31 Jul Mergers and Acquisition Under Current Nigerian Laws
Corporate restructuring is essentially a corporate action taken to significantly modify the structure or the operations of a company.
There are a number of methods available with the most common being Mergers and Acquisitions. A merger occurs when two separate entities combine forces to create a new joint organization. Whilst an acquisition refers to the takeover of one entity by another. Mergers and acquisitions may be completed to expand a company’s reach or to gain market share in an attempt to create shareholder value. This article seeks to outline the procedure for implementing Mergers & Acquisition under current Nigerian Laws.
The principal laws governing mergers and acquisitions in Nigeria include The Federal Competition and Consumer Protection Act (FCCPA) 2019, the Investment and Securities Act (ISA) 2007, The Securities and Exchange Commission Rules and Regulations 2013 (SEC Rules) and the Companies and Allied Matters Act 2004 (CAMA). These legislations are not exhaustive as there are also sector specific laws governing Mergers and Acquisitions. An example is the Central Bank Act and the Banks and other Financial Institution Act which in addition to the above enactments regulate Mergers and Acquisitions in the banking sector. The Electricity Power Sector Reform Act also regulates restructuring in the power sector.
It should be noted that the FCCPA has repealed Sections 118-218 of the ISA, which used to govern mergers and acquisitions. The effect is that SEC no longer regulates mergers and acquisitions. The FCCPA is thus saddled with the regulation of merger transactions in Nigeria.
The FCCPA established a regulatory body which now regulates mergers and acquisitions, among others; the Federal Competition and Consumer Protection Commission (“the Commission”). The Commission is concerned with the prevention of monopoly in the economy. The Commission is responsible for determining whether or not a merger is likely to substantially prevent or lessen competition.
Generally, a party to a small merger is not required to notify the Commission of the merger unless it is requested by the Commission or the party voluntarily notifies the Commission of that merger at any time. The Commission’s approval is not mandatory where the Commission does not request notification of the transaction.
Where notification is requested by the Commission, it must be done in a prescribed form within six (6) months of the request by the Commission. Thereafter, the Commission will publish the notification and the parties to the merger may take no further steps towards implementing the transaction until an approval is granted by the Commission. The necessary approval is to be granted within 20 business days, which may be further extended by a single period not exceeding 40 days.
The Commission may either approve the merger (with or without conditions) or prohibit its implementation (if it is yet to be implemented) or declare its implementation as prohibited (if it has been implemented). It is important to note that upon the expiration of 20 business days or upon the expiration of the extension period where an extension notice is issued, if the Commission is yet to issue a report of its decision of the merger, approval may be deemed to have been granted.
Large Mergers require that notification be filed at the Commission in a prescribed form. This will be published within five (5) business days after receipt by the Commission. Notice must also be given to any registered trade union that represents the employees in the acquiring and target companies or the representatives of the employees if there are no such registered trade unions. No steps must be taken towards the implementation of the merger unless an approval has been granted. The approval must be considered within 60 business days by the Commission. This may be extended to 120 business days.
The Commission’s decision is to be published in at least two (2) national newspapers. It is to be noted again that as in the situation with small mergers, non-receipt of a report on the decision of the Commission within the specified period will result in the merger being deemed as approved. The Commission may direct any of its officers to investigate a merger. This may lead to the revocation of the transaction, even though it has been implemented. The Commission may revoke its own decision to approve or conditionally approve a merger under the following circumstances;
- Where the decision was based on incorrect information for which a party to the merger is responsible
- Where the approval was obtained by deceit
- Where the parties fail to implement the merger within 12 months after the approval was granted
- Where any of the parties concerned has breached an obligation attached to the decision of the Commission approving the merger
Where the Commission revokes its decision approving a merger, it may prohibit that merger, even though the time limit for the granting of decisions has elapsed under the Act.
The Minister of Trade also has the power to make representations on the ground of public interest to the Commission with respect to any merger being considered by the Commission
The SEC rules provided for specific thresholds determining the type of merger transactions being entered into. However, the FCCPA does not provide any threshold. Instead, it empowers the Commission to determine the threshold through a number of steps which involves written submission of proposals from the public and publication in the gazette.
The Commission, in a joint publication with SEC, on 3rd May 2019, published a notice to the effect that all pending merger notifications or filings shall, in the interim, be reviewed under existing SEC regulations, guidance and fees. As such, until the Commission publishes any thresholds, the thresholds contained in the SEC Rules will continue to apply. Rule 427 of the SEC Rules provide the following thresholds:
- Small Mergers – This is the smallest scale to be considered as it is based on the combination of assets and turnovers of below N1,000,000,000 (One Billion Naira). This threshold does not mandate the parties involved to notify SEC of the intended transaction.
- Intermediate Mergers – This threshold involves a combination of assets and turnovers between N1,000,000,000 (One Billion Naira) and N5,000,000,000 (Five Billion Naira).
- Large Mergers – This involves a combination of assets and turnovers above the threshold sum of N5,000,000,000 (Five Billion Naira).
In respect of acquisitions, the acquirer will apply to the Commission by filing a letter of intent accompanied by additional documents such as –
- Information Memorandum containing background information, the offer, history of the parties and effects of the acquisition on the relevant industry.
- The companies’ constitutional documents such as extracts of Board Resolution, certified true copy of the Memorandum and Articles of Association, and the Certificate of Incorporation certified by the company secretary.
Upon a successful acquisition, the following documents are to be forwarded to the Commission:
- Executed Share/Asset Purchase Agreement
- Evidence of Settlement Purchase Agreement
- Evidence of settlement of severance benefits of employees who may lose their job as a result of the acquisition.
- Evidence of Settlement of dissenting shareholders
It should be noted that there will be a post-acquisition inspection by the Commission (three) months after the approval of the application.
Corporate restructuring requires due diligence, legal drafting as well as other legal services, and filing of documents within prescribed timelines as penalties may be incurred otherwise. If you require any clarifications or advice on this article or corporate restructuring generally, kindly contact Berkeley Legal.
The information provided in this article is for general informational purposes only and does not constitute legal advice. If you require specific legal advice on any of the matters covered in this article please contact firstname.lastname@example.org
 Section 95 of the FCCPA
 Section 96- 97 of the FCCPA