond to every statement or allegation made in the Caxton announcement and will confine itself to the matters of relevance to Mpact shareholders.”
Read: Tensions between Caxton and Mpact boil over
The matter involves previous announcements and statements by Caxton and, in particular, statements by Caxton chair Paul Jenkins that Caxton seeks to make an offer to Mpact shareholders to increase its shareholding in Mpact from the existing 34-odd percent to acquire ultimate control of Mpact.
In essence, the to and fro between Caxton and Mpact centres on the mechanics of making an offer.
Caxton has applied to the authorities to file a merger notification, which was and is contested by Mpact on the grounds that there isn’t a firm offer or offer price on the table.
The Competition Commission agreed, but the Competition Tribunal referred it back for consideration and denied Caxton’s direct request to the tribunal to allow a merger filing.
Make an offer
Basically, Mpact is challenging Caxton to table an offer.
“As previously stated, Mpact welcomes the tribunal’s decision to deny Caxton permission to file a merger notification, and to refer the matter back to the Competition Commission to be decided afresh, starting with the threshold question of whether a proposed merger even exists,” says Mpact’s new statement.
“Mpact maintains its long-standing position that, in the absence of an offer from Caxton, the Mpact board is unable to determine whether any such offer would be in the best interests of its shareholders and the company, and it is likewise unable to support a joint or separate merger filing.
“Should an offer be made, the board will appoint an independent board to diligently assess the merits of such an offer and to make the requisite recommendations to shareholders, in accordance with its statutory duties,” it adds.
“Subsequently, some media have erroneously interpreted this to mean that the tribunal concluded that the commission was ‘wrong’ to refuse to permit Caxton to make a separate merger filing and that Caxton’s actions ‘are proof enough that it is serious about an offer’.
“These interpretations and statements to a similar effect are misleading and incorrect,” says Mpact in its statement.
It says the tribunal concluded that the commission’s decision was flawed in certain respects, including that it did not reach a clear conclusion on whether there was indeed a proposed merger by Caxton – the “threshold question” that must be decided first before considering whether a separate filing should be permitted.
“The tribunal did not, however, conclude that the commission reached the ‘wrong’ decision or that it should have allowed Caxton to make a separate filing. On the contrary, the tribunal expressly refused to replace the commission’s decision with an order that Caxton’s separate filing should be allowed.
“Rather, the tribunal held, among other things, that market conditions change over time and that ‘firms cannot approach the [competition] agencies for a blank cheque of competition approval based on a theoretical possibility that they might acquire control of another firm at an undetermined time in the future” on terms that are non-existent.
“The tribunal stated: ‘Without a firm offer on the table how is the offeree to know whether the offeror is indeed serious and committed to concluding such a transaction and whether the price or terms proposed by the offeror would be beneficial to it? In the context of listed firms, how is a board expected to advise shareholders of an offer when there is no such offer on the table?’
“Mpact had explained to the commission that it would be difficult for its board to support a separate merger filing in circumstances where it had no idea of the price, timing or manner in which Caxton sought to acquire control. Mpact had also explained that, in these circumstances, the impact of a merger investigation on its operations, employees, and management would be prejudicial to it,” says Mpact management.
Price-sensitive information
Caxton previously alleged that Mpact is hiding information from shareholders that could impact the share price, and took steps to disclose the information because it also affects Caxton’s shareholders due to Caxton’s shareholding in Mpact.
Read: Mpact refutes Caxton allegations
“Mpact strongly denies Caxton’s allegations that it failed to disclose price sensitive information,” says the announcement.
It also explained the situation regarding Caxton’s revelations about Golden Era’s (a big customer and 10% shareholder in Mpact) threats to stop doing business with Mpact if Caxton was to file a merger application.
“The Caxton announcement makes various statements about the potential customer flight risk that would arise if Caxton were permitted to make a merger filing. It also alleges that the board of directors of Mpact failed to disclose this information to Mpact shareholders, thereby breaching Mpact’s obligation to publish price sensitive information under the JSE Listings Requirements.
“During the above-mentioned proceedings before the competition authorities, a significant customer of Mpact’s paper division known as the Golden Era group, confidentially registered its opposition to Caxton’s proposed acquisition of control of Mpact.
“This was done on the basis that Golden Era is a major competitor of Caxton and that, were Caxton to acquire control of Mpact, this might jeopardise the security of supply of Mpact products to Golden Era,” states Mpact.
“Golden Era indicated that, in the event that Caxton received permission to submit a separate merger filing, Golden Era would start taking steps for the purpose of ultimately securing a future alternative supply of paper, as Golden Era would need to take into account the long time frames and significant costs involved in securing alternative sources of paper supply.”
Mpact now downplays the significance of Golden Era’s purchases, saying that they amount to less than 10% of revenue.
“The board considered the information about Golden Era’s possible future diversion of its purchases away from Mpact and the board could not conclude, in the circumstances, that Mpact is likely to lose Golden Era as a customer.
“In the absence of that likelihood, the JSE Listings Requirements do not regard the possible loss of Golden Era as a customer as price sensitive information which must be published. On the contrary, unwarranted publication of information about a potential risk that is classified as unlikely to occur would be regarded as irresponsible,” says Mpact, adding that the JSE is aware of this approach.
Mpact says it is business as usual and its current and forecast supplies to Golden Era have not decreased as alternative sources of supply of carton board and container board are significantly constrained.
“Mpact’s submissions to the competition authorities included an assessment of the worst-case scenario if Golden Era did in future move all or a substantial portion of its purchases from Mpact,” says Mpact.
“The assessment focused on possible consequences for Mpact’s direct stakeholders, as well as various other adverse effects on the public interest, which are highly relevant considerations for the competition authorities.”
Anti-competitive investigation
“Caxton has furthermore sought to make much of the commission’s investigation, and associated risks facing Mpact, regarding alleged anti-competitive conduct between Mpact and Golden Era prior to 2016.
“Mpact has made announcements in the past regarding the commission’s investigation and the current status of the matter – which the board assesses on an ongoing basis.
“As previously advised, Mpact is a respondent in an investigation into alleged historic anti-competitive behaviour. As soon as the alleged conduct came to the attention of the board in 2016, the company engaged with the commission and has been co-operating with them since then.
“In so doing, the board acted diligently in the best interests of the company and dealt with the concerns identified cautiously and transparently through applying for corporate leniency,” says Mpact, indicating that the stated leniency is not threatened.
“On 15 April 2019, the commission referred a complaint against the company and Golden Era to the tribunal, which will be adjudicated in due course, and at which point it will be determined whether or not the conduct concerned contravened the Competition Act.
“There is no basis for Caxton’s allegations and Mpact regards them as no more than a contrivance to avoid making an offer to Mpact’s shareholders,” says Mpact.
Gag order
Mpact also discussed the current situation of what Caxton referred to as a gagging order against its chair.
It says Mpact secured an order from the Takeover Regulation Panel (TRP) which prohibited Caxton from making any further public statements or announcements in any form and on any platform about the acquisition of Mpact without the approval of the TRP.
Caxton has appealed the order, and the appeal will be heard towards the end of November.
Mpact had also applied for an order preventing Caxton or its chair from disclosing confidential information, but has decided not to pursue this matter “because the information has now been publicly disclosed”.
Mpact is however persisting in its application for an administrative penalty to be imposed on Caxton and its chair.
Fees payable to non-executive directors
Mpact also had a few words on the situation regarding the remuneration of its non-executive directors.
Caxton voted its 34% shareholding against a resolution authorising the payment of non-executive directors at the last annual general meeting.
Supported by some other shareholders, the resolution did not get the necessary 75% backing and non-executive directors could not be paid.
Mpact made a plan – appointing them to the board of a 100% subsidiary to get paid, while serving as non-executives of the listed entity without remuneration.
“The appointments are in no way a circumvention of the shareholders’ vote at the company’s AGM nor do they disregard the governance requirements of the Companies Act, because the non-executive directors will not be paid for the services rendered to Mpact Limited. They will, however, be remunerated for services legitimately required by Mpact Operations.
“Details of the non-executive directors’ remuneration will be disclosed in the ordinary course as part of Mpact’s annual reporting cycle,” says Mpact.
The Sens announcement concludes by saying that Mpact will keep its shareholders informed of material updates, adding that its directors will discharge their duties and diligently assess an offer if and when Caxton tables one.
However, Mpact remains resolute: “The commission has not given Caxton permission to submit a separate merger filing.
“Even now that the tribunal has reviewed the commission’s decision, the tribunal has not granted Caxton permission to file a merger notification and does not require the commission to do so. Indeed, the tribunal’s reasons may well have the consequence that the commission will continue to refuse Caxton permission for a separate filing when it makes its fresh decision.”
Listen to both sides of the Caxton vs Mpact spat (or read the transcript of the interview with Mpact CEO Bruce Strong here and Caxton chair Paul Jenkins here):
Disclosure: Caxton’s majority shareholders are also majority shareholders in African Media Entertainment (AME), the owner of Moneyweb.