University of Pretoria

Difference between a Primary Offering and an Initial Public Offering.

Securities Law 410 Assignment

Sibonelo Cele-Student Number 11280949

5/6/2013
 DIFFERENCE BETWEEN A PRIMARY OFFERING (“PO”) AND AN INITIAL PUBLIC OFFERING (“IPO”)

Chapter 4 of the Companies Act, 2008 (Act No: 71 of 2008) (“the Act”) which came into effect on 01
May 2011 provides for public offerings of company offerings. I will, before setting out the difference
between a PO and an IPO, start with the definitions of offer and public offering as these concepts are
integral to this discussion of company securities.

The reference and mention of similarities between a PO and an IPO are made where it is impossible to
set out the differences between the two without losing coherence. Therefore, to the extent that the
similarities between a PO and IPO are barely referred to it is in the quest to not digress too far from the
question.

Offer and Offer to the Public

An offer, as defined in section 95(1)(g) of the Act, is envisaged to be made by a prospective acquirer for
consideration as opposed to by an issuer or seller of securities. On the other hand, an offer to the
public is defined to include an offer of securities to be issued by a company to any section of the public,
whether selected as holders of that company’s securities; as clients of the person issuing the
prospectus; as the holders of any particular class of property; or in any other manner: section 95(1)(h)
of the Act.

An offer as defined is an offer to acquire securities in a company and is not a public offering, while both
PO and IPO are generally public offerings. It is important to read the definition of offer together with
section 99(2) of the Act’s restriction on offers to the public: a person must not make an IPO unless that
offer is accompanied by a registered prospectus. Professor Delport illustrates this well in his 2011
journal publication.1

It follows that for the purpose of distinguishing PO from IPO, the offer as defined in section 95(1) (g) of
the Act is not helpful. I submit that the observation by Prof Delport (2011 THRHR 280: 286) that,
‘the use of “offer” in the definition of an “initial public offering” is, on the basis of the
definition of “offer” in section 95(g), wide enough to include an offer for sale.”
does not detract from the fact that an offer as defined is not by a company as contemplated in an
IPO, but is by an investor.2
Primary Offering and Initial Public Offering
1
“Offers and the Companies Act 71 of 2008” 2011(74) THRHR280 et 284-5.
2
“About Offers of Securities to the Public” 2011 (74) THRHR669.

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An IPO is, according to section 95(1) (e), an offer to the public as much as a PO is, in terms of section 95(1) (i).
The difference in the wording and description of securities in the definition of the PO and IPO is remarkable.

Nature of Securities - A PO is an offer to the public of securities to be issued. On the other hand, an IPO is
an offer to the public by a company of any securities if no securities of that company have been offered
to the public before. What this means is that an IPO may be made by a private company or state-
owned company that is changing into a public company, while a PO may be a capitalisation of an
existing public company that has offered securities to the public in the past. But, the distinction ends
there as an IPO may equally be made by an existing public company that has offered securities to the
public before, provided it has re-acquired all its issued shares.3

As pointed out above, Prof Delport accepts that section 95(1) ( g) definition of an offer ineluctably refers
to an addressee/ investor and not to a company that makes an offer to the public. 4 However, he
extends the definition of an offer as defined to include IPO regarding the difference between an IPO
and a PO. I submit that since an IPO is by definition a public offering by a company it is linguistically
inconceivable to reconcile an IPO to an offer made by any person concerning the acquisition of any
securities in a company, without sponsoring the unlawful proposition that suggests that a company may
offer itself securities.

Another niggling area of difference is the securities that may be offered as PO and IPO respectively. A
PO may be an offer to the public made by or on behalf of a company, of securities to be issued by that
company. The securities offered in terms of the IPO are also those of such a company that makes the
offer. Again this is where the similarities end.

Listed Securities - Where the PO to the public is not an initial offering of listed securities, it must be in
accordance with the requirements of the relevant exchange: section 99(3) ( a) (i) of the Act. On the
other hand, an IPO of listed securities need not be in accordance with the requirements of the relevant
exchange: section 99(3) (a) (i) of the Act.

Conclusion

3
Section 35(5) of the Act states that securities that have previously been offered to the public and have subsequently
been re-acquired by the company in terms of section 48(2) or section 164 lose their issued status and reverted to being
authorised shares.
4
Note 2 supra.

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An offer to the public as defined in section 95(1)( h) of the Act is more suitable for the analysis of a PO
and an IPO, rather than the ‘offer’ as defined in paragraph ( g). With that out of the way, one is left with
an unassailable position that an IPO can only be made by a company that has no securities issued to
the public. This may be a result of having never offered securities to the public or where the company
has re-acquired all previously issued securities; while a PO may be made by a company that has
securities issued to the public. Otherwise, both PO and IPO can only be of authorised, but pedantically
unissued securities.

The other area of difference is the distinct PO requirement that it be made in accordance with the
requirements of the relevant exchange if such offer is not an IPO of listed securities. On the other hand,
an IPO of listed securities need not be in accordance with the requirements of the relevant exchange:
section 99(3) (a) (i) of the Act.

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