Nigeria: Mergers And Acquisitions Under The Investments And Securities Act 2007

Last Updated: 17 September 2009
Article by Adeoye Adefulu

Introduction

The Investments and Securities Act ("new ISA") was passed into law in June 2007. The Act was enacted to repeal the Investments and Securities Act 1999 ("old ISA") and to establish the Securities and Exchange Commission (the "Commission" or "SEC") as the apex regulatory authority for the Nigerian capital market as well as regulation of the market to ensure the protection of investors, maintain fair, efficient and transparent market and the reduction of systemic risk. The new ISA introduces a number of new provisions in a wide variety of areas. This paper shall critically examine the provisions of the new ISA in relation to mergers in comparison with those of the old ISA. The paper shall attempt to highlight the substantive differences and comment on the potential impact of these differences on merger transactions in Nigeria.

This is especially important in the light of the recent upheaval in the Nigerian banking industry1 and the Central Bank of Nigeria's ("CBN") expressed intentions to effectively put 5 "troubled" banks up for sale2.

Under the old ISA, the M & A provisions were contained in part XI with a total of 24 sections whereas, in the new ISA, they are contained in part XII with a total of 35 sections. Whilst the take-over section of the Act substantially remains the same, a sweeping range of changes have been made in relation to the merger provisions. It may be rightly presumed that these changes are an offshoot of the recent spate of merger transactions arising out of the recapitalisation process in the banking and insurance industries, which signalled some of the inefficiencies that existed under the previously untested regime.

Merger Thresholds

The most significant inclusion to the new Act is the creation of thresholds and categories of mergers (See S. 120). Under the said section, the Commission shall from time to time prescribe –

  1. a lower and an upper threshold of combined annual turnover or assets, or a lower and an upper threshold of combinations of turnover and assets in Nigeria, in general or in relation to specific industries, for purposes of determining categories of mergers;
  2. a method for the calculation of annual turnover or assets to be applied in relation to each of the prescribed thresholds.

It states further in subsection (2) that, for the purpose of this part of the Act –

  1. "a small merger" means a merger or proposed merger with a value at or below the lower thresholds established in terms of subsection 1 (a);
  2. "an intermediate merger" means a merger or proposed merger with a value between the lower and upper thresholds established in terms of subsection1 (a); and
  3. "a large merger" means a merger or proposed merger with a value at or above the upper threshold established in terms of subsection 1 (a).

Pending the time the Commission prescribes the thresholds referred to in subsection (1) of this section, the lower threshold shall be N500, 000, 000 (five hundred million naira), while the upper threshold shall be N5, 000, 000, 000 (five billion naira).

Consideration Of Mergers

Under the provisions of the old ISA, the Commission may only approve a merger application where it is unlikely to cause a substantial restraint of competition or tend to create a monopoly in any line of business enterprise (section 99(3)). The provisions of the new ISA are more robust in relation to competition considerations. Under section 121, when considering a merger application, the Commission is required to initially determine whether or not the merger is likely to substantially prevent or lessen competition. The determination that a merger is likely to substantially prevent or lessen competition is not a total barrier to a merger. Where such a finding has been made, the Commission is required to determine:

  1. whether or not the merger is likely to result in any technological efficiency or other pro-competitive gain, which will be greater than, and off-set the anti-competitive effects;
  2. whether the merger can be justified on substantial public interest grounds. (section 121(1b) (i) & (ii)).

It should be noted that sub-section 3 of the same section provides the public interest grounds which must be considered, which include the effect of the merger on employment and the ability of national industries to compete in international markets. Further sub-section 2 indicates the factors which the Commission may take into consideration in determining whether or not a merger is likely to substantially prevent or lessen competition.

After the anti-competition factors are taken into consideration, the Commission is also required to determine whether all shareholders are fairly, equitably and similarly treated and given sufficient information regarding the merger (section 121(1d)).

After the Commission makes its initial determination, it may grant an approval in principle to the merger and direct the merging companies to make an application to the court to order separate meetings of shareholders of the merging companies in order to get their concurrence to the proposed merger. If a majority representing not less than three quarters in value of the shares of members being present and voting either in person or proxy at each of the separate meetings agree to the scheme, the scheme shall be referred to the Commission for approval.

Merger Procedures

Under the old ISA, there was a blanket provision as to the procedure for mergers irrespective of size. However, under the new ISA, each merger threshold has its own clearly set out procedure.

Small Mergers

A party to a merger of this nature is not required to notify the Commission of the merger unless the Commission specifically requires it to do so and the merger may be implemented without approval unless required to notify the Commission. However, a party to a small merger may voluntarily notify the Commission of the merger at any time.

It should be noted that within 6 months after a small merger has commenced implementation, the Commission may require the parties to the merger to notify the Commission in the prescribed form and manner if in the opinion of the Commission, the merger may substantially prevent or lessen competition or cannot be justified on public interest grounds. At this point, no further steps can be taken to implement the merger until it has been approved or conditionally approved. These provisions may present difficulties in practice. For example, it is unclear how the Commission would become aware of the merger before its consummation if it is not notified. It may be suggested that the reasoning behind these provisions was so as not to totally exclude small mergers from the supervision of the Commission. However as currently worded, it is unlikely to achieve that purpose.

The Commission is entitled to not more than 60 working days (20 working days in the first instance and an extension of up to 40 working days) in total to consider the approval of a small merger. Where the Commission has not notified the parties within that period, it is deemed to have granted its approval to the merger.

If the merger is approved by the Commission, the parties shall apply to the court for the merger to be sanctioned and when so sanctioned, the same shall be binding on the companies. The court may by the order sanctioning the merger or by the subsequent order make provision for any or all of the following matters:-

  1. the transfer to the transferee company of the whole or any part of the undertaking and of the property or liabilities of any transferor company;
  2. the allotment or appropriation by the transferee company of any shares, debentures, policies or other like interests in that company which under the compromise or arrangement are to be allotted or appropriated by that company or for any person;
  3. the continuation by or against the transferee company of any legal proceedings pending by or against any transferor company;
  4. the dissolution without winding up of any transferor company;
  5. the provision to be made for any persons who in such manner as the court may direct, dissent from the compromise or arrangement;
  6. such incidental, consequential and supplemental matters as are necessary to secure that the reconstruction or merger shall be fully and effectively carried out.

It should be noted that in making an order which includes the dissolution of a company, the court must be satisfied that adequate provision has been made for employees of the company to be dissolved.

Intermediate And Large Mergers

A party to an intermediate or a large merger must notify the Commission of that merger in the prescribed form and manner. Under this head, the primary acquiring company and the primary target company shall each provide a copy of the notice contemplated above to any trade union that represents a substantial number of its employees or the employees concerned or representatives of the employees concerned, if there are no such registered trade unions. Parties to mergers of this nature shall not implement the merger until it has been approved, with or without conditions by the Commission.

Intermediate Mergers

Within 20 working days after all parties to an intermediate merger have fulfilled all their notification requirements in the prescribed manner and form, the Commission after having considered the merger in terms of section 121, may issue a certificate in the prescribed form, approving the merger, approving the merger subject to any conditions or prohibiting implementation of the merger. However, the Commission may extend the period for considering the proposed merger by a single period not exceeding 40 days and in that case, it shall issue an extension certificate to any party who notified it of the merger. If upon the expiration of the 20 days provided above or the extension period, the Commission has not issued a certificate referred to above, the merger shall be deemed as having been approved subject however to revocation as provided by S. 127 of the new Act. The Commission shall thereafter publish a notice of the decision in a gazette and issue written reasons for the decision if it prohibits or conditionally approves the merger or requested to do so by a party to a merger.

Large Mergers

After receiving notice of a large merger, the Commission shall refer the notice to court and within 40 working days after all parties have fulfilled all the prescribed notification requirements, forward to the court a statement, whether or not implementation of the merger is approved, approved subject to any conditions or prohibited.

Comments On Merger Procedure

The review of the merger provisions of the new ISA suggests that the Act was drafted with the intent of simplifying the merger process. However, the inelegant wording of the Act, in addition to the poor structuring of its sections and sub-sections create an ambiguous position which is likely to engender confusion or lead to unintended consequences. Some of these issues are discussed below:

  1. Whilst it appears that the intention of the draftsman was to limit the notification and reporting requirements for small mergers, it does not explicitly provide for the procedure to be followed in small mergers without SEC notification. For example section 121(4) provides for an application for a court-ordered meeting of shareholders to be made by the merging entities on the direction of SEC. There is no explicit provision for an application for a court-ordered meeting of shareholders made independently of SEC. Additionally, under section 122(6) the merging parties may only apply for a court sanction "if the merger is approved by the Commission".
  2. The approval timing provisions also create an absurdity. In the circumstances where SEC notification is required for a small merger and in all cases of an intermediate merger, the Commission may take up to a total of 60 working days to issue its approval or otherwise. However in the case of large mergers, SEC may only take up to 40 working days. In the first part, 60 working days is a significantly long period for approval of the consummation of a small merger. Secondly, it defies logic that a large merger, which theoretically should take more time to investigate, is granted a shorter time for approval.
  3. In addition, the Act leaves the process for completion of a large and intermediate merger silent. Whilst section 122(6) explicitly states what should happen after the approval of a small merger (a court sanction), no such provisions exist for large and intermediate mergers. It would have been sensible for the provisions of section 122(6) to have been included in a general section such as section 121 to allow its applicability to all the merger types.

Other Provisions

In addition to the procedure for merger provisions discussed above, the new ISA has granted new powers to SEC to break up a company. Under section 128, where the Commission determines that the business practice of a company substantially prevents or lessens competition, it may order the break up of the company into separate entities, in such a way that its operations do not cause a substantial restraint of competition in its line of business or in the market. These provisions grant the Commission powers which are traditionally held by an Anti-Competition Commission. In the absence of such a commission in Nigeria, there is value in this power being held by an entity such as SEC, however, it would have been expected that the Act would have included more substantive provisions regarding the use of this power by the Commission, so as to avoid any appearance of abuse.

Takeover Provisions

The ISA 2007 requires that a takeover bid be made where a person holds 30 percent or more of the voting rights of a company or where persons acting in concert hold a minimum of 30% but not more than 50%, with intentions to acquire more.3 A takeover bid may only be made after an authority to proceed has been granted by the Commission4. An application for an authority to proceed, must give particulars of the proposed bid and contain such information and be accompanied by documents or reports as prescribed by regulation5. The Commission is required by law to keep the contents of any application or accompanying documents confidential6. In considering whether to grant an authority to proceed, the Commission is required to have regard only to the likely effect on the economy of Nigeria and on any Federal Government policy on manpower and development7.

Where an authority to proceed has been granted by the Commission, an offeror may prepare a takeover bid, which must be registered with the Commission8. Upon registration of a takeover bid by the Commission, the bid may be despatched by the offeror. The takeover bid must be dispatched concurrently by the offeror to: i) each director of the offeree company; ii) each shareholder of the offeree company; iii) the Commission9.

The ISA 2007 also makes provisions with respect to the process of a bid offer and how to deal with the issue of dissenting shareholders.

Final Comments

The new M & A provisions appear to indicate an intention to create a less tedious and a more competition oriented merger process. They do however raise considerable ambiguities, which may have a negative effect on M & A transactions in Nigeria. Indeed, the M & A provisions have not yet been significantly challenged. If the plans of the CBN regarding the five "troubled" banks are brought into fruition, it would indeed test the strength of these provisions.

Footnotes

1. The Central Bank of Nigeria recently injected capital into 5 banks and dismissed the executive management of those institutions.

2. See "Sanusi: I prefer sale of five troubled banks", <http://thenationonlineng.net/web2/articles/15103/1/Sanusi-I-prefer-sale-of-five-troubled-banks/Page1.html> and "CBN Unfolds Mergers, Acquisitions Plans For Ailing Banks", http://www.businessdayonline.com/index.php?option=com_content&view=article&id=4746:cbn-unfolds-mergers-acquisition-plans-for-ailing-banks&catid=1:latest-news&Itemid=18.

3. Section 131, ISA 2007.

4. Section 234, ISA 2007.

5. Section 134(2), ISA 2007. It is useful to note that the current SEC Rules do not contain details of the information or accompanying documentation. Indeed the exposure draft of the new proposed rules does not address this issue either.

6. Section 134(5), ISA 2007.

7. Section 134(6), ISA 2007.

8. Section 135, ISA 2007.

9. Section 138, ISA 2007.

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