Nigeria: CBN Guide To "Marriages" And Acquisitions.

Last Updated: 4 January 2005
Article by John Ukpaka, Oghogho Akpata and Yetunde Olasope

Summary
Insight into the effects of the CBN recapitlization directive and guidelines.

To Be Or Not To Be…

On the 6th of July 2004, the players in the banking sector received a rude shock from the Central Bank of Nigeria (CBN). The CBN issued a directive mandating all banks in Nigeria to "consolidate" or find other alternatives to raise their capital base to N25 billion, or face liquidation and exit from the banking industry.

To help strengthen the players in the banking sector in a manner that will ensure longevity, higher returns to shareholders over time, greater impact on the Nigerian economy and globalization of the banking sector, the CBN introduced the "Central Bank of Nigeria Guidelines and Incentives on Consolidation in the Nigerian Banking Industry".

These guidelines represent the superlative provisions, regulating the consolidation drive by banks, be it mergers or acquisitions.

Matchmaking

In an apparent move to encourage banks to merge, the CBN has been organizing different rendezvous for bank chiefs to meet and map out strategies to adopt in merging. The CBN has also been encouraging banks in their merger bid to align with banks sharing common commercial principles and having the same objectives.

Rules Of Engagement.

In other to foreclose the possibility of informal business combinations, the CBN has also specified the rules of consolidation between merging parties. The guidelines expressly prohibit "mere group arrangements" or any other form of loose arrangements between parties.

Thus, combinations like asset acquisitions, marketing synergy (sharing distribution chains, sales and warehousing facilities), operating synergy (sharing facilities and personnel), investment synergy (joint use of plants, equipments etc), and other forms of synergies will not receive the blessings of the CBN. The only legal modes of consolidation allowed are mergers and outright acquisition/takeovers.

Wedding Gifts

The CBN intends to provide the following incentives for banks that consolidate and/or are able to achieve the set minimum capital base within the stipulated period:

  • Authorization to deal in foreign exchange
  • Permission to take public sector deposits and recommendation to the fiscal authorities for the collection of public sector revenue.
  • Prospects of managing part of Nigeria’s external reserves, (subject to prevailing guidelines).
  • Tax incentives in the areas of capital allowances, company income tax, stamp duties, among others, the details of which will be released after the on-going consultation with the fiscal authorities.
  • Reduction in transaction costs, the details of which will be released after the on-going consultations with the Securities and Exchange Commission, Nigerian Stock Exchange, Corporate Affairs Commission and all other parties involved in the scheme.
  • Negotiation of the possible write-down of the CBN’s exposure to the distressed banks that would be acquired as a way of improving their balance sheets as well as the treatment of the distressed banks’ bad assets.

He Who Finds A Wife…

Some of the main attractions for mergers and acquisitions are as follows;

  • The ISA provides for the exemption of Capital gains Tax in the computation of the tax liabilities of the companies merging. What this means is that a Company "A" wishing to acquire a Company "B" with poor liquidity base, ailing deposit ratio and low investor returns but with a solid asset base, could extensively reduce its acquisition costs and at the same time expand its asset base. The valuation of the assets of Company "B" balanced against its liabilities could ultimately make for a cheaper option for Company "A" in meeting its expansion demands. *(This is however subject to obtaining the requisite approvals from the Joint Tax Board).
  • Another alluring benefit of mergers and acquisitions is the option of using the losses incurred by the acquiree company prior to its acquisition as tax credit by the company acquiring it in computing its future tax exposures. Again using the Company "A" and Company "B" scenario above, a Company "A" incurring about N100 Million Naira in taxes could acquire a Company "B" which has been making losses consistently and is on the verge of liquidation. The arrears of losses could be discounted against the emerging company’s tax liabilities. *(This is also subject to obtaining the requisite approvals from the Joint Tax Board).

  • The CBN directive has also, albeit unwittingly, presented commercial banks with the opportunity to penetrate regions and market where they previously had little or no presence through the acquisition of community banks. This option is even rosier when considered in addition to the two points above mentioned, i.e. non payment of capital gains tax and use of losses incurred by the community bank as future tax credits of the acquiring bank.

Pre Nuptials

Another major provision of the guidelines is the issue of valuations.

Ordinarily, valuation is the process taken to ascertain the worth of the company being acquired viz a viz its balance sheet, capital and asset base. The guidelines make provisions for the valuations and revaluation of the entities of the merging companies by independent accountants and by due diligence efforts of the parties.

The provisions of the guidelines only enjoin the parties to a merger to conduct due diligence on each other and to adopt good corporate governance. That notwithstanding, the possibility of merging entities, and the acquiree company in particular manipulating the true value of their company are still present. Balance sheets of the company presented might not present a true value of the company’s liquid worth, might not fully disclose the company’s liabilities and might not reveal encumbrances on the assets of the companies.

Parties thus must strive to protect themselves by appropriate contractual provisions, especially at the pre merger stages of negotiations.

The stage is thus set in the Nigerian banking industry for the era of mergers and acquisitions, forced marriages or not!

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
In association with
Related Topics
 
Related Articles
 
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions